Invesco launches US small-cap GARP ETF

Mar 27th, 2024 | By | Category: Equities

Invesco has expanded its suite of GARP (Growth at a Reasonable Price) ETFs with a new fund focused on US small-cap equities.

Invesco launches US small-cap GARP ETF

Invesco now offers a trio of GARP ETFs, each targeting a distinct segment of the US equity market based on capitalization.

The Invesco S&P SmallCap 600 GARP ETF (GRPZ US) has been listed on NYSE Arca with an expense ratio of 0.35%.

GARP strategies embody a hybrid investment methodology, targeting equities that offer substantial growth prospects without carrying excessive valuations. This approach not only prioritizes sustained fundamental growth and fair valuations but also integrates a qualitative filter to identify companies possessing robust financial health and potent earnings capabilities.

GARP equities potentially offer an advantageous mix of aggressive and protective attributes, a particularly valuable blend during periods of economic ambiguity.

Methodology

Invesco’s latest ETF is linked to the S&P SmallCap 600 GARP Index which is constructed from the S&P SmallCap 600 universe of 600 companies that represent approximately the 93rd to 99th percentiles of the US equity market’s total capitalization.

In the specified universe, each company is evaluated based on two metrics: a ‘Growth’ score, derived from three-year metrics of earnings per share (EPS) and sales per share growth, and a ‘Quality/Value Composite’ score, which incorporates the financial leverage ratio, return on equity, and earnings-to-price ratio.

Initially, companies are ranked according to their Growth scores, with the top 180 qualifying for further assessment. Subsequently, from this refined pool, the index selects the 90 entities exhibiting the highest Quality/Value Composite scores.

Constituents are weighted according to their Growth scores, adhering to a maximum individual stock cap of 5% and a collective ceiling of 40% for stocks originating from any single Global Industry Classification Standard (GICS) sector.

The index undergoes a semi-annual reconstitution, incorporating buffer rules designed to minimize excessive turnover.

As of the end of February 2024, the index was dominated by firms from the consumer discretionary (28.5%) and industrials (21.2%) sectors, followed by financials (13.8%), energy (11.5%), and information technology (9.1%).

It was well diversified at the constituent level with the largest position, Encore Wire, accounting for a weight of just 2.1%.

Invesco also provides GARP ETFs that focus on US large and mid-cap equity segments as derived from the S&P 500 and S&P MidCap 400 indices. These funds are the $4.8 billion Invesco S&P 500 GARP ETF (SPGP US) and $370 million Invesco S&P MidCap 400 GARP ETF (GRPM US) which come with expense ratios of 0.34% and 0.35%, respectively.

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