Growth Portfolio

Unlike Core investments, growth investments strategic investments/stocks in innovative market sectors offering the potential fir higher growth than the standard core stocks and funds. They often do not pay a dividend, but rather re-invest all profits back into the company to improve their product or service and generate a higher stock price for investors.

Growth Funds & Stocks

A simple growth portfolio might consist of a tech Index/ETF or maybe an equivalent tech investment trust (IT) if you're in the UK. In theory an active fund such as an investment trust should win out over a tech ETF as the active manager should pick the growth stocks offering the best prospects of success and future price appreciation. 

On the way up in the markets when risk-on is te overriding narrative, there are examples where this is indeed the case. For example Scottish Mortgage IT and the Allianz which are touched on below. In general though, over the longer term, chances are you'll end up with similar returns with a tech ETF. It could be tempting to own a tech ETF for low cost access to the general tech stocks and then also a trust for potentially even higher growth when times are good, but for most retail investors like you and me, doing the research to fish out the currently best performing tech investment trusts is a step too far.

The US tech Index is the NASDAQ 100, which is the largest 100 tech/growth companies in the US by market cap. The problem is 'concentration risk'. The index is being inflated (distorted) by the 7 FANG stocks. An investment trust has the option to intelligently trade in and out of these stocks and select the upcoming challengers.

When To Invest in High Growth

The FANG stocks (Facebook, Apple, Netflix, Google) have inflated a new tech bubble that has been aided and abetted by record-low interest rates and record-high money printing from central banks. This situation will not last forever. As we head into 2022, Quantitative Easing (QE – money printing) will be tapered and interest rates are set to rise.

The economist John Maynard Keynes said… “the markets can remain irrational longer than you can remain solvent.” Long periods of distortion in the financial markets are possible so we need to be vigilant about when this might be happening. The new tech bubble is a good example. "But it’s different this time"   Said by many before the last crash…

It is true that the tech industry has matured and the FANG stocks are behemoths that are more like tech utilities. However, it is also true that their future revenue and profits will be affected by higher interest rates, monetary tightening by central banks, the economic cycle, and competition.

As was seen in 2022 when high inflation and high interests kicked in, the tech sector dropped of a cliff. The time to invest in high growth and tech is therefore when, the opposite is the case and interest rates and inflation are heading down or low.  

The caveat to that is that during the last major financial crash in 2008, the tech sector actually fared pretty well coming out the other side of the crash, so we have a precedent here for a market sector which could do well after a market bust. The trick is to get out when it’s looking extremely overbought (for example at the end of 2022 where the prospects of near term interest rate hikes were well known), and get back in when it’s oversold near the start of the next major leg up.

Growth vs High Growth

Strictly speaking, the tech funds above represent a more aggressive High-Growth strategy.

My standard growth portfolio is a mix of stocks and commodity funds aimed at ‘beating the stock market’ to at least deliver a ‘total return’ over and above what ‘the market’ is capable of delivering. (Stock selections are via an advisory service I subscribe to, so I'm not picking stocks myself).  

I call this my 'growth' portfolio but it could also have a mix of 'factor' investing stocks such as  'quality' stocks and/or 'value' stocks. At the end of the day, whatever factor, style or strategy of investing I might use to add a particular stock or asset class based ETF to my portfolio, it will be aimed at growth so personally this is what I call it.

Other professional inventors or maybe even more active DIY investors may have a 'quality' or 'value' portfolio that they maintain and track but on this count I have simplifies that part of my overall portfolio into one group... 'growth'. Examples of this type of investment are....

• SPOG (for growth in oil and energy when market conditions favour this sector)

• Blackrock Throgmorton Small Companies (for "risk-on" growth in small companies in the UK)

Layered on top of my growth portfolio I have a high growth portfolio buying some well-known tech investment trusts gleaned from the Association of Investment Companies website which tracks the performance of investment trusts in the UK. One such investment trust I have personally invested in before after researching the trusts on the AIC site with good results is the Allianz fund. 

The JPMORGAN GLOBAL GROWTH & INCOME PLC JGGI fund is an interesting mix of growth oriented stocks such as Amazon, Microsoft etc along with high income based stock picks. The aim of this trust is to outpace the MSCI World Index. When times are good and the general stock market is heading up and the markets are 'risk-on' I could even be tempted to divert some of the standard globally diversified fund allocation into this fund as a kind of momentum allocation trade to gain more upside momentum. This of course will come at a higher cost of ownership (TER is about 1.25%) but in theory the returns should be well worth it.

Another well know and popular option in the UK is the Scottish Mortgage Investment Trust. In the US a popular route to take is to own an Index/ETF tracking the Nasdaq 100 like the Invesco QQQ ETF of the Vanguard Information Technology Fund which can be found on the Vanguard UK broker platform. 

To diversify further, maybe select a sector-based trust or ETF such as SPDR S&P Biotech ETF (XBI) which can provide good returns when the biotech sector is in favour. 

However, this kind of investing takes a lot of homework to know when these sectors are booming. Most investors would probably do well to steer clear but the adventurous investor could start diversifying after doing the relevant research.

Beware The Bull Runs in High Growth Stock Funds

As was seen in the post Covid tech boom, you really do need to be aware when you are seeing the bull run pattern below over a one or two year (max) period. The lower chart shows Cathy Woods Ark K tech fund, and its accompanying bull run in 2021. and the upper chart represents the classic cycle that markets take in general over a longer period or economic cycle. It's wise to take profits out (sell) when you see it at or near the top of 'stage 2'.

Commodities & Precious Metals

Plenty of analysts, are talking about a commodities bull market (or even a 'Super Cycle') and over the past few years we have seen a steady rise in commodity prices across the board. In their opinion, this trend is set to continue over the longer term. 

To what extent that will be paused or even reversed by a potential recession remains to be seen but broad based commodity exposure can be accessed quite simply through a large broad-based commodity ETF such as the Invesco DB ETF (DBC). 

Precious Metals can also de used tactically to diversify a growth portfolio. Check out our Gold & Silver page for more info.

Non-Metal Commodities & ESG

There is a lot of buzz around a new Commodities Super-cycle. The advent of the Environmental Social Governance (ESG) drive for sustainability and zero-carbon dovetails with this theme. For example, silver should do well due to its use in solar tech. The colossal infrastructure bills, funds, and projects in the US, China, and around the world, aimed at delivering carbon neutrality at some point in the not too distant future is another big driver.

Two examples of funds as plays on these themes are The Ecofin (green) Global Infrastructure fund and a Vanguard ESG Fund. The Infrastructure fund could also be assigned to an Income portfolio. Every DIY investor should decide how his/her portfolio is categorised but not get too hung up about it.

Alternative Growth Plays

There are other niche sectors that could also be part of a growth portfolio such as Timber, Wine, Whisky or Farmland. These are highly specialised sectors and require specific knowledge and experience to invest in. As time goes by and the universe of ETFs expands, Funds (IT’s/ETF’s/Index funds) based on these themes are emerging, but for most investors it would take just too much time to research the buy and sell points in these markets. 

This rare wine investment service was recommended to me, but I haven't checked it out fully yet and certainly am not recommending it at all (along with any other investments on this site). However, it could be that in the future, or even near future, these asset classes mature into a viable alternative o sorts to standard 'stocks n bonds' portfolios.

In the same veing as above, "private equity" (PE) is another specialised growth asset class that needs specialised knowledge to decide on suitability (risk tolerance) and then pick the right PE investment vehicle. Moonfare is company that has been marketing PE to an increasingly sophisticated retail investor base online. (No affiliate links above... just educational)