The expansion of the ETF universe continues to foster innovation as the growing product lineup offers investors numerous instruments at their fingertips when it comes to addressing their investment goals. In fact, with over 1,400+ ETPs to choose from, investors likely have multiple ways of accessing a particular asset class. As with any financial instrument, with innovation also comes complexity; as such, investors should remember to take a good hard look under the hood before jumping into a position because seemingly similar products often times bear noteworthy differences [see also 3 ETF Trading Tips You Are Missing].
When it comes to equity exposure, investors have embraced the cost-efficient ETF structure as the preferred vehicle for rounding out their portfolios’ stock component. Breaking up the universe of equities into growth and value companies has long been a traditional approach for those looking to focus on a particular corner of the market. As such, the ETF universe has also grown to distinguish stocks based on fundamental criteria, allowing investors a simple way to employ an investment strategy that may have previously been too costly or complex to implement on their own [try our Free ETF Screener].
With more than a handful of Growth and Value ETFs to choose from, some investors may be intimated by the sheer number of seemingly identical products. As always however, remember that the devil is in the details.
Below we highlight the difference in performances across a number of ETFs offering exposure to the same corner of the market. The Rydex “Pure” ETFs follow the same indexes as the iShares offerings; the difference being that the iShares products are cheaper, while the Rydex ones take a much stricter screening approach, and thus feature more concentrated portfolios. The “Pure” ETFs select holdings from the same indexes as the iShares funds, choosing to include only those companies deemed to exhibit the strongest value or growth characteristics. The result: the Rydex lineup of ETFs feature much shallower portfolios, which as you will see below, can be a major benefit or drawback in certain scenarios [see Head-To-Head ETF Comparison Tool].
Pure Growth ETFs Head-To-Head
The growth ETFs listed below are all linked to the S&P/Citigroup indexes, with the Rydex ETFs taking a much stricter screening approach when selecting their underlying holdings:
|Guggenheim S&P 500 Pure Growth (RPG)||-38.98%||+50.12%||+26.90%||+0.43%|
|iShares S&P 500 Growth Index Fund (IVW)||-34.78%||+31.13%||+14.94%||+4.40%|
|Guggenheim S&P MidCap 400 Pure Growth (RFG)||-36.26%||+60.81%||+34.84%||+0.19%|
|iShares S&P MidCap 400 Growth Index Fund (IJK)||-37.61%||+41.11%||+30.44%||-1.34%|
|Guggenheim S&P SmallCap 600 Pure Growth (RZG)||-33.81%||+39.12%||+28.37%||+4.87%|
|iShares S&P SmallCap 600 Growth Index Fund (IJT)||-33.41%||+28.81%||+28.24%||+3.26%|
Notice the rather vast difference in performances during the bull market in 2009 and 2010; the “pure” growth ETF clearly demonstrate the potential to deliver stellar return relative to their counterparts. As you can see from the table above, the difference in performances varies across asset class and the time period referenced, which suggests that “pure” growth ETFs may serve as appealing tools for those anticipating a broad market rally [see also Five Important ETF Lessons In Pictures].
Keep in mind however that the Rydex funds do charge steeper expense fees; for example, RPG costs 0.35% annually while its competitors IVW charges a mere 0.18% in expenses. Nonetheless, the higher costs are well worth it for those who prefer the “pure” screening process employed by these ETFs [see the Pure Growth ETFdb Portfolio].
Pure Value ETFs Head-To-Head
Similar as the growth ETFs profiled above, the value ETFs listed below are all linked to the S&P/Citigroup indexes, with the Rydex ETFs taking a much stricter screening approach when selecting their underlying holdings:
|Guggenheim S&P 500 Pure Value (RPV)||-49.84%||+58.87%||+22.53%||-1.16%|
|iShares S&P 500 Value Index Fund (IVE)||-38.92%||+20.90%||+14.97%||-0.71%|
|Guggenheim S&P MidCap 400 Pure Value (RFV)||-42.77%||+59.53%||+22.33%||-5.59%|
|iShares S&P MidCap 400 Value Index Fund (IJJ)||-35.10%||+34.24%||+22.58%||-2.68%|
|Guggenheim S&P SmallCap 600 Pure Value (RZV)||-41.08%||+62.56%||+28.57%||-7.98%|
|iShares S&P SmallCap 600 Value Index Fund (IJS)||-28.92%||+21.53%||+24.70%||-1.65%|
Virtually the same performances pattern emerges across the value ETFs; the “pure” funds charge ahead during bull markets, but also fall harder when markets head south. When considering the performance tables above, its fair to say that the “pure” equity ETFs offer a compelling investment thesis for those who are able to stomach potentially higher volatility and steeper expense costs [see also Pure Value ETFdb Portfolio].
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Disclosure: No positions at time of writing.