GARP? A deep dive into a best-selling fund

Every month, we report which funds Fidelity customers have been buying. There are always some familiar faces. The Fidelity Cash Fund and Fidelity Index World Fund, for example, have dominated the best-sellers list all year. This summer, however, a new name appeared on the list: the Artemis SmartGARP European Equity Fund.

• Read: Top 10 best-selling ISA and SIPP funds in August

A hit with ISA investors, this fund has grown more than three times faster than its benchmark over the last 12 months (to end of June). Please remember past performance is not a reliable indicator of future returns.

Source: Artemis. Total returns, excludes initial charge.

But what actually is a ‘GARP’ fund? And why are personal investors so interested in them?

What is a GARP fund?

GARP stands for ‘growth at a reasonable price’. In simple terms, these actively managed funds try to find companies that are growing faster than the market but which are also cheaper than their peers.

For Artemis, this involves running a digital stock screen every day, which incorporates two million data points. ‘At its core, the process aims to point you towards businesses which are at a stage in their life cycle where they could achieve outsized returns,’ says Harry Eastwood, investment director at Artemis.

How does it pick a portfolio?

Artemis scores companies against eight criteria, including value, growth, and investor sentiment. It pays particular attention to profit upgrades, however.

‘If you buy businesses that are constantly having their forecasts upgraded by the analyst community, that tends to lead you to businesses that outgrow the market,” says Eastwood.

Artemis’ approach is ‘systematic’. This means fund managers don’t meet with company CEOs or try to gain detailed insights into different business models. Instead, they rely on their in-house stock screen which sifts through 7,000 companies. There is a layer of human oversight, though: the most promising stocks are always reviewed by a fund manager before they are added to the portfolio.

What sort of companies does it hold?

Artemis SmartGARP European Equity Fund holds a disproportionately large number of groups in the financial sector. French bank Société Générale is its top holding, and there are several more banks and insurers in the top 10. This approach has paid off since Covid, with higher interest rates turbocharging profits and dividends in the banking sector.

‘If you spoke to equity analysts about the bull case for Europe two years ago, they would say it offers high quality exposure to the Asian consumer through the luxury sector, or discounted revenue exposure to the US,’ says Eastwood.

‘It’s slightly this idea of being an apologist for Europe. We have tended to steer clear of those names.’

Unfortunately for shareholders, the fund has also steered clear of some of Europe’s biggest defence stocks. This means it has missed out on the impressive returns generated by companies like Rheinmetall this year. The fund does hold companies such as Heidelberg Materials, however - a cement giant which could benefit from Germany’s spending splurge.

Important information - investors should note that the views expressed may no longer be current and may have already been acted upon. Before investing into a fund, please read the relevant key information document which contains important information about the fund. Eligibility to invest in a SIPP or ISA and tax treatment depends on personal circumstances and all tax rules may change in the future. Withdrawals from a SIPP will not normally be possible until you reach age 55 (57 from 2028). Overseas investments will be affected by movements in currency exchange rates. Reference to specific securities should not be construed as a recommendation to buy or sell these securities and is included for the purposes of illustration only. This information is not a personal recommendation for any particular investment. If you are unsure about the suitability of an investment you should speak to one of financial adviser or an authorised financial adviser of your choice.