This S&P 500 GARP ETF has paid off this bull market

The focus on growth, regardless of price, has gone to a halt this year, which worked well during the years-long bull market through 2021. The rebirth of the value style of investing and modest valuations has taken hold.

The approach taken by the Invesco S&P 500 GARP ETF has paid off through bull and bear markets.

Let s begin with a 10 year chart comparing total returns with dividends for the Invesco S&P 500 and the SPDR S&P 500 ETF Trust SPY, which tracks the benchmark S&P 500:

SPGP is down 12% this year, while SPY is down 16%. Even during the bull market, the long-term chart shows significant and consistent outperformance for SPGP.

GARP stands for growth at a reasonable price. SPGP tracks the S&P 500 GARP Index, which is reconstituted and rebalanced twice a year, on the third Fridays of June and December. S&P Dow Jones Indices assigns a growth score to each component of the S&P 500 by averaging the three-year compound annual growth rate CAGR for earnings and sales per share.

The top 150 components of the S&P 500 by growth score are eligible for inclusion in the GARP index. Those 150 are ranked by the composite score of the quality value, which is the average of these three ratios:

The top 75 of the 150 by QV rankings are then included in the GARP index, and weighted by the growth score, with portfolio weightings ranging from 0.5% to 5%.

There is a weighting limitation of 40% for any of the 11 S&P sectors.

The benchmark S&P 500 Index SPX is weighted by market capitalization, so it is more heavily concentrated than you might expect — success is rewarded, with rising stocks more heavily weighted over time.

The SPDR S&P 500 ETF Trust SPY, which is the first and largest exchange traded fund, tracks the benchmark index by holding all of its components, six companies Apple Inc. AAPL, Microsoft Corp. MSFT, Amazon, are the common share classes of Alphabet Inc., GOOG, and Berkshire Hathaway Inc., which make up 19.2% of the portfolio.

That percentage has come down this year, but a lot of risk is concentrated in a handful of companies. Apple alone makes up 6.4% of the SPY portfolio. The ninth-largest holding is Tesla, making up 1.4% of the portfolio. One way to address high concentration in an index fund is to use an equal-weighted approach, as discussed by Mark Hulbert.

For the Invesco S&P 500 GARP ETF, the underlying index selection methodology has resulted in much less portfolio concentration than we see in SPY, with the top five holdings making up 10.9% of the portfolio.

Here are the 10 largest holdings of SPGP:

You can read Tomi Kilgore's detailed guide to the wealth of information for free on the MarketWatch quote page.