Exchange-traded funds (ETFs) can be powerful tools for building a high-growth investment portfolio.
With thousands of ETFs available covering various assets classes, sectors, and strategies, investors have many options to choose from. Utilizing certain high-growth ETF strategies can help maximize overall portfolio returns over time.
Focus on Innovative Sectors
Targeting ETFs in fast-growing and innovative sectors is a way to tap into areas of the market that are seeing rapid expansion. Some top high-growth sectors to consider include information technology, healthcare, communication services, and consumer discretionary. ETFs tracking sub-sectors like cloud computing, cybersecurity, biotechnology, e-commerce, and digital payments offer exposure to transformative trends that are reshaping industries.
Embrace Disruptive Themes
When ETF trading, seeking ETFs centered on disruptive themes is another high-growth tactic. Thematic ETFs focus on structural changes taking place globally, such as automation, genomics, electric vehicles, 5G networks, and fintech. These types of funds allow investors to make tactical bets on influential secular shifts that could generate market-beating returns. The key is identifying investment megatrends that have long-runways for growth.
Target Small and Mid-Caps
Small and mid-cap stocks tend to outperform large caps during periods of economic expansion and bull markets. This is because smaller companies have more room for exponential growth compared to larger, more established firms. Using ETFs that invest in up-and-coming small and mid-cap stocks provides exposure to higher growth potential. Just keep in mind these assets typically carry more volatility.
Go Global
Most growth in the world is happening outside of the United States, especially in emerging markets like China, India, and Southeast Asia. Having geographic diversification through international ETFs gives investors access to faster growing foreign economies. Sectors like e-commerce, financial technology, and infrastructure are surging overseas. Just be mindful of currency risk when investing globally.
Rebalance Regularly
As certain high-growth assets surge, their portfolio allocation can get out of balance. Rebalancing by trimming positions that have significantly outperformed and adding to laggards realigns the portfolio with original targets. This sell-high, buy-low approach helps lock in gains and maintain optimal exposure. Rebalancing once or twice a year works for most investors.
Assessing the Performance of High-Growth ETFs
Here are some tips for assessing the performance of high-growth ETFs over time:
- Compare returns to benchmarks. See how the ETF has performed versus its stated benchmark index as well as broader market indexes like the S&P 500. This helps gauge if it is meeting its investment objectives.
- Examine historical returns. Look at the 1-, 3-, 5-year average annual total returns. Higher returns over longer periods can indicate an ETF has delivered consistent performance.
- Check volatility metrics. Growth-oriented ETFs tend to be more volatile. Evaluate key ratios like standard deviation and Sharpe ratio to determine if an ETF’s returns justify its risk.
- Review fund flows. Strong inflows can signal an ETF’s strategy is resonating with investors. Outflows may indicate waning interest.
- Regularly assessing an ETF’s performance and underlying attributes is key to evaluating if it remains an appropriate investment for your portfolio and goals over the long-term.
- Following high-growth ETF strategies focused on innovative sectors, disruptive themes, small/mid caps, emerging markets, and regular rebalancing can help boost overall portfolio returns. But it’s critical to diversify and maintain a long-term perspective when investing for growth.
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