3 Great Growth ETFs for 2023

Growth strategies had a rough go in 2022, with the Morningstar US Growth Index down 37%. As investors ran for the exits, some mutual funds added insult to injury by distributing large capital gains.

The good news is that growth stocks have become much more affordable in recent years. And investors looking to buy growth-oriented funds are likely to find better tax efficiency in ETFs than mutual funds. Today, I’ll highlight three ETFs that approach growth in different ways but are worthy of a closer look from investors.

3 Great Growth ETFs for 2023

These exchange-traded funds earn a Morningstar Analyst Rating of Silver.

1. Schwab U.S. Large-Cap Growth ETF SCHG
2. Fidelity Blue Chip Growth ETF FBCG
3. Vanguard International Dividend Appreciation ETF VIGI

The first ETF on my list is Schwab U.S. Large-Cap Growth ETF, ticker SCHG. This Silver-rated strategy captures the large-cap growth opportunity set, using market-cap-weighting to size its bets on each company while limiting the costs incurred by the fund. As expected with a broad growth strategy, this fund has a large allocation to tech stocks and other companies with competitive advantages that fuel their growth expectations.

But its biggest advantage is its razor-thin fee of just 4 basis points, which forces other funds to earn back their fee difference just keep up with this ETF. And keep up they have not. SCHG ranks in the top 12th percentile of category funds over the past decade with similar volatility to its average category peer. Its diversified portfolio and low fee give it a durable advantage for the next decade, too.

The second ETF on my list is Fidelity Blue Chip Growth ETF, ticker FBCG. While the ETF debuted in 2020, this strategy and its manager, Sonu Kalra, are far from new kids on the block. This aggressive-growth strategy charges hard into market rallies but can falter more than peers during drawdowns. Kalra’s stock-picking, combined with well-positioned sector allocations, explain most of the strategy’s long-term success—not its growth style.

Its sister mutual fund of the same name, ticker FBGRX, has had plenty of success since its inception in 1987. Over its life span, the fund beat the Russell 1000 and Russell 1000 Growth indexes by over 1 percentage point annualized. Its 15-year trailing return of 12.5% annualized ranked the fund in the top fourth percentile of large-growth Morningstar Category funds.

The ETF may be able to build on the mutual fund’s success going forward. First, the ETF avoids capital gains distributions. Second, the ETF comes with a 17-basis-point lower fee. This should be a great option for growth investors that can stomach the high volatility.

Investors uninterested in aggressive-growth strategies should find more comfort in the third ETF on my list, which is one that I own and obviously believe in: Vanguard International Dividend Appreciation ETF, ticker VIGI. Dividend investing isn’t strictly for value investors. This ETF steers toward high-quality firms with consistent dividend growth, resulting in a portfolio that falls in the foreign large-growth Morningstar Category.

The fund’s index pulls in over 300 foreign stocks with at least seven consecutive years of increasing dividend payments. It then tries to avoid those likely to cut their dividend payments by excluding the highest-yielding names in the dividend growth cohort. The portfolio weights stocks that make the cut by their float-adjusted market cap, which captures the market’s collective opinion of each company’s value while keeping turnover and trading costs in check.

The fund sports a tiny fee of 15 basis points, giving it a durable advantage over peers for the long run. This advantage had been realized: The fund’s return was in the top 21st percentile of its category. Its portfolio of steady growth companies exhibited much lower volatility than category peers, moving the fund’s risk-adjusted performance over that period even higher up the list.

Watch “3 Great ETFs for 2023 and Beyond” for more from Bryan Armour.