GARP

A value investor looks for cheap, under-priced stocks. A growth investor looks for companies growing faster than their industry, even at a higher price. GARP tries to get the best of both.

GARP stands for Growth at a Reasonable Price. It combines the tenets of Value Investing and Growth Investing when a manager selects stocks — looking for companies that are genuinely growing, but not paying an unreasonable price to own that growth.

The workbook gives no numeric formula or threshold for GARP — it is described as a stock-selection style a Category III AIF manager can use, sitting alongside plain Value Investing and plain Growth Investing as the three main approaches to picking stocks and building industry and sector allocations.

Once a style is chosen, the Investment Manager still has to decide industry allocation, set maximum weights per industry, and then do stock selection within those targets — subject to the regulatory cap on how much a Category III AIF can invest in one investee company.

Nilgiri Growth Fund, a Category III AIF, screens two candidate stocks for its portfolio.

Company A is a well-known consumer brand with 30% expected earnings growth, but trading at a very high price-to-earnings multiple that already prices in years of that growth.

Company B is a lesser-known mid-cap manufacturer with a more modest 18% expected earnings growth, trading at a price-to-earnings multiple well below its sector average.

A pure growth investor might prefer Company A for its higher growth rate. A pure value investor might prefer Company B purely for its cheap valuation. A GARP-style manager weighs both factors together, and is more likely to favour Company B — meaningful growth, at a price the market has not yet fully recognised.

Chapter 3, section 3.4 (Investments by Category III AIFs), introduces GARP directly alongside Value Investing and Growth Investing, as one of the stock-selection styles a Category III AIF manager may use within its asset allocation and stock selection process. Expect GARP tested as a definitional recall question — the acronym's expansion, and that it blends value and growth investing.

• GARP blends value and growth investing — it is not a third, unrelated style. A question testing this concept usually asks for the definition directly.
• The workbook gives no formula, ratio or numeric threshold for GARP. Do not assume a specific P/E cutoff defines it — it is a qualitative blend of two other styles.
• Do not confuse GARP's stock-selection style with the fund-level investment limit of 10% of investable funds in one investee company — that cap applies regardless of which stock-picking style the fund follows.