Paralel Advisors LLC today announced the launch of its first ETF, the SRH U.S. Quality ETF (NYSE Arca: SRHQ). SRHQ seeks to track the performance, before fees and expenses, of the SRH U.S. Quality Index, which is designed to capture the performance of U.S. companies that exhibit moderate and consistent growth but do not trade at excessive valuations.
The design of SRHQ is principled behind the widely followed Growth at a Reasonable Price (GARP) investing style but is unique in its approach through the addition of a quality screen that scrutinizes the consistency of growth.
“We’re excited to offer investors access to a modernized framework of the traditional GARP investing model. SRHQ takes the GARP model one step further by screening for companies that not only have strong growth and reasonable valuation levels, but also display a pattern of consistent growth, a quality feature that is often overlooked,” said Jeremy May, CEO at Paralel Advisors, in a news release.
Unlike other GARP strategies that analyze value and growth characteristics using earnings-focused valuation measures, such as price/earnings-to-growth ratio, the SRH U.S. Quality Index was designed by Rocky Mountain Advisers LLC (RMA) to utilize a rule‑based multifactor approach that applies separate value, growth, and quality metrics to screen companies. These metrics include screens based on revenue growth, rather than earnings growth.
“Interestingly, when you look at how traditional GARP investing strategies are implemented, they rely on imperfect financial valuation measures, such as the earnings growth, to identify stocks featuring growth-style characteristics,” added Jacob Hemmer, who leads the index management team at RMA. “Despite the fact that earnings-based growth metrics have been academically well-documented to have poor predictive usefulness, it continues to be a cornerstone in index methodologies that screen for growth. In contrast, SRH U.S. Quality Index screens on revenue growth, what we believe is a more practical metric to identify growth stocks within a rules-based index methodology.”
SRHQ is an equal stock-weighted portfolio, which rebalances annually. SRHQ’s expense ratio is 0.35%. For additional information on the SRH U.S. Quality ETF, visit SRHfunds.com.
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