New York, NY- Seeking an ETF that offers growth potential while also providing diversification beyond the tech sector, investors may find the iShares Russell Top 200 Growth ETF (IWY) an intriguing option. Despite a higher level of concentration than some may prefer, this ETF has shown strong performance, outperforming the S&P 500 since its inception.

The IWY tracks the Russell Top 200 Growth index, which selects large-cap stocks with high price/book values, consensus EPS forecasts, and strong revenue growth over the past five years. With 106 stocks in its current portfolio, the top five holdings make up over half of its assets under management, primarily comprised of tech companies. This concentration has led some to view the IWY as a tech-heavy ETF, morphing over time into a more specialized fund within that sector.

Analysts have calculated a weighted upside potential of 13% over the next 12 months for the top 24 stocks in the IWY portfolio, with most showing favorable projections. However, there are concerns about certain companies like Apple and Meta potentially hindering overall growth due to lower upside potential compared to their peers.

One key aspect of the index methodology includes selecting stocks with robust revenue growth rates, with estimates indicating a 21% growth for 2024. While this figure is expected to moderate in 2025, it still exceeds the projected growth rates of the S&P 500, positioning the IWY more closely to a Nasdaq-oriented fund.

Looking at EPS growth and valuation metrics, the IWY shows promising figures for 2024, driven by companies like Nvidia and Eli Lilly. The calculated YE25 PE and PEG ratios, falling between those of the NDX and SPX, suggest that the ETF could continue to perform well based on earnings growth and valuation metrics.

Despite the risks associated with potential inaccuracies in consensus estimates, the overall performance of the IWY supports a Buy rating. Its focus on forward-earning growth stocks offers investors a straightforward way to access growth opportunities across various sectors while potentially outperforming the broader market. The track record of the IWY demonstrates the effectiveness of its index methodology in delivering alpha compared to the S&P 500.