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 and equal weighting of its underlying benchmark. The rules-based, 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 financials and the attractiveness of their share prices. Launched in 2007 and celebrating this month its 10th anniversary, B400 was jointly developed by Barron’s, America’s premier financial magazine, and MarketGrader, an independent equity research and indexing firm. In order to adhere to 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 covered by MarketGrader’s research, regardless of sector or market capitalization.
Prominent large-cap additions to B400 include1 Marriot International (MAR), Las Vegas Sands (LVS), Dollar General (DG), Dollar Tree (DLTR) and Take-Two Interactive Software (TTWO). Notable large-cap deletions include Alphabet (GOOG), Starbucks (SBUX), Reynolds American (RAI), Carnival (CCL) and Activision Blizzard (ATVI). Among the 47 companies selected for the first time, some of the highest ranked stocks are Corcept Therapeutics (CORT), Viper Energy Partners (VNOM), BancFirst (BANF) and Hudson Technologies (HDSN).
On a sector basis, two of the sectors with typically lower Index representation, Energy and Consumer Staples, saw the biggest net gains in number of constituents, adding 15 and 5 components, respectively. B400 nearly doubled its allocation to Energy, now with 31 members, up from 16 names following the March selection period. Financials have the largest weighting in B400, with 80 companies, or 20% of the Index, the maximum sector allocation allowed according to B400’s rules-based methodology. The second and third largest sectors are Technology and Industrials, with 76 and 72 stocks, respectively. With 66 names and 16.5% of the Index, the fourth largest sector, Consumer Discretionary shed 14 stocks, the largest net loss in number of constituents.
Carlos Diez, CEO and Founder of MarketGrader said, “B400’s GARP stock selection methodology continues to gravitate towards Financials. While the sector has generally enjoyed high representation in the Index throughout the second longest bull market in history, this rebalance period saw particular breadth in fundamental strength for Financials amongst the universe of U.S. equities. Energy, meanwhile, experienced the most significant resurgence in the number of members and as a proportion of B400’s portfolio that it has in years. This indicates that profits within the sector may be rebounding, though the best opportunities for capital appreciation require methodical and systematic consideration of balance sheets to uncover.”
From a size perspective, the newly reconstituted B400 continued adding large-caps, though it was a marginal gain of only 2 companies relative to the jump seen in the March selection when 19 stocks were added. With that, large-caps occupy 22.25% of the Index, while small-caps held steady at 21.25% and mid-caps fell slightly to a 56.50% weighting. Diez commented, “Size movement amongst this selection class was minimal, which is unsurprising as the mid-cap segment of the market has typically represented the ‘sweet spot’ for B400, featuring relatively attractively valued companies with strong fundamentals and promising growth prospects.”
The reconstitution has once again raised the fundamental health of the Index; the average MarketGrader score for B400 companies is now 68.1, compared to 63.7 for the March selection class. This increase is a function of B400’s design, which selects the 400 highest scoring companies in the U.S. every six months. Deleted companies had an average score of 55.4, representative of their diminished appeal to B400’s rigorous selection parameters, while incoming selections had an average score of 66.9. 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 fundamental indicators across 4 categories of fundamental analysis – 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.
In total, 157 companies were added to the Index upon the rebalance, a turnover rate of 39%, below B400’s historical turnover average of 42%. 81 companies have been members of the Index for at least 2 consecutive years (4 reconstitutions). Of this group, 21 constituents have been B400 members for at least 5 years, including Alaska Air Group (ALK), Apple (AAPL), MasterCard (MA), Amgen (AMGN), Williams-Sonoma (WSM), Home Depot (HD) and Priceline Group (PCLN)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), please visit http://www.barrons400etf.com.
MarketGrader is a Miami-based provider of independent global equity research and indexes that was 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 fundamental 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. MarketGrader Indexes cover Domestic, International and Global equities from a global universe of more than 35,000 companies in 93 countries, representing over $70 trillion in market capitalization. In 2007, MarketGrader created the Barron’s 400 Index in conjunction with Barron’s, America’s premier financial magazine. Follow us on Twitter @MarketGrader and connect with us on LinkedIn.
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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.
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1 In descending order by market cap, as of 09/12/17.
2 In descending order by MarketGrader ranking, as of 09/12/17.