Is the SoFi Select 500 ETF (SFY) a Smart Beta ETF Worth Holding in a Large Cap Growth Portfolio?

In the ever-evolving landscape of passive and active investing, smart beta strategies have emerged as a compelling middle ground, blending the discipline of index-based investing with the potential for enhanced returns through factor-based tilts. The SoFi Select 500 ETF (SFY), which tracks the Solactive SoFi US 500 Growth Index, has garnered attention as a cost-efficient, rules-based vehicle for large-cap growth exposure. But is it a worthy addition to a diversified portfolio? Let's dissect its merits through the lenses of cost, performance, and strategic effectiveness.

Cost-Efficiency: A Low-Cost Gateway to Growth

SFY's expense ratio of 0.05% positions it as one of the most affordable options in the large-cap growth ETF space. For context, the S&P 500 Growth Index, as represented by similar benchmarks, carries an expense ratio of 0.09%. This 0.04% differential may seem small, but over time, it compounds meaningfully for investors. For example, a $100,000 investment in SFY would save $400 annually in fees compared to a slightly more expensive alternative. In an era where investors increasingly prioritize cost-conscious strategies, SFY's pricing model is a significant advantage.

Performance: Outperforming in Bull Markets, Holding Steady in Downturns

SFY's performance over the past five years (2020–2025) has been robust, with a 5-year annualized return of 16.55%, matching the broader S&P 500 Growth Index. However, its year-to-date return of 20.18% as of 2025 outpaces the S&P 500 Growth Index's 15.19%, suggesting a slight edge in capturing upside during favorable market conditions.

The ETF's beta of 1.07 indicates it is marginally more volatile than the market, a trade-off for its growth-oriented tilt. Yet, its Sharpe ratio of 0.79-a measure of risk-adjusted returns-suggests it has delivered reasonable returns relative to its volatility. Notably, SFY has demonstrated resilience in down months, performing similarly to the S&P 500 while capturing more upside in up months. This asymmetry is a hallmark of effective smart beta strategies, which aim to mitigate downside risk while amplifying gains.

Smart Beta Strategy: Factor-Driven Exposure with a Proprietary Twist

SFY's methodology diverges from traditional market-cap-weighted indices by incorporating a proprietary mix of market capitalization and fundamental factors, including revenue growth and profitability. This rules-based approach avoids overconcentration in any single stock while emphasizing companies with strong growth fundamentals. For instance, its top holdings-Nvidia, Microsoft, and Broadcom-collectively account for 43.82% of assets, yet the fund's 502 holdings provide broad diversification.

The fund's emphasis on the Information Technology sector (40.3% of the portfolio) aligns with the sector's dominance in growth investing. However, this concentration also introduces sector-specific risk, as technology stocks can underperform during periods of rising interest rates or economic uncertainty. That said, SFY's smart beta framework is designed to adapt to market cycles. Research on smart beta strategies suggests they can outperform traditional indices in bear markets by leveraging factors like momentum and quality, a dynamic SFY's structure appears to support.

A Balanced Perspective: Weighing the Risks and Rewards

While SFY's low cost and performance are compelling, investors must consider its concentration in growth stocks and technology. During periods of market stress-such as the 2022 selloff in growth equities-SFY could lag behind more balanced or value-oriented alternatives. However, its smart beta approach, which avoids rigid market-cap weighting, may cushion some of this risk by emphasizing companies with stronger fundamentals.

For investors seeking a cost-effective, diversified bet on large-cap growth, SFY offers a compelling case. Its 0.05% expense ratio, competitive returns, and factor-driven strategy make it a strong contender against peers like the Vanguard Growth ETF (VUG) and Invesco QQQ. Yet, it is not a one-size-fits-all solution. Those with a lower risk tolerance or a need for sector diversification might prefer a more balanced index fund.

Conclusion: A Smart Beta ETF with Clear Merits

The SoFi Select 500 ETF (SFY) exemplifies the potential of smart beta strategies to deliver cost-efficient, factor-driven exposure to large-cap growth stocks. Its low fees, strong performance, and rules-based methodology make it a worthy consideration for investors seeking to capitalize on the growth equity premium. However, its sector concentration and volatility profile necessitate a careful alignment with an investor's risk appetite and portfolio context. In a well-constructed large-cap growth portfolio, SFY could serve as a valuable, if not indispensable, component.