SPGP: A Growth and Value ETF for an Accelerating Economy
In an accelerating economy, value tends to perform well. But imagine what combining value with quality and growth can do. This is the strategy behind the Invesco S&P 500 GARP ETF (SPGP), an ETF that has outperformed value stocks and even the S&P 500 over the past five years.
SPGP’s strategy is simple yet effective. It starts with the S&P 500 and then takes the 150 top growers, based on sales and earnings growth over a three-year period, as well as historical and consensus future growth. These companies represent 30% of the fastest-growing companies in the S&P.
SPGP then applies a quality score based on debt-to-EBITDA, profitability, and the PE ratio. This ensures that the ETF invests in companies with strong balance sheets, high profitability, and reasonable valuations.
Finally, the weight of each company in the ETF is based on its growth rate, with risk caps of 2%. This approach favors companies with the highest growth potential while limiting the overall risk of the portfolio.
Historical Performance
Since its inception in 2019, SPGP has delivered impressive returns. It has outperformed value stocks and even the S&P 500, and it has been in the top 6% of its peers and the top 3% adjusted for taxes over the past five years.
Valuation and Future Growth
SPGP’s forward cash-adjusted PE is currently 8.6, compared to the S&P’s 14. This indicates that the ETF is trading at a discount to the broader market. Additionally, analysts estimate that SPGP’s companies will grow earnings by 13.5% annually over the next five years, compared to 11.8% for the S&P 500. This earnings growth potential supports the ETF’s attractive valuation.
Risks to Consider
It’s important to note that SPGP is more volatile than the S&P 500. This is because the ETF invests in growth stocks, which tend to be more volatile than value stocks. However, SPGP’s risk-management measures, such as its quality score and risk caps, help to mitigate this volatility.
Conclusion
For long-term investors, SPGP is an attractive investment opportunity. Its combination of growth, value, and quality at a reasonable valuation makes it well-positioned for today’s accelerating economy. While the ETF is more volatile than the S&P 500, its historical returns and growth potential make it a worthwhile consideration for investors seeking long-term capital appreciation.
