DENVER--(BUSINESS WIRE)--The Barron's 400 ETF (NYSE Arca:BFOR), a smart beta exchange-traded fund that seeks to track the Barron’s 400 Index (B400), has completed its semi-annual rebalance based on the reconstitution of its underlying benchmark. The rules-based and fundamentals-driven B400 was designed to give investors a means of tracking some of America’s highest-performing companies based on the strength of their financial statements and the attractiveness of their share prices. B400 was jointly developed by Barron’s, America’s premier financial magazine, and MarketGrader, an independent equity research and indexing firm with a proprietary fundamental methodology, and launched in 2007. To maintain B400’s growth at a reasonable price (GARP) investment philosophy, the Index is reconstituted and rebalanced twice a year, ensuring B400 is composed of the top-ranked stocks from the universe of U.S. equities.
Prominent additions to B400 include JPMorgan Chase, Verizon Communications, Altria Group and United Parcel Service. Amongst the 58 companies selected for the first time were GrubHub, LendingTree, Blue Nile and the recently merged Walgreens Boots Alliance. Notable deletions include Microsoft, Facebook, Wal Mart, Celgene and 3M.
The reconstitution has elevated the fundamental health of the Index; the average MarketGrader score for B400 companies is now 68.3, compared to 63 for the March selection class. This increase in fundamental health upon reconstitution is central to B400’s design and has been witnessed with each successive B400 selection class. Outgoing companies had an average score of 53.3, representative of their diminished appeal to B400’s rigorous selection parameters. MarketGrader’s equity rating system assigns nearly all investable U.S. stocks a grade on a scale of 0-100 based on a proprietary combination of 24 indicators of growth, value, profitability and cash flow, picking the top ranking companies for BFOR’s underlying Index after screening for size and sector diversification as well as liquidity.
Top scoring new entrants include Teekay Tankers (80.7), Abiomed Inc. (79.1), Amag Pharmaceuticals (78.9), Newlink Genetics (78.2) and Fidelity Southern Corp. (76.8).1
Carlos Diez, CEO and Founder of MarketGrader said, “By design, the Barron’s 400 Index is focused on identifying companies with superior fundamental attributes, while not overpaying, across the U.S. total stock market. Contrary to what many think given today’s slower growth environment, B400 shows us companies with attractive fundamentals and growth prospects are still to be found. Not surprisingly, the growth profile of current constituents is across the board better than for the previous selection class. Incorporating the two quarterly financial reports that have been produced by all companies since the March selection, B400 has chosen a new crop with improved growth when looking at one and three-year growth rates in revenue, operating income and net income.”
On a sector basis, Financials had particularly strong grades, hitting the imposed 20% sector maximum much earlier than usual in the selection process. Industrials also reached the 20% maximum, slightly increasing the allocation to that sector. Consumer Discretionary at 19.25%, Technology at 13.75% and Health Care at 10.25% round out the top five sectors by weight in the new class. “With a laser focus on earnings, B400 continues to see the most opportunity in sectors reflecting the ongoing cyclical improvement in the U.S. economy, which is encouraging given recent market conditions,” added Diez.
Exposure to the Energy sector was trimmed by more than half. While Energy already had a relatively small weight of 9.25%, or 37 companies, B400 now has a minimal 4% exposure to the sector with just 16 names. “Notably, all five new Energy names are either refiners (downstream) or pipeline companies (midstream), suggesting B400 still finds value in the sector but not in names most exposed to the drop in fuel prices,” commented Diez.
From a size perspective, the newly reconstituted B400 has an average market capitalization of $18.28 billion compared to $19.07 billion for the March class. This drop was led by a significant increase in weight towards small-caps, categorized as companies with a market cap below $1 billion, from 16% (64 stocks) to 22% (88 stocks). Large-caps, companies with a market cap above $10 billion, decreased from 27.25% to 25.5%, as did mid-caps, decreasing from 56.25% to 52.5%. “B400’s tilt towards small-caps upon this reconstitution is indicative of the increasing fundamental attractiveness of companies that earn the lion’s share of their profits in the U.S. and are less intrinsically exposed to the negative impacts of U.S. dollar strength,” added Diez.
In total, 167 companies were added to the Index upon the rebalance, a turnover rate of 41.75%, which is slightly below B400’s historical average of 42% since inception. 96 companies have been members of the Index for at least 2 consecutive years (4 reconstitutions). Of this group, 51 have been members for at least 3 years and 21 have been B400 members for at least 5 years. Grade-wise, this elite group of GARP companies is currently led by Apple Inc. (81.8), Fossil Group (77.8), Nike (77.4), F5 Networks (76.7) and Home Depot (76.2).
B400’s constituents are equal weighted, each representing 0.25% of the Index upon rebalance, eliminating the tendency in traditional market capitalization weighted indexes of the largest companies to disproportionately impact performance.
For more information about the Barron’s 400 ETF (BFOR), under the ALPS trust, please visit http://www.barrons400etf.com.
About MarketGrader
MarketGrader.com is a Miami-based provider of independent equity research and indexes founded on the belief that fundamental analysis and transparency are central to better investment decision-making. Formed in 1999, MarketGrader offers investors an online research service that aggregates financial data on publicly traded companies and analyzes them based on a proprietary quantitative methodology using 24 indicators across growth, value, profitability and cash flow. The company’s growth at a reasonable price (GARP) methodology is designed to identify consistent creators of economic value as it believes such stocks are the best long-term generators of shareholder value. Since its first index was constructed in 2003, MarketGrader Indexes have provided an alternative to traditional market capitalization weighted benchmarks, selecting constituents based on fundamentals rather than size. Seeking only the most financially healthy companies trading at attractive prices, MarketGrader Indexes cover Domestic, International and Global equities markets from a global universe of more than 35,000 companies across 100 markets, representing over $75 trillion in market capitalization. In 2007, MarketGrader created the firm’s flagship Barron’s 400 Index in conjunction with Barron’s, America’s premier financial magazine.
About ALPS
Through its subsidiary companies, ALPS Holdings, Inc. is a leading provider of innovative investment products and customized servicing solutions to the financial services industry. Founded in 1985, Denver-based ALPS delivers its asset management and asset servicing solutions through offices in Boston, New York, Seattle, and Toronto. ALPS is a wholly-owned subsidiary of Kansas City-based DST Systems, Inc. For more information about ALPS and its services, visit www.alpsinc.com. Information about ALPS products is available at www.alpsfunds.com.
Important Disclosures
An investor should consider investment objectives, risks, charges and expenses carefully before investing. To obtain a prospectus, which contains this and other information, call 1.855.724.0450 or visit www.barrons400etf.com. Read the prospectus carefully before investing.
There are risks involved with investing in ETFs including the loss of money. Additional information regarding the risks of this investment is available in the risks section of the prospectus.
Barron’s 400SM ETF shares are not individually redeemable. Investors buy and sell shares of the Barron’s 400SM ETF on a secondary market. Only market makers or “authorized participants” may trade directly with the Fund, typically in blocks of 50,000 shares.
ALPS Portfolio Solutions Distributor, Inc., 1290 Broadway, Ste. 1100, Denver, CO 80203 is the distributor for the Barron’s 400SM ETF.
“The Barron's 400 IndexSM” is calculated by NYSE Euronext or its affiliates and published by MarketGrader. “Barron's®," "Barron's 400SM” and "Barron's 400 IndexSM" are trademarks or service marks of Dow Jones & Company, Inc. or its affiliates and have been licensed to MarketGrader. One cannot invest directly in an index.
Barron’s© is a service mark of Dow Jones & Company, Inc. and has been licensed to MarketGrader Capital LLC for use with the Barron’s 400 IndexSM and sublicensed for certain purposes by ALPS Advisors, Inc. ALPS’s Barron’s 400SM ETF based on the Barron’s 400 IndexSM, is not sponsored, endorsed, sold or promoted by Dow Jones, or its affiliates, and Dow Jones and its affiliates make no representation regarding the advisability of investing in such product.
ALPS, A DST Company, and ALPS Portfolio Solutions Distributor, Inc. are not affiliated with Barron’s or MarketGrader.
1 All MarketGrader scores are as of 9/15/15.
