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Tech stocks have been standout performers in the market this year. Driving this momentum has been a combination of favorable developments on the macro front, primarily growing clarity surrounding the Fed’s tightening cycle, optimi
The aptly-named
Harbor Long-Term Growers ETF (
NYSE:WINN)
is an actively-managed ETF focused on long-term growth stocks that has posted a sizzling gain of nearly 40% year-to-date so far in 2023. The ETF looks promising and has a lot going for it, but there are also some factors that investors should consider carefully before deciding whether WINN is the right choice for their portfolios. Let’s dive right into it.
What is the WINN ETF?
WINN is an actively-managed ETF from Harbor Capital that “seeks long-term growth of capital by employing a proprietary combination of bottom-up, fundamental research and systematic portfolio construction,” according to Harbor Capital.
The team behind WINN believes that “companies with sustainable competitive advantages have the potential to drive superior levels of long-term growth and generate strong returns for shareholders,” and it’s hard to argue with this logic. The fund launched in February of 2022 and has about $175 million in assets under management (AUM).
WINN's Portfolio
So, what type of portfolio does this bottom-up, systematic approach create in practice? See below for an overview of
WINN’s top 10 holdings using TipRanks’ holdings tool.
WINN holds 73 positions, and its top 10 holdings make up 57.6% of the fund. Top holdings Apple (
NASDAQ:AAPL
) and Microsoft (
NASDAQ:MSFT
) combine to make up nearly a quarter of the fund. The rest of the top 10 is dominated by the rest of the "Magnificent Seven" tech names, which are Nvidia (
NASDAQ:NVDA
), Amazon (
NASDAQ:AMZN
), Alphabet (
NASDAQ:GOOGL
), Tesla (
NASDAQ:TSLA
), and Meta Platforms (
NASDAQ:META
). Then, Eli Lilly (
NYSE:LLY
), Visa (
NYSE:V
), and Uber (
NYSE:UBER
) make up the remaining top holdings.
This is a relatively strong portfolio, as eight of the top 10 holdings feature Smart Scores of 8 out of 10 or better. 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. WINN itself registers an impressive ETF Smart Score of 8 out of 10.
Is WINN Stock a Buy, According to Analysts?
Turning to Wall Street, WINN has a Moderate Buy consensus rating, as 76.64% of analyst ratings are Buys, 20.87% are Holds, and 2.49% are Sells. At $20.27, the
average WINN stock price target implies 8.18% upside potential.
What's Not to Like?
So far, this sounds like a pretty good ETF, so what's not to like? For all the talk of bottom-up research and systematic portfolio construction, it’s hard to see real differentiation or alpha here based on WINN's portfolio. While it takes a research-heavy, active approach, WINN doesn’t look all that different from popular growth index ETFs like the
Vanguard Growth ETF (
NYSEARCA:VUG)
or the
Schwab U.S. Large-Cap Growth ETF (
NYSEARCA:SCHG)
when looking at its top holdings.
WINN and VUG have 8 of the same top 10 holdings. Below, you’ll find an overview of
VUG’s top 10 holdings, and if you looked at the table above showing WINN's top positions, it probably looks pretty familiar.
VUG's Top 10 Holdings
Similarly, WINN and SCHG also feature 8 of the same top 10 positions. See below for
SCHG's top 10 holdings.
SCHG's Top 10 Holdings
In fact, because the aforementioned "Magnificent Seven" stocks have grown so much in market cap this year, WINN’s top holdings look fairly similar to those of the broadest of broad market index ETFs, like the
Vanguard S&P 500 ETF (
NYSEARCA:VOO)
. Take a look at
VOO's top 10 holdings below.
VOO's Top 10 Holdings
This isn't WINN's fault per se, but the level to which the Magnificent Seven stocks have grown this year makes them large components for many index funds. Because it includes these seven stocks, the challenge for WINN is that it does not offer much differentiation from these index funds.
The further issue is that in addition to this lack of differentiation, it also charges a much higher expense than these funds. WINN’s expense ratio of 0.57% is orders of magnitude higher than those of VUG, SCHG (which both have expense ratios of 0.04%), or VOO (which has an even lower expense ratio of 0.03%).
So in year one, an investor initially investing $10,000 into WINN would pay $57 in fees, while an investor putting the same amount into VUG or SCHG would pay just $4. Meanwhile, an investor allocating the same amount to VOO would pay just $3.
This wide gulf in fees really becomes even more pronounced over time. Assuming that fees remain the same and that each of these funds returns 5% per year over a 10-year investment horizon, the investor who initially invested $10,000 in VUG or SCHG would pay just a minuscule $51 in fees over the course of the decade. Meanwhile, the investor who allocated the same amount to VOO would pay an even lower $39 in fees, a total so low that you almost barely notice it over 10 years.
However, an investor in WINN would almost certainly notice the $714 in fees they would pay for holding WINN for the same 10-year timeframe. This total is 18 times higher than the total expenses for VOO and 14 times higher than those of SCHG and VUG.
WINN's Performance Track Record
As you can see, WINN doesn’t offer a lot of differentiation versus these low-cost index funds, but it is a lot more expensive than them. WINN only launched in 2022, so while its lack of a long-term track record is through no fault of its own, it can’t yet match the long-term performance track records that these popular ETFs have compiled for many years.
For example, SCHG has beaten the market with a stellar 15.7% total annualized return over the past years, while VUG posted an impressive 14.9% total annualized return over the same time frame. The S&P 500 fund, VOO, has a total annualized return of 12.8% over the same time period.
WINN may certainly one day be able to make this same case for itself, but for now, it will take a while before it can match the long-term track record of its more established growth counterparts.
Conclusion
WINN looks like a solid ETF with a sound strategy, a favorable rating from analysts, and even an outperform-equivalent Smart Score. There isn’t really much of an issue with the ETF itself, and it could well be an ETF to keep an eye on in the future.
However, for now, it’s hard to really see a compelling reason to invest in WINN ahead of larger, more established ETFs like VUG and SCHG, which offer much of the same exposure at a far lower cost and with a longer track record of results under their belts.
Disclosure
Next week, several of Wall Street’s heavyweights will step up to the earnings plate, amongst them
Microsoft (
NASDAQ:MSFT)
. The tech giant will deliver its fiscal fourth quarter of 2023 statement (June quarter) on Tuesday (July 25) amidst strong optimism the company is only starting to benefit from the ongoing adoption of generative AI.
As such, ahead of the print, Piper Sandler analyst Brent Bracelin sees a 'solid' set-up, given “1) robust Gen AI momentum, which could drive above-consensus capex guidance and help offset Azure optimization headwinds; 2) Azure growth that appears to be stabilizing (even before considering Azure AI services benefit); and 3) non-cloud segments that could show improvements.”
Bracelin thinks the capex (capital expenditures) Microsoft is deploying to support the huge AI opportunity is much bigger than what the Street is factoring in. Gen AI “optimism and interest” underpin his FY24 $48 billion capex estimate, a Street high figure some distance above consensus at $32 billion and based on “aggressive capacity expansion plans to support an untapped AI opportunity.”
A recent Piper Sandler CIO survey which showed growing enterprise interest in Gen AI + “robust spending intentions” on Azure and M365 only confirms his thesis, says Bracelin and offers “further confidence” that it is only the beginning of a Gen AI investment cycle the company is “well positioned to capitalize on.”
Bracelin’s Gen AI bullishness is also based on 3P data. Data on web traffic for ChatGPT, GitHub, and Bing indicates widespread acceptance of Gen AI in both business and consumer domains. Both GitHub and Bing have experienced a significant surge in the number of average monthly users. In the June quarter, GitHub had over 300 million average monthly users, marking an 81% year-over-year increase, while Bing had over 460 million average monthly users, reflecting 35% growth. Although ChatGPT's month-over-month growth rate has decreased after the initial hype, the web app still showed an impressive 580 million unique users in June.
Despite the shares’ excellent AI-driven year-to-date performance (up by 44%), Bracelin “continues to like this AI All-Star” and reiterates an Overweight (i.e., Buy) rating and $400 price target. There’s potential upside of 16% from current levels. (To watch Bracelin’s track record,
click here)
Overall, 35 analysts have chimed in with MSFT reviews over the past 3 months, and these breakdown into 31 Buys, 3 Holds and 1 Sell, providing the stock with a Strong Buy consensus rating. (See
Microsoft stock forecast
)
To find good ideas for stocks trading at attractive valuations, visit TipRanks’
Best Stocks to Buy, a newly launched tool that unites all of TipRanks’ equity insights.
Disclaimer: The opinions expressed in this article are solely those of the featured analysts. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.
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Reuters
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28 minutes 20 seconds ago
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