Growth at a reasonable price: The case for GARP investing

Growth stocks have significantly outperformed value stocks over the past 20 years.¹ Investors concerned that the trend may have gone too far, but do not want to completely abandon growth investing may want to consider a hybrid approach, known as GARP, or Growth at a Reasonable Price. GARP seeks to help investors maintain growth exposure — especially in exciting areas like AI — while aiming to not overpay for growth (hence the acronym) by considering valuation levels.

GARP is a hybrid stock-picking style combining growth and value investing. The goal is to find companies with strong earnings growth prospects that aren’t trading at excessive valuations. GARP screens first for growth stocks, then tilts the portfolio toward those with attractive value and quality characteristics.

The iShares MSCI USA Quality GARP ETF (GARP), which rose approximately 37% in 2024 and has gained over 22% year to date through October 31, 2025², seeks to help investors maintain growth exposure — while supporting thoughtful security selection that considers valuation and concentration risk.

Growth vs. Value: Outperformance and Stretched Valuations

Over the past 20 years, growth stocks have dramatically outperformed value stocks, with a cumulative performance differential of more than 730%.

However, this outperformance has come at a cost: growth exhibits loftier market valuations relative to its own history than value.

At the end of 2024 the price-to-earnings (PE) ratio for growth traded at a 48% premium relative to its historical average, nearly three times higher premium than for value, which exhibited a smaller 17% premium relative to its historical average.³ Investors concerned with such lofty valuation levels, but who do not want to abandon growth investing completely, may consider pursuing GARP investing.

GARP investing allows investors to maintain exposure to high growth-potential names while being mindful of valuation risk. The iShares MSCI USA Quality GARP ETF (GARP), for example, offers a hybrid solution that sits between growth and value — seeking growth as a primary objective but tilting toward value and quality characteristics. As a result, GARP’s portfolio has exhibited lower valuation levels than comparable growth indices, while still higher than the market⁴ itself, given the growth focus.

GARP still looks like a growth exposure when it comes to a sector perspective. Sector deviations relative to a typical market-cap weighted growth exposure, such as the Russell 1000 Growth Index, have been modest given GARP’s primary objective of delivering a growth exposure.

The result is a portfolio with similar sector exposure relative to the iShares Russell 1000 Growth ETF, but larger differences when it comes to security selection within sectors. One notable example is how GARP has reduced concentration risk in the so-called Magnificent Seven stocks: Apple, Alphabet, Amazon, Meta Platforms, Microsoft, NVIDIA, and Tesla.

Consider the weight of the Magnificent Seven names in the iShares Russell 1000 ETF (IWB), iShares Russell 1000 Growth ETF (IWF), and iShares MSCI USA Quality GARP ETF (GARP).

As illustrated above, while GARP significantly reduces exposure to the Magnificent Seven, it does not eliminate them. In fact, the only Magnificent Seven stock that GARP fully excludes per its methodology, which considers value and quality characteristics in addition to growth, is Tesla.⁵ We view that still having nearly 25% of the fund’s overall stock exposure in the Magnificent Seven is an important feature of GARP, since they have been key market-driving names. (Specific companies or issuers are mentioned for educational purposes only and should not be deemed as a recommendation to buy or sell any securities. Any companies mentioned do not necessarily represent current or future holdings of any BlackRock products. Fort actual fund holdings, please visit the respective fund product pages.)

We believe GARP’s blend of growth and value is especially timely given the Fed’s recent pivot to rate cuts and the possibility that the economy may begin to slow. GARP seeks both offensive and defensive characteristics by focusing on companies with strong fundamentals, more reasonable valuations, and quality metrics. In portfolios, GARP can potentially complement core holdings, diversify existing growth exposures, and potentially reduce concentration risk without sacrificing exposure to key growth themes in today’s markets.