Growth ETFs Win in 2024: What's in Store for 2025?

Wall Street has been on a strong rally this year, driven by artificial intelligence (AI) craze and rate cut optimism amid recession fears and geopolitical tensions that weighed on investors’ confidence. Additionally, optimism surrounding growth under the second term of President-elect Donald Trump has been fueling stocks post-election.

Not only did the three major indices touch a series of record highs but the small-cap Russell 2000 Index also hit a record high on Trump’s pro-growth policies bets. The ultra-popular iShares Russell 1000 Growth ETF IWF has gained nearly 34% so far this year, easily outperforming gains of 21.2% for its value counterpart iShares Russell 1000 Value ETF IWD. This is because growth funds generally tend to outperform during an uptrend (read: Why Momentum Stocks & ETFs Are Crushing the Market).

American Century Focused Dynamic Growth ETF FDG stole the show in the first half, climbing 46.8%, followed by gains of 45.6% for Gabelli Growth Innovators ETF GGRW, 42.9% for Pacer US Large Cap Cash Cows Growth Leaders ETF COWG, 41.4% for Hartford Large Cap Growth ETF HFGO and 41% for Fidelity Blue Chip Growth ETF FBCG. These funds offer diversified exposure to several growth sectors and are not confined to a particular segment.

Growth investing focuses on capital appreciation rather than annual income or dividends. It is a stock-buying strategy that aims to profit from companies that grow at above-average rates compared to their industry or the market. This is a more active attempt versus the value to build up the portfolio and generate more return on the capital investment. However, these funds offer exposure to stocks with growth characteristics that have comparatively higher P/B, P/S and P/E ratios and exhibit a higher degree of volatility, especially compared to value stocks.

ETFs in Focus

American Century Focused Dynamic Growth ETF (FDG)

American Century Focused Dynamic Growth ETF is a high-conviction, large-cap growth portfolio that seeks to deliver strong results over time through investment companies with opportunities to sustain their above-average growth. It holds 39 stocks in its basket, with key holdings in information technology, consumer discretionary, communication services and health care. American Century Focused Dynamic Growth ETF has amassed $290.1 million in its asset base and charges 45 bps in annual fees. It trades in an average daily volume of 15,000 shares. 

Gabelli Growth Innovators ETF (GGRW) 

Gabelli Growth Innovators ETF is an actively managed fund that seeks to invest in companies in secular growth industries whose competitive moats will enable outsized market share gains and whose future stream of cash flows is undervalued at current market prices, according to the portfolio manager. Gabelli Growth Innovators ETF has gathered $5.9 million in its asset base and trades in an average daily volume of 1,000 shares. The product has an expense ratio of 0.90%.

Pacer US Large Cap Cash Cows Growth Leaders ETF (COWG)

Pacer US Large Cap Cash Cows Growth Leaders ETF is a strategy-driven ETF that aims to identify top growth companies in the Russell 1000 by screening for above-average free cash flow margins. It holds 101 securities in the basket, with key holdings in information technology, healthcare and energy. Pacer US Large Cap Cash Cows Growth Leaders ETF has managed assets worth $446.9 million and charges 49 bps in annual fees. It trades in an average daily volume of 197,000 shares. 

Hartford Large Cap Growth ETF (HFGO)  

Hartford Large Cap Growth ETF is an actively managed ETF with AUM of $133.6 million and an average daily volume of 10,000 shares. It holds 44 stocks in its basket, with key holdings in information technology, communication services and consumer discretionary. Hartford Large Cap Growth ETF charges 59 bps in annual fees. 

Fidelity Blue Chip Growth ETF (FBCG) 

Fidelity Blue Chip Growth ETF invests in blue-chip companies (well-known, well-established and well-capitalized), which generally have large or medium market capitalizations. These companies have above-average growth potential (stocks of these companies are often called "growth" stocks). Fidelity Blue Chip Growth ETF holds 223 securities in its basket with AUM of $2.7 billion. It charges 59 bps in annual fees and trades in an average daily volume of 434,000 shares. 

What’s in Store for 2025?

Wall Street remains optimistic about the incoming administration’s economic agenda. Though Trump’s policies on restricting illegal immigration, enacting new tariffs, lowering taxes and reducing regulations will accelerate inflation, limiting the Federal Reserve's ability to cut rates, they will likely boost the economy. The anticipation of greater tariff barriers and a step to move manufacturing back home is expected to drive stocks higher (read: 5 Reasons Why Wall Street ETFs Could Gain in 2025).

The AI boom will continue to fuel a rally in the stock market. The expansion of AI applications holds the promise of ushering in fresh growth opportunities in the tech sector and beyond. The generative AI market is poised to explode at a CAGR of 42% to $1.3 trillion over the next 10 years from a market size of just $40 billion in 2022, according to a new report by Bloomberg Intelligence (BI). 

Further, the prospect of lower interest bodes well for stocks next year. Low rates are generally favorable for growth stocks as they reduce the cost of borrowing, often needed to finance the expansion of companies. Lower rates typically reduce the attractiveness of fixed-income investments like bonds, leading investors to seek higher returns in the equity markets. Growth stocks, with their potential for high returns, become more appealing to investors in this environment, driving up demand and, consequently, their prices.

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