SPY332.37-1.82 -0.54%
DIA274.42-1.48 -0.54%
IXIC11,085.25-32.28 -0.29%

Turning Growth Up A Notch Is Paying Off With This ETF

For years now, investors have heard plenty about the wide gap between growth and value stocks. Put simply, the former is trouncing the latter and the trend is continuing this year.

Benzinga · 08/24/2020 15:02

For years now, investors have heard plenty about the wide gap between growth and value stocks. Put simply, the former is trouncing the latter and the trend is continuing this year.

What Happened

Investors seeking broad approaches to growth stocks can choose from dozens of cost-effective exchange traded funds, but for those looking to amplify their growth purview, a new ETF makes a lot of sense.

The Direxion High Growth ETF (NYSE:HIPR) debuted in June and is already delivering on the promise of amplified growth, returning nearly 18% since its June 11 launch. HIPR, which tracks the Russell 1000 Hyper Growth Index, is beating the S&P 500 Growth Index by about 800 basis points over that period.

Why It's Important

An interesting element to HIPR's impressive production right out of the gates is its index's methodology, which isn't solely reliant on growth as a screening requirement.

The index “seeks to identify domestic 'high' growth companies by scoring securities for Quality, Momentum, Value, and Volatility factors and for representing Value or Growth stocks,” according to Direxion.

That turns up a lineup of companies with histories of high earnings and sales growth and robust cash flow generation, meaning investors embracing HIPR are getting a basket of growth names without the speculative elements that often come along with this factor. Said another way, all of the ETF's top 10 holdings are highly profitable and have some of the most prodigious rates of free cash flow generation in Corporate America.

HIPR's “combination of growth, momentum, and balance sheet metrics to deliver names with the ability to maintain their competitive advantages and continue to grow,” according to Direxion.

What's Next

HIPR's fortunes are intimately tied to those of Apple (NASDAQ:AAPL), but that's a good stock for an ETF to be heavily allocated. The Direxion fund allocates 14.76% of its weight to AAPL, giving it one of the largest weights to the biggest U.S. company among any fund that's not a dedicated tech ETF. Due to the rules governing HIPR's underlying index, Apple's upcoming share split will not affect its weight in the ETF, which is nearly double that of the second-largest component, Amazon.com (NASDAQ:AMZN).

HIPR's 36.88% tech weight is about 400 basis points below that of the S&P 500 Growth Index, but the Direxion fund's 25.71% healthcare allocation is more than double the the 10.10% in the S&P 500 Growth Index.