An Additional Endorsement for GARP

The Barron’s 400 ETF (BFOR B) is an exchange traded fund that makes GARP investing easy and relevant for a broad swath of investors. BFOR, which tracks the Barron’s 400 Index (B400), is a pertinent idea today because with broader domestic equity benchmarks trading at elevated multiples, finding attractively valued growth opportunities isn’t easy.

Recently, more market observers are highlighting the virtues of GARP, which could spotlight the benefits offered by BFOR.

“All of these market attributes bring stock selection to the forefront, in our view, and suggest to us that an active investment approach will likely be crucial in identifying viable investment opportunities,” said Brian Belski, chief investment strategist at BMO Capital Markets, in an interview with CNBC.

BFOR is a credible near-term idea because the premise of GARP is blending both growth and value. The former could come into favor as economic growth slows while cyclical value stocks can accrue momentum as inflation remains high.

“The differentiation of [next 12 months] earnings growth among S&P 500 companies has been sharply rising, recently climbing to its highest level since the onset of the pandemic, while valuation dispersion has exhibited a similar trend and currently stands well above its post-financial crisis average. This indicates to us that companies are operating at considerably different fundamental rates,” Belski notes.

BFOR’s relevance in the current environment is enhanced by a 21.54% weight to financial services stocks, indicating that the fund has an avenue to benefit from rising rates. Additionally, it sources GARP opportunities through a more than 33% combined weight to consumer discretionary and tech stocks.

The consumer discretionary, financial services, industrial, and technology sectors represent about 75% of BMO’s GARP screen. That quartet combines for over 70% of BFOR’s roster, indicating that the ALPS fund is also a valid idea for long-term investors.

“GARP has produced favorable long term total returns, on average, relative to the overall market,” concludes Belski.

Alternatives to BFOR in the mid-cap growth space include the iShares Russell Midcap Growth ETF (IWP A+), the First Trust Mid Cap Growth AlphaDEX Fund (FNY B-), and the iShares Morningstar Mid Growth ETF (JKH B).

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