After a horrible 2022, growth stocks have been in the driver’s seat lately: As of this writing, the Morningstar US Growth Index has outrun the Morningstar US Value Index by 9 full percentage points so far this year. One could certainly argue that growth stocks have more room to run, given their still-striking 18-percentage-point underperformance of value stocks during the past 12 months.
Should Investors Buy Growth Stock Funds Today?
Investors who own core stock mutual funds or exchange-traded funds—especially those tracking a broad market index such as the S&P 500 or Wilshire 5000 Index—already have exposure to growth stocks. They’re diversified. It’s unlikely they need to add more growth to their portfolios, they already have plenty.
However, some investors may think growth stocks are the place to be, and they’d like to tilt their portfolios toward that style, especially given the underperformance of growth stocks last year. For such investors, there are many fine growth stock ETFs and mutual funds to choose from. Here we’re shining a spotlight on those that land in the U.S. large-growth, mid-growth, or small-growth Morningstar Categories and have at least one share class that earns a top Morningstar Analyst Rating of Gold. (We expect such highly rated funds to outperform over a full market cycle.)
23 Best Growth ETFs and Mutual Funds for 2023
These ETFs and mutual funds focus on growth stocks and have at least one Gold-rated share class in February 2023.
How Do Growth Mutual Funds and ETFs Work?
Growth funds favor growth over valuation: They’re less concerned about finding bargains than value funds. However, there are many different ways that growth stock managers invest.
Many growth stock ETFs and funds focus on earnings growth and own portfolios with high valuations. To invest in a company, they demand that its earnings growth exceeds that of the market. Within this subset, some managers practice a momentum strategy, which focuses on firms with accelerating earnings whose stock prices are already on the upswing, the idea being that stocks that have outperformed will continue to do so, at least in the short run. Other managers are willing to invest in stocks without any earnings; they’re focused instead on revenue growth, with the hope that earnings will eventually follow. Other funds focus on stocks with more moderate, but steady, earnings growth. These funds tend to boast portfolios of steady-growing and more reasonably priced blue chip stocks.
Other differences exist, too. For example, a few funds on the list, such as Loomis Sayles Growth and PGIM Jennison Growth, have compact portfolios consisting of 50 or so securities, while many of the passive choices on the list own hundreds of stocks. Some funds focus on growth stocks from large companies, while others focus on growth stocks of midsized or smaller firms.
(As an aside, mutual funds sometimes stop accepting new money so that they can continue to effectively invest within their wheelhouses; check the fund’s “status” field on its Morningstar.com quote page to find out whether a fund you’re interested in is open to new investment.)
The bottom line: Do your research before you buy. Our investment categories and Analyst Ratings are just a starting point.
How to Find Growth Funds for the Long Term
Given their high Morningstar Analyst Ratings, we expect the top-rated growth stock mutual funds and ETFs on our list to outperform over a full market cycle.
That being said, investors may want to expand their search for growth funds beyond this list, using parameters that matter to them. Here are just two additional ways to find growth ETFs and mutual funds to investigate further.
- Some investors may prefer a list of top-rated funds that invest in growth stocks around the globe, not just in U.S. names. Using the Morningstar Investor screener, select Investment Type (either ETF or Mutual Fund), scroll down to Morningstar Category and select Global Large Cap Growth (if you want funds that invest in both international and U.S. large-cap growth stocks) or Foreign Large Cap Growth and Foreign Small/Mid Growth (if you want to exclude U.S. growth stocks). Then choose Gold beneath Morningstar Analyst Rating.
- Want to find a complete list of growth stock ETFs or mutual funds available today, not just those with our highest Analyst Ratings? Using the Morningstar Investor screener tool, select Investment Type (either ETF or Mutual Fund) and choose the Morningstar Category—Large Growth, Mid-Cap Growth, or Small Growth—that you prefer. Or choose all three.
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