The Capital Group Growth ETF (CGGR) is a relatively new, actively managed growth ETF that is making a name for itself by beating the market since its inception in early 2022. I’m bullish on CGGR based on its strong performance thus far. I also like its diversified portfolio of highly-regarded stocks and its actively managed approach, which benefits from the insights of a team of portfolio managers with extensive investment industry experience.
What Is the CGGR ETF’s Strategy?
CGGR is an actively-managed ETF that “seeks growth by investing in a broad group of companies that have potential for capital appreciation,” according to Capital Group.
While CGGR “will predominantly invest in larger, faster growing U.S. companies, managers have flexibility across different geographies and investment approaches in search of capital appreciation.”
Capital Group is known for its collaborative approach to investing, and CGGR is no different. CGGR has seven portfolio managers who work together to select the stocks the fund invests in. This is an experienced, battle-tested group. Between them, these seven portfolio managers have an incredible 179 years of investment industry experience.
Capital Group says this multi-manager structure mitigates risk and further benefits its funds because these managers have different areas of expertise and bring diverse perspectives to investing. While the managers share insights and discuss ideas, each is responsible for a segment of the portfolio in which they invest in their highest-conviction ideas.
Capital Group is a well-established firm within the investment industry. It has been around for 92 years and manages $2.5 trillion in assets.
A Strong Start
CGGR has only been around for about two and a half years, so it does not have an extensive performance record to judge, but its results have been excellent thus far. Since launching in late 2022, CGGR has generated an impressive total return (which includes capital appreciation plus dividends) of 39.1%.
The Vanguard S&P 500 ETF (VOO), a good proxy for the S&P 500 (SPX), has generated a total return of 26.4% over the same time frame, meaning that CGGR has soundly outperformed the broader market during this time.
It’s rare to find ETFs that consistently outperform the market, so this makes CGGR a particularly intriguing opportunity. Now, it has only done this for a short time, and it remains to be seen whether it will continue to outperform the market over the long run, but the early results are certainly encouraging.
It’s also worth noting that while this is a short time span, it encompasses a wide variety of market environments. It includes the brutal bear market of 2022, in which many growth stocks suffered painful drawdowns, and the raging bull market of 2023, in which an AI-fueled rally drove growth and tech stocks higher. Therefore, it seems that CGGR’s portfolio managers are well-equipped to navigate any market backdrop.
CGGR’s Holdings
CGGR owns 103 stocks, and its top 10 holdings make up a reasonable 39.3% of the fund’s assets. You can take a look at an overview of CGGR’s top 10 holdings below using TipRanks’ holdings tool.
The fund has large positions in some of today’s top large-cap growth stocks such as Meta Platforms (META), Microsoft (MSFT), Netflix (NFLX), Tesla (TSLA), Broadcom (AVGO), Nvidia (NVDA), and more.
These holdings are well-regarded by TipRanks’ Smart Score system. The Smart Score is a proprietary quantitative stock scoring system created by TipRanks. It gives stocks a score from 1 to 10 based on eight market key factors. A score of 8 or above is equivalent to an Outperform rating. Eight out of CGGR’s top 10 holdings receive Outperform-equivalent Smart Scores of 8 or above, including Meta Platforms and Broadcom, which earn “Perfect 10” Smart Scores.
While the top holdings clearly skew towards large-cap tech stocks, CGGR has put up stellar results while featuring slightly less exposure to technology than the broader market. For example, VOO has a 32.5% weighting toward the Technology sector, compared to 24.7% for CGGR (as of June 30). CGGR’s top 20 holdings include quite a few healthcare names like Intuitive Surgical (ISRG) and Regeneron Pharmaceuticals (REGN), as well as industrials like Transdigm (TDG) and GE Aerospace (GE).
Another area where CGGR differs from an S&P 500 fund like VOO is that while it is heavily U.S.-centric with a weighting of 89.4% as of June 30, it doesn’t exclusively invest in U.S. stocks. It also features exposure to Canada, Europe, and emerging markets, albeit a small amount, totaling 10.6% of its portfolio.
What Is CGGR’s Expense Ratio?
CGGR charges an expense ratio of 0.39%. This means that an investor allocating $10,000 into the fund will pay $39 in fees annually.
While this is a bit more than investors may be accustomed to seeing with some of today’s popular index funds, it’s important to remember that this is an actively managed fund, so it is going to be more expensive. If it continues to outperform the market, it may be worth the cost.
Is CGGR Stock a Buy, According to Analysts?
Turning to Wall Street, CGGR earns a Moderate Buy consensus rating based on 92 Buys, 12 Holds, and zero Sell ratings assigned in the past three months. The average CGGR stock price target of $44.92 implies 35.5% upside potential from current levels.
Investor Takeaway
There aren’t many ETFs that “beat the market,” but CGGR is one of them, at least so far. I’m bullish on CGGR’s strong performance since its inception in February 2022, during which time it has returned about 40%.
This performance has been impressive, but CGGR will, of course, also need to prove that it can keep performing well over a longer time horizon. That said, the fund has already traversed multiple types of markets in its short lifespan. 2022 was an arduous bear market, especially for many of the types of growth stocks that CGGR invests in, and the fund emerged from it with an ample return.
I also like the fact that CGGR’s active management allows it to adjust to market conditions and make changes as necessary. The extensive experience of its portfolio management team is another major positive.
