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Growth Stock ETFs
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About Growth Stock ETFs |
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Growth Stock ETFs Overview and forecast
The Growth Stock ETFs are the classic ETFs, based on the original ideal of an
index based mix of stocks benefiting from value, economic growth, and the big
tidal forces of the global capital economy. This very large group of ETFs
includes ETFs which specialize in holding other ETFs, ALPHADEX, and
ultrashorts.
The long search for a perfect, bullet proof investment methodology produced
concepts like this. It was a great idea, but history rather unkindly took a
different path. The meltdown hit the Growth Stock ETFs hard. Even a truly
solid, no nonsense, ETF like Vanguard Mega Cap 300 Gr Index ETF (MGK), which
could write a text book on basic solid holdings, received a 50% markdown.
These ETFs are also movers, in trading terms. That's one of the volatility
factors for some of them, a lot of money can move in the millions of units
traded. In a very hot market, however, traders tend to move in and out very
fast. The Growth Stock ETFs have recovered about 20% in the second quarter of
2009, but it's been a rough ride.
One of the classic cases, as a study is Vanguard Growth ETF (VUG), where the
basic chart (link) has taken a typical pattern. From 2005 a slow build up in
value from a base of around $50, to $65-ish in late 2007, followed by the
inevitable swan dive to $32 and a return to $41 in May 2009. Volumes of trade
have been much higher since October 20008, and the ETF has been highly
reactive since, indicating a lot of trader interest.
http://finance.yahoo.com/q/bc?s=VUG&t=5y&l=on&z=m&q=l&c=
Short term (6 months)
This wasn't the design for the Growth Stock ETFs, but it's how the markets are
responding to them. Vanguard Growth is a mainstream ETF, with assets like
Hewlett Packard, PepsiCo, Wal Mart, and IBM. These ETFs are considered
mainstream, like their stocks, and they're traded like stocks, meaning they're
pretty volatile in short term these days.
Six months isn't likely to produce much more than a continued general pursuit
of the indices, for the Growth Stock ETFs. They're an obvious choice for
investors, mainstream, with respectable stocks, and for traders, respectable
moves and margins. Six months, however, in this sort of market, wouldn't
encourage anyone to assume anything. The facts are the margins, and the
Bollinger Bands are likely to be more informative than "trends".
Medium term (2 years)
A lot more interesting, and more likely to be based on real information, is the
medium term. The Growth Stock ETFs are naturally strong investment mixes,
and that's what sets them apart. Their value is inherent.
It's not all gravy, however. In two years, the new market may or may not
support a capital recovery to the extent of a return to the Glory Days on the
market. Meaning that the Growth Stock ETFs won't be working on the classic
model basis. For the big capital ETFs, that will probably force some overhauls
and changes of approach. They can sit tight, but if they're underperforming
competing investments, something will have to move.
Long term (5 years)
The classic position is that the longer the term, the more likely the Growth
Stock ETFs will perform well, and deliver on their original concepts. That is
probably largely correct, but it also assumes no problems or issues in such a
time frame.
Five years is long enough to undo the domestic market level hits of the Great
Recession, to a significant degree, but that's not the major issue. The Growth
Stock ETFs are directly exposed to the forces of the global economy. They
reacted severely to the meltdown, and so did their asset bases. The US home
base of these ETFs has already changed, drastically, as an investment
environment. It would be simplistic in the extreme to assume that a big
resurgence in the global economy wouldn't directly affect them.
Qualifiers to projections
This is the mainstream we're talking about, and if nothing else, we've seen
that the mainstream is anything but stable under the sort of forces a global
economy can produce. The meltdown was only one example. The huge shift in
the balance of global trade, the rise of China and India, and big shifts in capital
around the world were the main issues pre-meltdown. Those issues will return,
and with them a lot of uncertainty.
Stock markets, bond and financial markets are no more immune to these forces
than the average supermarket. Growth Stock ETFs will be forced to evolve, and
adapt to these giant new economic forces. Their good, strong, sound
investments were basically targets rather than shields during the meltdown.
They retained value, but many others didn't.
It would be na?ve in the extreme of investors not to be hypersensitive, and
working on trustworthy margins. The obvious fact from the performance of the
Growth Stock ETFs is that even the best investments can't be taken for
granted.
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Last Updated on: 2010-01-14 02:03:40 |
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