Investing in the S&P 500 through Invesco S&P 500 GARP ETF: Is this the most astute approach?
The Invesco S&P 500 GARP ETF (SPGP) is a unique investment fund that employs a "Growth at a Reasonable Price" (GARP) strategy. SPGP selects approximately 75 stocks from the S&P 500 universe, focusing on companies with a combination of high growth scores and quality and value composite scores. This approach aims to identify growth companies that are not overvalued.
In contrast to other S&P 500 growth or index ETFs, such as the iShares S&P 500 Growth ETF (IVW), SPGP takes a more balanced approach to growth and value. IVW, for instance, is heavily weighted towards large tech companies, with an emphasis on sales and earnings growth, resulting in greater sector concentrations in technology and communication services.
Performance-wise, SPGP was relatively more defensive in 2022 due to generally lower valuations (e.g., lower P/E ratios) than pure growth ETFs. However, recent critiques highlight SPGP’s inefficiencies: it carries higher costs, higher risk, and lower returns compared to other GARP-focused funds. One key limitation cited is its overweight in Financials, exposing investors to interest-rate sensitivity and lower growth, which blunts its growth potential in a market where growth-oriented investments typically outperform.
ETFs like the iShares GARP ETF or sector-specific ETFs with focused tech exposure provide a purer implementation of GARP strategies, offering better risk-adjusted returns and growth orientation. SPGP’s broad, somewhat diluted sector allocation and a compromise between growth and value factors mean it may underperform or disappoint investors seeking true growth with reasonable valuations.
A summary table of key differences between SPGP and the iShares S&P 500 Growth ETF (IVW) is provided below:
| Feature | Invesco S&P 500 GARP ETF (SPGP) | iShares S&P 500 Growth ETF (IVW) | |------------------------------|-----------------------------------------------|---------------------------------------------| | Strategy | Growth at a reasonable price, balanced growth and value | Pure growth focus based on earnings and sales growth | | Holdings | ~75 stocks from S&P 500 with growth and value composite scores | ~210 growth stocks, tech-heavy | | Valuation Focus | Lower P/E and valuation emphasis | Higher valuations, growth orientation | | Sector Bias | More balanced, but Financials overweight | Technology (40%) and communication services (14%) | | Expense Ratio | Higher (exact figure not specified) | 0.18% | | Recent Performance Notes | Defensive in 2022 but criticized for higher cost, risk, and lower returns | Historically solid growth with reasonable fee and turnover | | Rebalancing Frequency | Semi-annually | Varies, ~31% annual turnover |
Investors seeking true GARP exposure or technology-driven growth should consider more focused ETFs or a combination of sector-specific funds alongside GARP ETFs. With the market near all-time highs, it might be advantageous to consider the more focused Invesco S&P 500 GARP ETF as an alternative to the S&P 500 index fund, as it seems to offer a mix of value and growth. However, potential investors should be aware of the ETF's higher costs, overweight in Financials, and somewhat diluted strategy.
Money managers who prioritize technology-driven growth may find more suitable investment opportunities in focused ETFs, bypassing the Invesco S&P 500 GARP ETF (SPGP) due to its higher costs and overweight in Financials. SPGP, unlike other GARP-focused funds, carries a compromise between growth and value factors, which might limit its growth potential. Finance professionals interested in technology sector investments should evaluate ETFs with a pure growth focus based on earnings and sales growth, such as the iShares S&P 500 Growth ETF (IVW), to achieve better risk-adjusted returns.
