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With Growth Still in Style, Consider an Active Approach

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The growth factor continues topping its value counterpart and investors can potentially amplify their growth profiles by taking an active approach with funds such as the T. Rowe Price Blue Chip Growth ETF (TCHP).

Managed by Larry Puglia, who maintains a 26-year tenure as portfolio manager of the T. Rowe Price Blue Chip Growth Fund, TCHP seeks to provide long-term capital growth by investing in common stocks of large and medium-sized blue chip companies that have the potential for above-average earnings growth and are well established.

Although TCHP is just over two months old, its rookie status shouldn’t be a primary consideration at a time when growth stocks are shining.

TCHP Performance

TCHP Performance

“Growth style investing has outperformed value for over a decade but its relative returns against value so far in 2020 have been unprecedented: the S&P 500® Growth index boasts its highest-ever year-to-date relative returns (+32%) versus its value counterpart through the third quarter,” according to S&P Dow Jones Indices. “This comes despite growth’s eight-month winning streak coming to an end in September.”

TCHP: Time for a Newcomer

Growth stocks are often associated with high-quality, prosperous companies whose earnings are expected to continue increasing at an above-average rate relative to the market. Growth stocks generally have high price-to-earnings (P/E) ratios and high price-to-book ratios. Still, data suggest the growth/value premium isn’t overly elevated relative to historical norms.

Data confirm growth names are on torrid paces this year.

“Indeed, the total index market capitalization of ‘pure growth’ S&P 500 companies—those with a growth exposure score of one, meaning they have 100% of their free-float market capitalization allocated to the S&P 500 Growth index—rose by nearly USD 3 trillion in the first three quarters of 2020,” notes S&P Dow Jones.

Constructed similarly to flagship investment strategies that have served T. Rowe Price clients well for decades, the active ETFs, including TCHP, use the same portfolio managers as their corresponding mutual funds and employ the firm’s long-standing strategic investing approach, characterized by rigorous research, risk awareness, and independent decision making.

“As a result, the outperformance of the largest, most growth-like names in the market has propelled growth to its record-breaking relative returns compared to value, and appeared to help many growth managers to outperform recently,” according to S&P.

Growth stocks may be seen as exorbitant and overvalued, causing some investors to favor value stocks, which are considered undervalued by the market. Value stocks tend to trade at a lower price relative to their fundamentals (including dividends, earnings, and sales). While they generally have solid fundamentals, value stocks may have lost popularity in the market and are considered bargain priced compared with their competitors.

For more on active strategies, visit our Active ETFs Channel.

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.

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