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How do you beat the S&P 500? Buy this ETF that has done it in seven of the last ten years

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How do you beat the S&P 500?  Buy this ETF that has done it in seven of the last ten years

If you want to make investing easy for yourself, the best way to do this is to buy an ETF that tracks the price of your investments S&P500. By purchasing shares of a exchange rate fund like the Vanguard 500 Index ETF or the SPDR S&P 500 ETFgives you direct access to a diversified group of 500 of the largest US companies.

Beating the S&P 500 isn’t easy. In fact, most hedge funds and mutual funds underperform the S&P 500 over long periods of time. That’s because the S&P 500 selects from a large pool of stocks and continually renews its positions, dumping underperforming stocks and replacing them with emerging growth stocks.

For example, the index just replaced the manufacturer of obsolete devices Bubble bath for the explosive AI server company Super microcomputer. Owning only profitable, large-cap U.S. stocks is another reason why the S&P 500 tends to perform so strongly over time.

However, some funds manage to beat the broad market index. Keep reading to see one ETF that outperforms the S&P 500 over the long term.

The letters ETF on a computerThe letters ETF on a computer

Image source: Getty Images.

Growth at a reasonable price

Most stocks are typically grouped into one of two buckets: growth or value. Growth stocks generally have higher growth rates than the broad market, while value stocks trade at a discount to the S&P 500, generally measured by the price-earnings ratio.

However, there is also a hybrid group of stocks that contain elements of both growth and value, known as “growth at a reasonable price” or GARP. And there is one ETF that specializes in those stocks.

That’s the Invesco S&P 500 GARP ETF (NYSEMKT: SPGP)which has beaten the S&P 500 in seven of the last ten years and has steadily outperformed over the past ten years, as you can see in the chart below.

^SPX chart^SPX chart

^SPX chart

As you can see, the Invesco GARP ETF has not only beaten the S&P 500, but it has also followed the same trajectory as the S&P 500, meaning it has been able to gain an edge without much additional risk.

What is the Invesco GARP ETF?

The Invesco S&P 500 GARP ETF tracks the S&P 500 Growth at a Reasonable Price Index, which consists of approximately 75 stocks ranked as having the highest “growth scores” based on earnings and revenue per share growth. over the past three years, and a ‘composite score for quality and value’, which is based on financial leverage, return on equity and price-to-earnings ratio.

The fund’s five largest investments are Diamondback energyan exploration and production energy company in the Permian Basin; Steel dynamicsone of the nation’s largest steel producers and metal recyclers; Marathon Petroleuman oil refinery and transportation company; CF Industries, a maker of nitrogen fertilizer and other agricultural products; And Nucorthe steel manufacturer who popularized mini mills.

Four of the next five top positions are also energy stocks. The index’s largest sector is currently energy, which makes up 26.1% of the fund, followed by information technology with 22%.

Why the GARP ETF could continue to outperform

The GARP ETF’s standards screen for overvalued stocks as well as stocks that aren’t growing fast enough, making the ETF a good bet to beat the larger index.

Many of the Magnificent Seven stocks that have driven the new bull market look stretched, and the S&P 500’s valuation is high, especially early in a new bull market, by some conventional measures. For example, the S&P 500 trades at a price-to-earnings ratio of 25.2, compared to a price-to-earnings ratio of just 15.3.

Barring an oil price crash, which would impact the energy stocks that make up a significant portion of the GARP ETF, the fund appears well-positioned to beat the S&P 500 as early gains from the Magnificent Seven stocks spread to the rest of the stock markets should spread. the stock market as the bull market matures. Meanwhile, the valuation should also protect the company from any potential sell-off in the broader market.

Should You Invest $1,000 in Invesco Exchange-Traded Fund Trust – Invesco S&P 500 Garp ETF Now?

Before you buy shares in Invesco Exchange-Traded Fund Trust – Invesco S&P 500 Garp ETF, consider the following:

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Jeremy Bowman has no position in any of the stocks mentioned. The Motley Fool holds and recommends Vanguard S&P 500 ETF. The Motley Fool has one disclosure policy.

How do you beat the S&P 500? Buy this ETF that has done it in seven of the last ten years was originally published by The Motley Fool