Re-balance Cycle Reminder All MyPlanIQ’s newsletters are archived here.

Regular AAC (Asset Allocation Composite), SAA, and TAA portfolios are always rebalanced on the first trading day of a month. the next re-balance will be on Friday, December 1, 2023. 

As a reminder to expert users: advanced portfolios are still re-balanced based on their original re-balance schedules and they are not the same as those used in Strategic and Tactical Asset Allocation (SAA and TAA) portfolios of a plan.

Growth At A Reasonable Price (GARP) Stock ETFs

Long-time readers are aware of our affinity for quality businesses that exhibit good growth. We advocate to be a long-term fractional shareholder of such businesses recognized for their formidable moat, high-quality operations, consistent earnings, and revenue growth. In this newsletter, we review several stock ETFs that invest based on the so-called GARP – Growth At A Reasonable Price strategy.

Introduction to GARP stock strategy

The Growth at a Reasonable Price (GARP) investment strategy has a rich history and offers a balanced approach to stock investing. GARP is an investment philosophy that combines the principles of both growth and value investing. It seeks to identify stocks that have the potential for sustainable growth but are also reasonably priced.

It’s very intuitive to invest in companies with strong growth prospects, sound financials, and reasonable valuations (i.e. reasonable prices). These companies typically exhibit consistent earnings growth, solid management, and a competitive advantage within their respective industries. GARP aims to strike a balance between growth and value, which is achieved by evaluating key financial metrics, such as the price-to-earnings (P/E) ratio, earnings per share (EPS) growth, and other fundamental indicators. By doing so, they aim to capitalize on the growth potential of these stocks while managing risk through prudent valuation.

GARP investing gained popularity in the 1980s and 1990s as a response to the dichotomy between growth and value investing. Traditional growth investors focused on high-growth companies with little regard for their valuation, while value investors primarily sought undervalued stocks with less emphasis on growth potential. It’s often attributed to Peter Lynch, a former manager of the Fidelity Magellan Fund. While Peter Lynch did not invent the concept of GARP investing, he popularized and advocated for it during his time at Fidelity.

A GARP-based portfolio thus has a blended growth and value style. It can be considered to be a special type of blended style. 

In summary, the Growth at a Reasonable Price investment strategy seeks to uncover stocks that offer the best of both worlds, combining the potential for growth with a reasonable valuation. This balanced approach can provide investors with opportunities for long-term success in the stock market.

New ETF: T. Rowe Price Capital Appreciation Equity ETF TCAF

It’s exciting to see that more and more mutual fund powerhouses are now offering ETFs for their excellent and sometimes hard-to-get mutual funds. In June, T. Rowe Price introduced TCAF (T. Rowe Price Capital Appreciation Equity ETF). This is essentially the ETF version of PRWCX (T. Rowe Price Capital Appreciation) which has been featured in our newsletters numerous times. We call PRWCX the best balanced allocation fund. Interested readers can see the most recent discussion on this fund in the following newsletters.

Notable factors for TCAF:

  • Its investment team is led by David R. Giroux, the same well-known manager for the mutual fund PRWCX. 
  • It’s essentially the stock portion of the PRWCX, which can allocate up to 70% or so to stocks and the rest to bonds and convertible bonds. Note this can be an interesting twist that might or might not be in TCAF’s favor: with the portion of capital in bonds, PRWCX has been known to be well adept to flexibly overweighting/underweighting stock allocation at times. For TCAF, it might limit its flexibility here. 
  • Its investment strategy is to invest Growth At a Reasonable Price (GARP). We would modify this by prefixing Quality to the strategy, i.e. Quality Growth At a Reasonable Price. More on this in the following. 
  • Even though it was only introduced in June 2023, Morningstar didn’t hesitate to give TCAF gold rating, solely because of its replication/similarity to PRWCX. 
  • Finally, TCAF’s expense ratio is 0.31%, half of PRWCX’s 0.72%. 

The following shows the TCAF’s factor exposure, based on Morningstar:

So we can see TCAF’s strategy is more tilted to stocks with higher growth rates (and higher momentum) but with lower volatility large quality stocks. It does seem that the fund managers are able to find these stocks that enable it to outperform its peers. We think this approach makes a lot of sense. 

Let’s also take a look at the latest PRWCX returns, compared with its benchmark and another excellent moderate allocation fund VWENX (Vanguard Wellington Adm):

PRWCX vs. Peers (as of 11/3/2023)
Ticker YTD
1Yr AR 3Yr AR 5Yr AR 10Yr AR 15Yr AR Since 5/16/2001*
PRWCX (T. Rowe Price Capital Appreciation) 10.4% 15.4% 7.5% 10.6% 10.0% 11.9% 742%
VBINX (Vanguard Balanced Index Inv) 10.0% 15.5% 6.0% 8.3% 7.8% 9.2% 580%
VWENX (Vanguard Wellington Adm) 7.5% 21.0% 11.4% 11.1% 9.4% 10.7% 420%

* Since 5/16/2001 is a cumulative return

The fund has been remarkably consistent up to now. 

Finally, we want to make a remark that with TCAF, one can now utilize TCAF and our total return bond portfolios (mutual funds or ETF-based) listed on Income Investors page to construct a moderate allocation portfolio (such as 70% in TCAF and 30% in a total return bond portfolio). We believe such a combination will have a very high chance of outperforming PRWCX because of the excellent consistent outperformance of our bond portfolios. This presents another way to better the so-called best allocation fund PRWCX which has been closed to new investors for quite some time. 


In addition to TCAF, one of the oldest GARP ETFs is Invesco SPGP (Invesco S&P 500 GARP ETF).  Here, we outline the essential characteristics of this ETF:

  • Expense ratio: 0.34%, a tad higher than TCAF’s 0.31%
  • Asset under management: 3.8 billion. This offers reasonable liquidity
  • It’s been in the market since 2011
  • Morningstar rates it as Silver
  • The following is its factor exposure, based on Morningstar

Interestingly, SPGP is more tilted to Value and High Quality than TCAF. It’s also more volatile but offset by higher dividend yields and higher liquidity. 

SPGP has been able to outperform S&P 500 (SPY) since its inception and probably has also outperformed the stock portfolio in PRWCX: 

SPGP vs. SPY vs. PRWCX (as of 11/6/2023):
Ticker YTD
1Yr AR 3Yr AR 5Yr AR 10Yr AR 15Yr AR
SPGP (Invesco S&P 500 GARP ETF) 12.3% 17.2% 15.3% 14.7% 14.4%  
SPY (SPDR S&P 500 ETF) 15.8% 20.4% 11.2% 12.0% 11.6% 13.3%
TCAF (T. Rowe Price Capital Appreciation Equity ETF) -1.1%          
PRWCX (T. Rowe Price Capital Appreciation) 10.4% 15.4% 7.5% 10.6% 10.0% 11.9%

We note that SPGP actually had a larger drawdown than SPY since its inception. 

Outperform the ‘best’ balanced fund PRWCX

Portfolio GARP ETF SPGP And Total Return Bond Portfolio 70/30 has a 70% target allocation to GARP ETF SPGP and 30% target allocation to a total return bond fund portfolio P_46880 (Schwab Total Return Bond)  (see Income Investors for details). It rebalances annually:

Fund Percentage
SPGP (Invesco S&P 500 GARP ETF) 70.85%
P_46880 (Schwab Total Return Bond) 29.15%
Ticker/Portfolio Name YTD
1Yr AR 3Yr AR 5Yr AR 10Yr AR
GARP ETF SPGP And Total Return Bond Portfolio 70/30 7.9% 11.1% 11.1% 11.5% 11.3%
PRWCX (T. Rowe Price Capital Appreciation) 10.4% 15.4% 7.5% 10.6% 10.0%

One can see that the portfolio has outperformed PRWCX by some large enough margins for the past 3,5 and 10 years. So in addition to the portfolio(s) mentioned in our previous newsletters (such as Best’ Tactical Stock or Dividend Income Balanced Portfolios vs. Best Balanced Allocation Fund), we now have another way to outperform the ‘best’ allocation fund PRWCX!

To summarize, we believe these two GARP-based stock ETFs can be excellent choices for stock investments in a portfolio, probably combined with our total return bond portfolio. They can be further utilized as candidate factor ETFs in our P Composite Momentum Scoring Factor ETFs portfolio that’s listed on Resources->Advanced Strategies page.

Market Overview

Both stocks and bonds experienced a significant rebound last week, reaffirming the upward trend in stocks. This shift is primarily attributed to a change in investor sentiment, as they now anticipate a decelerating economy, subdued inflation, and the central bank’s decision to halt interest rate hikes.

Earnings-wise, Factset reports that for Q3 2023 (with 81% of S&P 500 companies reporting actual results), the blended (year-over-year) earnings growth rate for the S&P 500 is 3.7% which is much higher than -0.3% decline expected on September 30. Earnings are not as bad as what many investors had feared. 

As always, we claim no crystal ball and we call for staying the course which is guided by the well defined and sound strategic and tactical strategies:

  • For strategic allocation (buy and hold) investors, ignore the current market behavior. Remember, as we have emphasized numerous times when you choose and commit to a strategic portfolio, you essentially know and commit that your investment horizon (or the time you need to utilize this capital) is 20 years, preferably much longer, given the current high valuation. As we pointed out, if your investments are those diversified (index) funds such as an S&P 500 index fund (VFINX, for example), you know your money is in some solid ‘business’ that eventually (20 years later and preferably many more years later) will deliver some reasonable returns. As long as you are comfortable with this thesis, you should sit tight and forget about the current gyration.
  • For tactical investors, again, you have to ignore the current market noise. Furthermore, you should follow your strategy rigorously, especially during this time. Human emotion, both optimistic and pessimistic, and human desire, both greedy and fearful, are your worst enemies. This is true time and time again.

Stock valuation has dropped, and now valuation is becoming less hostile. However, it is still not cheap by historical standards. For the moment, we believe it’s prudent to be extra cautious. However, how serious a correction might be, we have confidence in the US economy in the long term and thus in the stocks in aggregate. We just need to manage through interim losses carefully.

We again would like to emphasize that for any new investor and new money, the best way to step into this kind of market is through dollar cost average (DCA), i.e., invest and/or follow a model portfolio in several phases (such as 2 or 3 months) instead of the whole sum at one shot.

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