What is growth investment? – MoneySense


    The massive success of large-cap growth stocks over the past decade is surprising given the abundance of academic evidence supporting higher returns from small-cap value stocks. For example, the Fama-French five-factor asset pricing model suggests that there is a risk premium for small stocks versus large stocks and for value stocks versus growth stocks. But this bonus has not been seen for many years.

    In fact, large-cap growth stocks in the US had total returns of 174% for the five years to October 5, 2021. That’s an impressive annual return of 22.32%. By contrast, US small cap value stocks returned 70% total return over the same five-year period, translating into an annual return of 11.21%.

    Finally, consider the volatility of growth stocks, with their potential for explosive short-term returns, but also sharp short-term declines. For growth investors, this means constantly monitoring their portfolio and finding new ideas when hot stocks or sectors are declining.

    Reduce the risk of volatility with ETFs

    If picking individual growth stocks sounds too guesswork, it may make sense to use thematic or sectoral exchange traded funds (ETFs) to help you place your bets on growth. These funds are typically subject to rules and methodology that tell fund managers when to buy and sell the stocks they contain. This deprives the individual investor of making decisions, which is usually a good thing.

    For example, a core-and-explore investment strategy could invest 90% of a portfolio in broad index funds and the remaining 10% in more speculative growth opportunities in emerging sectors such as technology, clean energy or biotechnology.

    For the “core” component, investors might consider the Horizons NASDAQ-100 Index ETF (HXQ), one of the most affordable NASDAQ-100 Index ETFs listed in Canada. It offers direct exposure to the NASDAQ 100 index, which is comprised of stocks issued by 100 of the largest US and international non-financial companies listed on the NASDAQ stock exchange. HXQ includes well-known company names such as Apple, Amazon, Alphabet, Facebook, and Netflix.

    Growth-minded investors considering an “Explore” sleeve can buy stocks of an ETF that invests in the building blocks of big data, such as the Horizons Big Data & Hardware Index ETF (HBGD). The ETF provides exposure to global companies that focus directly on big data through the innovation and development of blockchain and cryptocurrencies, as well as companies that provide hardware and hardware-related services used in the mining process. This approach takes the guesswork out of selecting future winners.

    Each sector has its own index tracking ETF, making it easy for investors to pick up a flyer about a growing industry that is about to break out.


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