This Day On The Street
Continue to site
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

A Better Way to Bet on Growth Stocks

The blend stocks can hold back a growth fund when the sector is rallying. To avoid the drag, pure funds eliminate blend stocks entirely. So all the holdings in pure growth funds have clear growth characteristics. As a result, the pure growth portfolios tend to have higher prices. The price-earnings ratio for the pure iShares Morningstar Large Growth is 17.6, compared to a figure of 15.8 for the conventional SPDR S&P 500 Growth. Besides being more expensive, the pure growth funds tend to have higher earnings growth and more volatility. Pure value funds have lower P/Es than conventional competitors.


Some pure funds are also different because of how they weight holdings. Conventional funds weight stocks in their portfolios according to market capitalization. So stocks with bigger market values have heavier weightings. As result the top holdings in SPDR S&P 500 Growth include such giants as International Business Machines (IBM - Get Report), Johnson & Johnson (JNJ - Get Report) and Coca-Cola (KO - Get Report). Instead of weighting by market cap, the Guggenheim pure growth funds give the greatest weight to stocks with the strongest growth characteristics. So the top holdings include companies with rapid earnings growth, such as biotech star Alexion Pharmaceuticals (ALXN) and online travel site Priceline.com (PCLN). Such stocks can surge in growth rallies, but they can also sink hard. When stocks dropped in the third quarter of 2011, Guggenheim Pure S&P 500 Growth fell 16.8%, compared to a decline of 11.0% for SPDR S&P 500 Growth.

Because they emphasize stocks with the most extreme growth or value characteristics, the pure funds often give heavy weightings to certain sectors. With financials remaining depressed, Guggenheim S&P 500 Pure Value (RPV) has 37.1% of assets in the sector, while SPDR S&P 500 Value (SPYV) only has 24.1% in financials. For the pure funds, the big sector weightings can boost returns during the times when value stocks soar.
Stan Luxenberg is a freelance writer specializing in mutual funds and investing. He was executive editor of Individual Investor magazine.
2 of 2

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Options Profits

Our options trading pros provide over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • Actionable options commentary and news
  • Real-time trading community
SYM TRADE IT LAST %CHG
JNJ $98.44 -0.03%
IBM $165.09 0.36%
KO $39.49 -0.03%
MSFT $44.40 -0.10%
XOM $83.14 0.93%

Markets

DOW 17,730.11 -27.80 -0.16%
S&P 500 2,076.78 -0.64 -0.03%
NASDAQ 5,009.2140 -3.9090 -0.08%

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs