After underperforming for the past few months, growth stocks have regained their appeal this month given the renewed appeal for riskier assets. This is especially true given that the ultra-popular iShares Russell 1000 Growth ETF (IWF Quick QuoteIWF - Free Report) has gained 2.4% over the past week compared to loss of 0.7% for the value counterpart iShares Russell 1000 Value ETF (IWD Quick QuoteIWD - Free Report) .

Risky Bets Surge

Investors are once again rotating into high growth areas like technology and communication services, which were at the heart of a sell-off driven by fears of rising rates, and away from the sectors poised to benefit from the recovering economy. As inflation fears have eased, investors are enthusiastic about economic recovery. The latest data showed that the U.S. economy is regaining momentum but not overheating, pushing away inflation fears and the expectation of an imminent tapering. This has resulted in risk-on sentiment and pushed the S&P 500 and Nasdaq Composite Index to record highs (read: Top-Ranked ETFs to Buy as S&P 500 Nears Record High).

With millions of Americans fully vaccinated and pandemic restrictions being rolled back, consumer confidence has risen. The expanded stimulus, signs of job growth and strong corporate earnings are also providing strength to the stocks. Additionally, the bouts of latest data are bolstering investors’ confidence, driving the stocks higher. Notably, U.S. manufacturing activity hit a record high in May for the second straight month supported by stronger expansion in output and new orders. U.S. consumer sentiment also rebounded in early June as inflation fears subsided and households grew more optimistic about future economic growth and employment. Meanwhile, the core personal consumption expenditures index increased by 3.1% in April from a year ago, sharply higher than the March reading of 1.9% and the highest reading since 1992.

Further, lower interest rates have made borrowings cheaper, providing a boost to both investment in new projects and repayment of higher-rate debt. Consequently, this would lead to strong economic growth and is a boon for the stock market. Against such a backdrop, growth investing is the best bet and outperforms during an uptrend.

Why Growth Investing?

Growth investing focuses on capital appreciation rather than annual income or dividend. It is a stock-buying strategy that aims to profit from companies which grow at above-average rates compared to their industry or the market. This is a more active attempt versus the value to build up the portfolio and generate more return on the capital investment.

These stocks have more upside potential in the coming months given a surging stock market and an improving prospect of economic growth. However, these offer exposure to stocks with growth characteristics that have comparatively higher P/B, P/S and P/E ratios and exhibit a higher degree of volatility especially compared to value stocks.

Given this, we have highlighted a number of growth ETFs that have shown strong momentum, gaining in double-digits in a month, and have an ability to outperform if the market trends remain the same. These funds offer broad exposure to the market rather than a specific sector or an industry.

Cabot Growth ETF

This fund seeks long-term capital growth by primarily investing in companies positioned for exceptional secular growth in expanding markets. It aims to identify leaders in research and development, next-wave technologies, burgeoning consumer and business trends that are deemed capable of high and sustainable growth, as well as underappreciated or overlooked pricing dislocations. The fund holds 30 stocks in its basket and charges 75 bps in annual fees. It has amassed $36.9 million in its asset base since its debut in December and has gained 13.5% in a month.

BlackRock Future Innovators ETF

This ETF offers a diversified exposure to innovative companies that may deliver growth and capital appreciation. It holds 63 securities with information technology taking the largest share at 33.7% while health care, consumer discretionary and industrials round off the next spots. The fund has accumulated $22.2 million since its inception last September and charges 80 bps in annual fees. It has risen 11.4% in a month (read: 5 Best Leveraged ETFs of Last Week).

U.S. Quantitative Momentum ETF (QMOM Quick QuoteQMOM - Free Report)

This ETF seeks to provide exposure to stocks with the highest-quality momentum by tracking the Alpha Architect Quantitative Momentum Index. It holds 51 socks in its basket and charges 49 bps in annual fees. The product has amassed $91.5 million in its asset base and has added 10.2% in a month.

Gabelli Growth Innovators ETF (GGRW Quick QuoteGGRW - Free Report)

This fund seeks to invest in companies that have investment theme of innovation and whose prospects for earnings growth remain undervalued. The Adviser defines “innovation” as the introduction of new technologies, products or services that redefines how businesses operate. It  debuted in the space in February and has gathered $3.6 million in its asset base since then. The product has expense ratio of 0.90% and is up about 10% in a month.

First Trust Mid Cap Growth AlphaDEX Fund (FNY Quick QuoteFNY - Free Report)

This ETF targets the mid-cap growth stocks and follows the NASDAQ AlphaDEX Mid Cap Growth Index. It holds well-diversified 225 stocks with AUM of $421.7 million. Information technology and healthcare take the largest share at nearly 19.7% share each while consumer discretionary and industrials round off the next two spots with a double-digit allocation each. FNY charges investors 70 bps in annual fees and has a Zacks ETF Rank #3 (Hold). It has gained 10% in a month (read: 5 Popular Mid-Cap ETFs to Add to Your Portfolio Now).

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