During times of market uncertainty, investors often turn to relatively stable sectors such as financials, utilities, and various commodities such as the precious metals. Another approach that may be worth considering is buying into a group of companies that display characteristics such as strong earnings growth, lucrative valuation metrics, or projections for rapid sales growth.

This approach, known as factor investing, offers traders an intriguing methodology for diversifying their portfolios. As you'll read about in the paragraphs below, one of the segments that is gaining particular attention with active traders is known as growth stocks.

Vanguard Growth ETF (VUG)

As mentioned above, factors such as strong earnings growth can help filter the broad universe of investment choices. Taking a look at the Vanguard Growth ETF (VUG) could be an interesting choice for those investors looking to add a group of companies to their portfolio that offer future long-term growth in earnings, future short-term earnings per share (EPS) growth, and strong historical growth rates.

As you can see below, the price of the fund is trading within an ascending triangle pattern, which is often looked at as a consolidation pattern before making a sharp move higher. The defined range creates clear levels for followers of technical analysis to place their buy and stop orders. In this case, active traders will most likely look to place buy-stop orders above $170 and protect against a sell-off by placing stop-losses below the ascending trendline or the 200-day moving average, depending on risk tolerance.

Chart showing the share price performance of the Vanguard Growth ETF (VUG)
StockCharts.com

Microsoft Corporation (MSFT)

The top holding of the VUG ETF is Microsoft Corporation (MSFT), which may come as a surprise to some given its scale and history. However, decades of experience, industry-leading products, and its exposure to increasing demand for technology have put the software giant in elite company. Strong earnings growth and future projections make this stock a favorite growth stock for many investors.

As you can see from the chart, the price is trading within an ascending triangle pattern like the one shown on the chart of VUG above. Traders will watch for a close above the horizontal trendline and will likely place their stop-losses below $130 in case of a sudden shift in sentiment.

Chart showing the share price performance of Microsoft Corporation (MSFT)
StockCharts.com

Apple Inc. (AAPL)

Another top holding of the VUG ETF is Apple Inc. (AAPL). As you can see from the chart, the price has recently moved above the breakout point of a triangle pattern. Recent product announcements may have been enough of a catalyst to trigger a move higher, and technically speaking, it looks to have been enough to start the leg of the next move higher. Stop-loss orders will likely be placed below $212.50 to protect against any surprise sell-offs.

Chart showing the share price performance of Apple Inc. (AAPL)
StockCharts.com

The Bottom Line

Factor investing is an important approach for investors to consider when seeking true levels of diversification while also being exposure to better-than-average returns. As you’ve read above, growth stocks seem to be one segment that is worth a closer look – particularly large-cap tech stocks such as Apple and Microsoft.

At the time of writing, Casey Murphy did not own a position in any of the assets mentioned.