A look under the hood of VanEck’s new growth ETF

Growth investing is firmly in focus right now, so it’s no surprise ETF issuers are rushing to innovate around the theme.

As an investor focused on high returns myself, one gap I’ve long noticed in the growth category is the lack of genuinely diversified passive options. Too often, investors end up in tech sector funds or tech-heavy indices like the NASDAQ, which fail to capture the full picture of growth.

That’s why VanEck’s launch of the VanEck MSCI International Growth ETF (ASX: GWTH) caught my attention. The pitch is compelling: a systematic strategy designed to capture pure growth across sectors and geographies, without the fee drag of active management. But it also raises some critical questions.

How does a rules-based ETF replicate what many argue is the active manager’s edge - things like company meetings, site visits, and qualitative judgments that don’t fit neatly into a screen?

To find out, I sat down with VanEck Australia CEO Arian Neiron to unpack the strategy and explore how GWTH works in practice.

Fund information

• ASX code: GWTH
• Management fee: 0.40% p.a.
• Index: MSCI World ex Australia Growth Select Index
• Inception: 26 August 2025
• Holdings: 95
• Dividend frequency: Once per year

Active funds can lean on qualitative insights. How does GWTH compensate for the analysis active managers can perform?

This is the challenge we set out to address with GWTH: taking the investment process used by successful growth managers – a method that is time-consuming, resource intensive and information heavy as well as being prone to human biases – and turning it into a systematic rules-based methodology.

Together with our index partner, MSCI, we identified five fundamentals that high-growth companies have had in common historically:

1. Long-term forward-looking earnings per share growth rate
2. Short-term forward-looking earnings per share growth rate
3. Internal growth rate
4. Long-term historical earnings per share growth trend
5. Long-term historical sales growth trend

We found these fundamentals provided a holistic view of a company’s growth potential, which is reinforced by academic research. Other metrics, we found, tended to be captured by one or more of the above fundamentals, whether directly or indirectly, thus providing a more efficient means of evaluating information.

The internal growth rate, for example, which is how a company grows without relying on external sources of funding, can represent characteristics such as a company’s sustainable competitive advantage, management quality, and operational efficiency.

The systematic approach ensures consistency, scalability, and access to a broader, diversified set of companies globally, without the fee drag of active management. Importantly, this approach can complement a high conviction portfolio by ensuring growth as a style is targeted.

You’ve highlighted that traditional benchmarks dilute growth exposure and create style drift. How does GWTH overcome those flaws to capture “pure” growth?

Most global growth index strategies start with the international equity benchmark, the MSCI World ex Australia index, and then tilt towards companies with certain growth characteristics.

However, they typically seek to maintain broad market capitalisation coverage, which means that very large companies, regardless of the strength of their growth fundamentals, still dominate index weightings.

This creates two major issues that have held back the growth potential of these strategies:

1) Diluted exposure – The market cap weighting used in traditional “growth” strategies means the portfolio ends up looking very similar to the market benchmark, with only marginal overweights to mega-cap names. Hence why many growth indices are highly correlated with the MSCI World Index and mega cap growth names have historically failed to deliver differentiated outcomes.

Meanwhile, stocks with the most growth potential tend to be underexposed. The academic research and empirical data, which we have substantiated with our own findings, shows that mid-caps offer more growth potential than larger companies. Accelerated growth tends to happen earlier on in the business life cycle when companies are far from reaching maturity, and this stage tends to be captured well by mid-cap stocks.

2) Style drift – Since weighting in global growth strategies tends to be based on a company’s size (based on market capitalisation) rather than its growth potential, the growth factor exposure shifts over time as companies mature or slow down. 

In effect, investors think they’re buying growth but are getting a “beta in disguise,” with holdings that likely duplicate their existing international equities portfolio.

GWTH is based on the MSCI World ex Australia Growth Select Index, which is a bespoke index that we have purpose-built to capture “pure” growth rather than market-cap concentration. It does this in several distinct ways:

• Growth-first selection: Stocks are chosen based on five growth descriptors (as outlined in question 1).
• No market-cap coverage target: Unlike traditional indices, GWTH does not aim to cover a set percentage of the market. This frees the methodology to prioritise growth fundamentals and ensures returns are not diluted by lower-growth companies.
• Momentum overlay: From the pool of growth leaders, only the top 50% by momentum are retained, ensuring companies are not just “theoretical” growth but are also being recognised by the market. In this way, we effectively outsource some of the research that growth managers do to the market itself.
• Smart weighting: Stocks are weighted by Growth Score × Parent Weight, with a cap of 5% per company, reducing the outsized dominance of mega-caps.

The result is a portfolio of ~100 companies that:

• Currently has a greater active weight in growth sectors such as technology, healthcare, and consumer discretionary,
• Avoids style drift by systematically rebalancing quarterly,
• And provides a materially different return profile compared to the MSCI World Index or even traditional growth benchmarks.

In lieu of an active manager, GWTH has a larger portfolio of roughly 100 stocks. 

This provides a greater likelihood of holding “winning tickets” without reducing individual stock exposure excessively. 

The MSCI World ex Australia Growth Index, for instance, holds more than 600 stocks, but only the first four are held at more than 5% of the index.

Growth and technology have become almost synonymous in recent years. Will GWTH largely be a technology fund, or can investors expect genuine sector diversification in its holdings?

Technology is a key driver of growth, but GWTH is not a tech-only product. The index captures approximately 100 companies across multiple sectors and geographies. 

Sector differentials show overweight positions not just in technology, but also in consumer discretionary, health care and industrials, while being underweight in more cyclical and low-growth sectors.

Investors can therefore expect genuine sector diversification, with different sector leaderships reflecting the prevailing market regime and economic cycle.

Why does this ETF make sense in the current market cycle?

Growth has had a strong run, but it is also cyclical and volatile. 

Growth investing has historically outperformed in “risk-on” market periods, such as the post-GFC recovery, the post-COVID rally, and most recently the AI-driven boom. 

That is why we think investors should consider a dedicated growth allocation to complement their core international equities portfolio. With that said, growth is cyclical, however earnings expansion remains a long-term driver of equity returns.

The backdrop today

• The OECD’s forecast shows slowing global GDP growth in 2025–26. In a low-growth world, companies able to expand earnings at double-digit rates are scarce and therefore more valuable.
• Market leadership has become highly concentrated, with a handful of mega-caps driving benchmarks. Investors increasingly want access to growth beyond the “usual suspects.”
• Dispersion between winners and laggards is widening, which is when systematic, factor-based approaches tend to shine.

GWTH offers investors a disciplined way to harness persistent growth drivers without relying on stock-picking skill or timing luck. 

By systematically rebalancing quarterly and screening for growth persistence plus momentum, it ensures exposure stays pure and current, rather than drifting into ex-growth companies.

This is not just about riding the latest trend, it is about recognising that in a world where growth is expected to become increasingly scarce, investors can access a dedicated allocation to companies that are truly growing, and GWTH has been designed to deliver that.

What types of companies does GWTH capture that are typically missed in standard benchmarks - can you share a few examples along with the numbers these companies achieved in the quantitative screens of this strategy?

GWTH captures companies often missed by or underexposed in cap-weighted benchmarks.

For example, it gives greater weight to firms with accelerating EPS growth and strong momentum, even if they are mid-cap or not headline index names. 

The top 10 active positions relative to the MSCI World ex Australia index, which include high-growth leaders across sectors such as semiconductors, health innovation, and consumer platforms, scored highly across multiple growth screens, often ranking in the top decile for EPS expansion and sales-per-share growth.

Interestingly, GWTH's methodology does not consider P/E ratios, which many Livewire readers see as a cornerstone metric. Can you explain the reasoning behind this methodology?

P/E ratios are backward-looking and can be misleading for growth companies where earnings are reinvested to drive future expansion. 

An example of this is Uber, which is one of the top 10 holdings in GWTH. It has a low P/E ratio of 16, however it has gained 46.93% in the year to date (to 8 September 2025). GWTH uses five variables that capture both forward-looking growth expectations (EPS estimates) and historical delivery (EPS and sales growth trends). 

This creates a more reliable measure of sustainable growth, reducing noise from valuation multiples that don’t always reflect long-term potential. 

This can be likened to someone in the market for a performance sports car. Considerations like value-for-money, fuel efficiency, safety rating and maintenance costs don’t typically factor into the decision – they just want the car to go fast. Any other variables, such as the aforementioned attributes, can serve to impede the car’s performance.

How should Australian investors think about GWTH’s role in a diversified portfolio?

GWTH has a very high active share (~90%). This makes it a complementary allocation within a diversified portfolio, especially for investors already holding broad market or value exposures. It provides pure-play exposure to growth without duplicating index-heavy mega-caps, enhancing diversification by factor, geography and sector.

How much volatility should investors expect in a strategy like this? Can you share the standard deviation of GWTH on a backtested basis?

Growth investing is inherently more volatile across the board. GWTH has been designed to mitigate risk through company (~100 holdings), sector and country diversification and systematic rebalancing. 

Backtested data show that GWTH’s index has historically delivered higher upside capture in risk-on environments, with drawdowns comparable to or lower than concentrated growth active managers.

The index’s standard deviation over 20+ years has been meaningfully above the MSCI World, but the risk-adjusted returns (sharpe ratio) have been favourable, reflecting the payoff from targeted growth exposure - noting that historical performance is not an indication of future performance.

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Vaneck MSCI International Growth ETF (GWTH)

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