What do you really own when you invest in growth funds? Growth-oriented equities have been a big driver of portfolio performance, but how best should investors get exposure? Passive growth funds offer simplicity, certainly, but they may not always offer the growth that investors really want. An active approach, by contrast, can lean into investors’ convictions and adapt to maintain a “true” growth allocation.
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A recent analysis from T. Rowe Price invited investors and advisors to “know what you own.” The firm’s Insights article asked if the “growth” many investors look for is “real” growth. A trio of firm leaders, including Chris Murphy, head of ETF specialists, and James A. Norungolo and Craig Myers, investment specialists, shared their thoughts therein.
“We define secular growth companies as those that we believe can sustain double-digit earnings growth over an extended period of time,” they wrote. “For the indices that track growth markets—and the passive investors that utilize these strategies—shifting growth leadership and valuations can present challenges in maintaining fidelity to important growth criteria.”
“Following a passive investment strategy typically means that investors are indentured to the methodology and rules of an index, as well as consensus expectations for growth, with limited discretion to adjust,” they added.
What, then, does that entail for investing in growth? An index growth ETF may run afoul of that phenomenon when funds no longer reflect their stated goals. T. Rowe Price’s own fundamental research-driven, high conviction approaches can help investors stay on track with growth. For example, the Russell 1000 Growth index’s recent reweight of Apple (AAPL) to more than 10% of the index may not reflect a true growth outlook.
An active growth ETF could offer the flexibility and bottom-up investing approach that investors may really be looking for from their growth allocations. The T. Rowe Price Blue Chip Growth ETF (TCHP), charges 57 basis points for its active approach and could play that role.
TCHP actively invests in companies its managers believe have potential for above-average growth. Specifically, it seeks out firms with strong financial fundamentals, seasoned management, and leading market positions. The active growth ETF has returned 18% YTD. Together, it could provide a strong option for those wanting a different take on growth investing.
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