SmartGARP®

The investment process was developed by Philip Wolstencroft during his time working as an equity strategist at Merrill Lynch. He developed it in an attempt to distil what all active fund managers do, but in a more systematic way, and to remove the behavioural biases he often observed from fund managers in his role as a strategist. It was based on the belief that inefficiencies exist in global stock markets because investors do not always act rationally. SmartGARP seeks to address this by using data to be more objective, rigorous and systematic in the analysis of companies’ financial characteristics and in decision-making.

The first fund to use the process was the Artemis SmartGARP European Equity Fund, launched when Philip joined Artemis in 2001. The process has been developed and refined ever since.

From a universe of approximately 6,000 global companies, SmartGARP aims to identify those growing faster than the stockmarket, with lower-than-average share prices. They should be enjoying strong and consistent upgrades to profit forecasts and be under-owned by the investment community, while at the same time benefiting from helpful economic trends. In other words, ‘growth at a reasonable price’ (GARP).

There are over 6,000 shares in the investible universe. We rank every company on eight factors and then rank them against the universe, to give them an overall ‘SmartGARP score’ out of 100. Companies with a score above 80 are considered for inclusion in our funds.

Our fund managers conduct detailed research into these companies to identify any non-operational issues (such as accounting changes or acquisitions) that may be skewing SmartGARP’s data and scores.

They then build diversified portfolios, according to the regional and sector limits of each strategy.

We consider the SmartGARP investment process to be 80% data-driven, 20% fund manager overlay.

Our fund managers carry out detailed research on companies that have a high SmartGARP score. This is to identify non-operational issues (such as accounting changes or acquisitions) that may be skewing the data. This is strictly a validation exercise to ensure that the financial data is a complete and accurate reflection of the underlying characteristics of a company. Our fund managers are not looking to gain detailed insights of a company’s business or meet its management, which might compromise the investment process by introducing subjectivity and behavioural bias.

Fund managers build diversified portfolios using companies that score highly, according to the regional and sector limits of each strategy.

Another element driven by fund managers is the timing of investment decisions. In periods of severe market distress, such as the start of the Covid pandemic, fund managers’ input plays a bigger role.

The screening tool is run daily.

The fund manager monitors the SmartGARP score of each share within the portfolio, watching for persistent degradation. Typically, as the score fades towards 50, the manager will be trimming the position and reallocating money to higher scoring companies. As the score falls below 50, that is typically a signal to sell the share. Trading activity is usually elevated when companies announce their results because there is more news flow.

SmartGARP works in most market conditions apart from times of extreme stress, such as the Global Financial Crisis or Covid, when rapid market movements (volatility) can skew data. At this point, fund managers’ judgement plays a bigger role.

The funds’ portfolios are typically very different to their benchmarks and to other actively managed funds. 

By assessing 6,000 companies around the world every day, SmartGARP casts the net wider than even a large team of analysts could, uncovering opportunities that other investors may miss.