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Discover the ETF That Outperforms the S&P 500: Why IWY is Your Secret Weapon!



In our previous blog posts, we explored the benefits of passive investing and the rise of passive investing in recent years. We also reviewed one of the most popular passive investing options - S&P 500 ETFs/Funds. Do you want to know more about an ETF that beats the S&P 500 consistently? Look no further. Let's delve right in!

 

What?

The iShares Russell Top 200 Growth ETF (IWY) is an exchange-traded fund that tracks the investment results of the Russell Top 200 Growth Index. This index measures the performance of the largest 200 growth stocks in the U.S. equity market. IWY is designed to provide exposure to companies with high growth potential, which are characterized by higher price-to-earnings ratios and higher forecasted growth values.

 

So What?

Let's look at the details of the IWY ETF. This diagram below shows this ETF's portfolio weights. IWY is heavily (64%) focused on Large Growth companies with some exposure (30%) to Large Blend companies.

 

 

Below shows the sector weights of IWY. Although IWY is not a Technology sector ETF, it has heavy exposure to Technology (47.35%), which has been the main driver of stock market grwoth in recent years.


Let's take a look at some key metrics. The values quoted below are as of 6/4/2024 except for the annualized returns (as of 3/31/2024).

  • Expense Ratio: 0.20%

  • Net Assets: $9.2 Billion

  • 12-Month Yield: 0.62%

  • 1-Year Annualized Return: 41.5% (cf. S&P500 EFT SPY = 28.8%)

  • 5-Year Annualized Return: 19.9% (cf. S&P500 EFT SPY = 15.1%)

  • 10-Year Annualized Return: 17.1% (cf. S&P500 EFT SPY = 12.7%)

  • Morningstar Rating: 5 Stars (the best possible rating)


IWY clearly outperforms the S&P 500 ETF (SPY) in all time frames (1-, 5-, and 10-years) above.  The chart below shows 10-year performance comparison between IWY and SPY. The patterns are highly correlated but IWY clearly outperforms SPY. However, IWY shows higher volatility due to its focus on growth stocks.

 

 

 The table below shows the comparison of dividend yields since 2013. As expected, IWY has lower dividend yields because of its focus on growth companies.

 

 

 Now What?

Investors considering IWY should:

  • Assess Your Risk Tolerance: Ensure that the high growth potential of IWY aligns with your risk appetite, as growth stocks can be more volatile.

  • Review Your Portfolio Allocation: Consider how IWY fits into your overall portfolio, particularly if you are seeking to increase exposure to large-cap growth stocks.

  • Monitor Market Trends: Stay informed about market conditions and sector-specific trends, as these can impact the performance of growth stocks in the fund.

  • Regularly Rebalance: Periodically rebalance your portfolio to maintain your desired asset allocation and risk level.

  • Consider Your Long-Term Goals: IWY is best suited for investors with a long-term investment horizon who can ride out short-term market fluctuations.

 

Concluding Remarks

Investing in the iShares Russell Top 200 Growth ETF (IWY) can be a strategic move for those seeking to capitalize on the growth potential of the largest U.S. companies. With its focus on high-growth sectors, technology in particular, IWY offers robust opportunities for capital appreciation. However, it's crucial to align this investment with your risk tolerance and long-term goals. By regularly monitoring market trends and rebalancing your portfolio, you can harness the benefits of IWY while managing potential volatility. In essence, IWY stands as a powerful tool for growth-oriented investors aiming to enhance their investment portfolios and achieve substantial returns over time.

 

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