How ETF managers define growth & value

Article Excerpt

Among the wide variety of investing styles, growth and value are among the most popular. Growth investors focus on companies that are expected to grow their revenues and profits faster than the rest. Bargain or value stocks will typically trade lower than their financial fundamentals suggest. They are perceived as undervalued and have the potential to rise. Here’s how ETFs distinguish growth from value Apart from the general definitions of growth and value stocks, there are many different ways that ETF managers identify which stocks fall into which category. The largest and most successful ETFs track indexes provided by one of the major index providers such as S&P and FTSE Russell. These index providers apply certain criteria to separate “growth” stocks from “value” stocks. The S&P methodology focuses on six factors to determine the growth and value characteristics of each company in a defined universe such as the S&P 500 Index. Companies are scored on three growth factors (3-year earnings per share, sales growth, and any…