Funds, ETFs Offer Growth Opportunities

04/09/2007 12:00 am EST


Jim Lowell

Partner & Chief Investment Officer, Adviser Investments

James Lowell, editor-in-chief of the Forbes ETF Advisor and Jim Lowell’s Fidelity Investor, thinks the market may turn towards growth stocks and suggests some ETFs—plus a couple of Fidelity funds—that may do well.

This year, the markets have taken an obvious (and I think right-minded) turn from chasing performance wherever it can find it to placing a premium on securing lower risk. That doesn’t mean that last year’s hottest growth areas won’t repeat the pattern. But it does mean that this year, large-cap growth stocks look relatively better valued than large-cap value stocks or mid- and small-cap equities.

First Trust IPOX-100 Index Fund (FPX) measures the performance of the top 100 companies in the IPOX Composite Index ranked by quarterly market cap. The last time we reviewed this ETF, we said that the FPX belongs on a watch list (as a concentrated way to “diversify’ a growth-oriented portfolio), but since then I’ve put a Buy rating on it as much for its uniqueness as for its focus.

iShares S&P 500 Growth Index Fund (IVW) represents the large-cap growth stocks in the Standard & Poor’s 500. Growth stocks here account for 306 out of the 500’s overall holdings. If diversification in the large-cap blue-chip growth sector is the objective, this is a solid choice.

Fidelity NASDAQ Composite Index Tracking Stock (ONEQ), which seeks to mimic the behavior of the total basket of stocks that trade on the NASDAQ, isn’t your typical large-cap growth ETF by virtue of its focus on technology and biotech as opposed to major pharmaceutical companies. It’s Fidelity’s one and only ETF.
Rydex S&P 500 Pure Growth ETF (RPG) tracks companies that exhibit strong growth characteristics relative to the S&P 500’s group of names. This is a uniquely concentrated way to filter “growth” from the S&P 500 beans – and could serve as a complement to the IVW above.

Fidelity Growth & Income’s (FGRIX) charter sets no income requirement, but it does seek current income as well as capital appreciation. While in practice equities have long accounted for over 90% of its portfolio, Growth & Income tends to offer slightly more yield. Foreign stocks aren’t typically foreign here (16.5% of the current portfolio), but they’re the blue chips of the established international markets.

Fidelity Strategic Dividend & Income (FSDIX) is unique to Fidelity, and is uniquely well positioned to enhance the diversification of any portfolio by virtue of its allocation in value stocks, convertible securities, preferreds and real estate investment trusts (REITs). This fund takes the principle of investment diversification to its heart: it’s co-managed (where the managers focus on their areas of expertise, as opposed to team-managed, where managers work together in one area).

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