Jason Ye (S&P Dow Jones Indices) and Chad Hitzeman (Global X) explore the complexities and opportunities of global factor investing, including ‘Growth at a Reasonable Price’ equity strategies (GARP)

Factor investing is a strategy that targets specific, measurable characteristics of securities (called factors) to explain and capture sources of risk and return. 

By building portfolios around factors — like value, size, momentum, quality, and low volatility — investors aim to potentially enhance returns, improve diversification, and reduce volatility over the long-term. 

These strategies can be implemented through active management or via passive products like Exchange Traded Funds (ETFs).

Examples of common Global Factors applicable for consideration as essential nutrients of portfolios include:

• Value: Investing in securities that appear to be trading for less than their intrinsic value. 
  
• Size: Investing in companies with smaller market capitalisations, which have historically shown higher returns. 
  
• Momentum: Investing in securities that have recently performed well.
  
• Quality: Investing in companies with strong balance sheets, stable earnings, and high profitability.
• Low volatility: Investing in stocks that have historically had lower price fluctuations. 

When thinking about factors, Jason Ye, CFA — Director, Factors and Dividends at S&P Dow Jones Indices — refers to them as the “essential nutrients” of an investment portfolio. He says factors are the drivers of long-term performance in a well-diversified portfolio.

Speaking at the IMAP Independent Thought 2025 conference in Sydney, Jason says factors can be accessed easily by investors via an indexing approach — such as the S&P 500 Growth, S&P 500 Momentum, and S&P 500 Quality indices — and through products like ETFs, which he believes provides investors with a cost efficient way to access factor exposures, compared to the higher fees associated with using an active manager.

S&P Dow Jones Indices has been engaged in factor indices (both single factor and multi-factor) for over 30 years. More recently, it has developed GARP (Growth at a Reasonable Price) indices — S&P/ASX 200 GARP and S&P World Ex-Australia GARP — which enable multiple factors to be blended together. A GARP strategy essentially combines factors, like growth and value, to identify companies with above-average earnings growth that are trading at a reasonable valuation.

For example, the S&P World Ex-Australia GARP index tracks companies with consistent fundamental growth, reasonable valuation, solid financial strength, and strong earnings power in the S&P World Ex-Australia Index.

When considering factor investing, Chad Hitzeman — Head of Institutional Sales at Global X (an asset manager specialising in ETFs in the Australian market) — believes investors can find quality in growth stocks. On a year-to-date basis, of the various style factors, he says growth has proven to be the best performer, achieving around 16 per cent. This is followed by value (13 per cent), and then quality (11 per cent).

“From that perspective, it makes sense to have a growth tilt in your global equity portfolio, but be mindful of relative valuations,” he says. “A GARP investing strategy looks within the growth pool and selects from it at a reasonable price.”

In making the case for GARP, Chad points to international equities (specifically U.S. stocks), where valuations are quite high. He says a GARP strategy is naturally mindful of valuations.

“If you look at the CAPE (cyclically adjusted price earnings) ratio in the S&P 500, it is significantly higher than the 50-year average and well above longer term data,” says Chad. “According to industry data, stocks with a higher PE tend to be more negatively correlated with five-year future returns. So, if you purchase stock at a higher price, it’s likely that its forward returns will be lower.”

As a GARP strategy blends different factors — like growth, value, and quality — Growth X approaches GARP by looking closely at growth stocks and selecting those that have favourable PE ratios and quality factors, such as companies with low financial leverage (debt to equity), as well as companies with the highest return on equity in terms of capital efficiency.

Global X currently runs two GARP strategies: international equities, and domestic equities. In terms of international equities, Chad says the GARP strategy seeks to track the performance of the S&P World Ex-Australia GARP Index. The index is designed to track the performance of the leading 250 global companies that demonstrate strong revenue and earnings growth, solid financial strength, and which trade at reasonable valuations.

Since its inception in September 2024, the Global X S&P World Ex Australia GARP ETF has outperformed traditional single factor indices and has historically demonstrated strong risk-adjusted returns. It has also achieved a lower level of volatility against single factor growth and single factor company size.

“The growth factors we look at are companies that exhibit the strongest three-year earnings per share growth and three-year sales per share growth, while with quality factors, we look at companies with the lowest financial leverage and the highest return on equity. And in terms of value, we want a good PE ratio,” says Chad.

“Our GARP portfolio — which rebalances twice a year — aims to hold the leading 250 global companies. We believe our disciplined approach provides investors with access to a strategy that balances both growth and value investing, with potential outperformance over a broad global share market and at a competitive management fee.”

Chad believes that by targeting companies with strong growth, solid quality metrics, and attractive valuations — like Uber Technologies and Banco Bilbao Vizcaya Argentaria (BBVA) — GARP can be an appealing opportunity for investors wanting global exposure to growing companies, while maintaining a valuation discipline.

“By identifying companies in sectors and regions with robust earnings growth, quality balance sheets, and reasonable valuations, we believe the GARP approach allows investors to maintain discipline around valuation,” he says.

As an example, Chad points to June 2025, when the Global X GARP portfolio rebalanced by increasing its allocation to Japanese equities. This was done as a reflection of the attractive valuations and earnings momentum in this market.

“We use an index approach — the S&P index — to investing,” says Chad. “The index serves as a stock selection strategy. When rebalancing, our portfolio managers will look at the ‘portfolio composition file’ of the index and on that basis, we will make additions into and deletions out of the portfolio.”