Using the Barron’s 400 Index as a proxy for a portfolio holding GARP companies, the GARP vs. Size blog is a weekly summary of the performance of US equity markets aimed at informing readers about the alpha that is attainable using a GARP focused stock picking strategy. Readers might want to take note that the Barron’s 400 uses a rules-based, transparent and objective methodology for selecting GARP stocks. It is not an actively managed portfolio.
The table below presents the one-week price performance of the US equity markets ending September 4, 2020:
| Index | Stock Category | One Week Price Return |
| Barron’s 400 (B400) | GARP Stocks | -2.58% |
| Russell 1K | Large Cap Stocks | -2.42% |
| Russell 2K | Small Cap Stocks | -2.73% |
| S&P 500 | Large Cap Stocks | -2.31% |
Source: MarketGrader Research & FactSet.
Last week the broad market posted losses irrespective of size category: The Russell 1K was down -2.42% while the Russell 2K was down -2.73% for a total size (large-small) spread of 0.31% in the favor of large caps. The B400 index of GARP stocks posted a loss of -2.58%.
In terms of performance attribution using the size indexes, the GARP focused B400 was consistent with the performance of the broad market with an implied alpha of -0.06%.
| Sources of Return | Number of Stocks in the B400 | Total Starting Weight in the B400 | Contribution to B400 Return |
| Large Cap Stocks | 270 | 66.95% | -1.62% |
| Small Cap Stocks | 130 | 33.05% | -0.90% |
| GARP Stock Selection | -0.06% | ||
| Total | 400 | 100% | -2.58% |
Source: MarketGrader Research. The contribution for large cap stocks is calculated as the total weight in large Cap stocks times the return of the Russell 1K. The contribution for small cap stocks is calculated similarly. The total price return of the B400 that is not accounted for by the size contributions is attributed to stock selection using GARP, namely, the methodology employed by the B400.
Conclusion: Even though the broad market was down last week, large cap stocks still managed to outperform small cap stocks. This means in six of the last eight weeks that we have been tracking the market, large caps stocks have outperformed small caps. Meanwhile, GARP based stock selection has added alpha in three of those eight weeks.
| Size & Selection Performance | Total Number of Weeks Analyzed = 8 |
| Large Cap Stocks Outperformed | 6 weeks |
| Small Cap Stocks Outperformed | 2 weeks |
| GARP Based Stock Selection Added Alpha | 3 weeks |
Note: The above table was first conceived for the week starting July 10, 2020.
