Growth stocks are companies expected to outperform the U.S. stock market (generally using the S&P 500 as a proxy) because of their potential for high earnings growth. This growth potential is largely why growth stocks have been the darlings of the market for quite a while now. After all, why wouldn't investors take a liking to companies that can produce market-beating returns?
When some people think of growth stocks, their mind goes to smaller companies on the verge of a breakthrough. However, that's not always the case. A company's growth potential isn't tied to its size -- many small companies remain stagnant, and many large companies continue growing rapidly. The latter case can be the best of both worlds.
For investors looking for a combination of growth potential and stability, the Schwab U.S. Large-Cap Growth ETF (SCHG 1.78%) is a great option.
Some great companies leading the way for the ETF
Growth stocks are often more volatile than other types of stocks because a lot of their value comes from their potential. However, large-cap companies (typically with market caps of over $10 billion) are generally well established and have the resources to weather down periods. In the Schwab U.S. Large-Cap Growth ETF's case, it's being led by some of the greatest companies in the world.
Here are the ETF's top 10 holdings and how much of the fund they make up (as of April 12):
- Microsoft: 12.66%
- Apple: 10.12%
- Nvidia: 8.91%
- Amazon: 6.88%
- Meta Platforms Class A: 4.59%
- Alphabet Class A: 3.73%
- Alphabet Class C: 3.15%
- Broadcom: 2.43%
- Eli Lilly: 2.41%
- Tesla: 1.93%
Ten companies accounting for over 56% of a 250-stock ETF doesn't scream "diversification," but these large-cap growth companies are the cream of the crop. Over the past decade, Alphabet has performed the worst out of the group, but it's still up close to 500%.
A lot of growth stocks are tech companies, so the Schwab U.S. Large-Cap Growth ETF is skewed that way, but the ETF can be a good supplement to a portfolio that already contains good representation from other sectors.
A history of outperforming the U.S. stock market
Since its Dec. 2009 inception, the Schwab U.S. Large-Cap Growth ETF has outperformed the S&P 500, averaging around 14.8% annual returns compared to the latter's 11.3%. The difference is a little less when looking at total returns, but that's largely because the growth focus of the Schwab U.S. Large-Cap Growth ETF excludes companies that focus more on dividends.
Data by YCharts.
Past results do not guarantee future returns, but the Schwab U.S. Large-Cap Growth ETF has the right ingredients to be a lucrative addition to investors' portfolios. For perspective, $6,000 annual investments that average 12% annual returns would add up to over $430,000 in 20 years.
Low fees mean investors keep more of their returns
An important part of investing in any ETF is understanding its expense ratio and how it could affect your returns. Luckily, the Schwab U.S. Large-Cap Growth ETF is one of the cheaper ETFs you can find in the stock market with an expense ratio of just 0.04%, or $0.40 per $1,000 invested.
To get an idea of how important expense ratios can be, let's revisit our above scenario, in which someone invests $6,000 annually and averages 12% returns for 20 years. Below is roughly how much would be paid in fees during that span based on different expense ratios:
| Expense Ratio | Amount Paid in Fees Over 20 Years |
|---|---|
| 0.04% | $2,000 |
| 0.50% | $24,300 |
| 0.75% | $35,900 |
Calculations by author. Fees rounded to the nearest hundred.
As you can see, the Schwab U.S. Large-Cap Growth ETF offers investors a chance for market-beating returns and a low expense ratio that ensures they keep as much of those returns as possible.
