Investing strategies that target so-called ‘growth’ companies have emerged this summer as some of the best performers of all the approaches we track at Stockopedia. And despite August being a usually quiet month for the market, the recent share price movements of a handful of companies have driven some of these growth strategies even further. 

Last month we gave a nod to GARP strategies – or Growth At a Reasonable Price – as some of the best performing GuruModel screens during the mid-year. After several months in which value and price momentum had produced the best returns, attention was clearly beginning to switch to strategies that focus on keenly priced stocks offering earnings growth and improving margins. In conditions where value opportunities are thin on the ground, investors willing to raise their standards and pay a bit more for shares with strong growth characteristics, GARP investing is looking like an effective tactic. 

Perhaps the most famous of these strategies to have recently found a sweet spot in the investing cycle is Jim Slater’s Zulu Principle. Jim Slater’s 1990’s book of the same name explained how to pick potential winners by selecting stocks that are undervalued relative to their growth rate. He illustrated a shorthand to this process whereby investors could hunt for stocks with a PEG ratio (or Price Earnings to Growth ratio) of less than one.  Stockopedia’s implementation of this strategy has produced a 3-month return of 21.5% against the FTSE 100, which has fallen by 5.2% over the same period.  It has picked up companies including Brammer (LON:BRAM), the manufacturing components supplier, which has seen its share price jump by 40% to 455.9p since the beginning of July when it reported that its growth initiatives were bearing fruit. 

Elsewhere, the current Zulu portfolio also includes stockbroking firm Jarvis Securities (LON:JIM), where the shares have risen by 39% to 400p over two months following its best ever set of half-year results. Interestingly, the shares saw a pronounced rise in early August, coinciding with rule changes that now allow AIM-quoted stocks like Jarvis to be acquired using a tax-efficient ISA wrapper. More generally, that change has had a positive early impact on AIM, which after a lacklustre year has actually gone on to outpace the otherwise impressive performance of the FTSE…

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