In our previous blog posts, we explored the benefits of passive investing and the rise of passive investing in recent years. We also reviewed one of the most popular passive investing options - S&P 500 ETFs/Funds. We introduced the iShares Russell Top 200 Growth ETF (IWY), a growth ETF that beats the S&P 500 consistently. Today, we will introduce the Motley Fool 100 Index ETF (TMFC) to see if it is a fool-proof way to invest in growth stocks.
What?
Motley Fool started as a printed newsletter for investors and but quickly grew into a financial services company, known for its online presence, stock recommendations, and investment guidance. The Motley Fool 100 Index ETF (TMFC) is an exchange-traded fund that aims to replicate the performance of the Motley Fool 100 Index. This index consists of the top 100 U.S. companies recommended by the Motley Fool. The fund primarily focuses on large-cap growth stocks, which means it includes companies that are expected to grow at an above-average rate compared to other companies. With a strong tilt towards technology, TMFC's top holdings often include big names like Amazon, Alphabet (Google), and Microsoft.
So What?
TMFC offers a unique approach to investing by leveraging the Motley Fool's stock picks, which are based on extensive research and analysis. The ETF provides a way for investors to gain exposure to these top-rated stocks without needing to pick them individually.
Here are some key facts about TMFC:
Inception Date: 01/29/2018
Fund Type: Passive Equity ETF
Category: Large Cap Growth
Expense Ratio: 0.5%
Assets Under Management: $883.5M
Performance (As of 6/30/2024):
1-Year: 32.5%
5-Year: 19.7%
The chart below shows the comparison between TMFC and VOO, the Vanguard S&P 500 ETF, one of the most popular and well-regarded S&P 500 ETFs. They are highly correlated, but TMFC shows much better performance than VUG since its inception in 2018.
Now, let's look at the chart below. It shows the comparison between TMFC and VUG, the Vanguard Growth ETF, one of the most popular and well-regarded growth ETFs. As expected both growth EFTs are highly correlated with each other, but TMFC shows better performance than VUG since its inception in 2018.
The table below shows the top 10 holdings of TMFC, which account for 56.5% of its entire portfolio. It has a high concentration of Technology giants, but also includes bellwether stocks from other industries, such as Warren Buffett's Berkshire Hathaway and a Pharma giant, Eli Lilly.
Now What?
While TMFC offers a compelling investment opportunity by leveraging Motley Fool's stock picks, there are some important considerations to keep in mind before adding it to your portfolio.
Higher Expense Ratio: One of the key downsides of TMFC is its relatively high expense ratio of 0.50%, which is significantly higher than many other large-cap growth ETFs, such as the Vanguard Growth ETF (VUG), which has an expense ratio of just 0.04%. Over time, these higher fees can erode returns, especially in a market environment where growth stocks may face headwinds.
Concentration Risk: TMFC's focus on a select group of top Motley Fool-recommended stocks means it is less diversified. This concentration in a smaller number of stocks, particularly in the technology sector, can lead to increased volatility. If the top holdings underperform, the impact on TMFC could be more pronounced compared to more diversified ETFs.
Volatility in Growth Stocks: As with any growth-oriented ETF, TMFC is susceptible to market volatility, particularly in periods of economic uncertainty or rising interest rates. Growth stocks tend to be more volatile than value stocks, and during market downturns, TMFC's performance could suffer more significantly.
Concluding Remarks
The Motley Fool 100 Index ETF (TMFC) presents a unique opportunity for investors who are confident in the Motley Fool's stock-picking abilities and are seeking concentrated exposure to large-cap growth stocks. Its impressive performance and focus on top U.S. companies make it an attractive option for those with a higher risk tolerance and a long-term investment horizon. However, potential investors should be mindful of the higher expense ratio and the associated risks of concentration and volatility. While TMFC has outperformed many of its peers since its inception, these factors could impact its performance in the future. Ultimately, TMFC could be a valuable addition to a well-diversified portfolio, particularly for growth-focused investors who believe in the Motley Fool's strategy.
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