Against a sluggish economic backdrop, it can pay to embrace growth stocks and some exchange-traded funds directly elevate the growth profile.
What Happened: A prime example of an ETF that ratchets up growth is the Direxion High Growth ETF (NYSE:HIPR). HIPR, which tracks the Russell 1000 Hyper Growth Index, debuted in June as an avenue for investors looking amplify the advantages of growth stocks in their portfolios.
“The Russell 1000 Hyper Growth Index measures the performance of US large and mid-capitalization quality growth securities. The index achieves this by targeting exposure to the Quality and Momentum Factors and the Growth Style while maintaining neutral exposures to the Value and Volatility Factor,” according to FTSE Russell.
Why It's Important: Despite its status as a rookie ETF, HIPR could be useful for investors in the current climate.
“In a market starved for growth, the secular growth themes around the tech sector are unprecedented and not comparable to anything I have seen as a tech analyst on the Street for two decades,” said Wedbush analyst Dan Ives in a recent note to clients.
HIPR obliges growth seekers with an almost 37% weight to the technology, acting as a fine ETF proxy on Apple (NASDAQ:AAPL) with a nearly 15% weight to that beloved stock. HIPR is also relevant today because this cycle isn't typical, meaning value stocks aren't outperforming as they historically do coming out of a recession.
“Historically, value stocks tend to outperform as the economy emerges from recession because these companies are generally more economically cyclical and have greater operating leverage,” according to Nationwide. “However, little of the current cycle has followed historical norms. Momentum among growth stocks could continue to push the group higher in the near term.”
What's Next: The interesting, perhaps overlooked element to the HIPR thesis is that it's not purely a growth ETF. As noted above, growth is coupled with other factors within the Direxion fund. One of which is quality. Quality is also one of the best-performing factors this year as it was in 2019.
Quality captures “companies with the ability to consistently generate strong future cash flows, while limiting exposure to companies that are unprofitable or highly leveraged,” according to Direxion.
Adding quality to the equation brings an element of safety to HIPR, one that many traditional growth funds lack and it explains why the ETF is home to companies with some of the best balance sheets in the S&P 500.