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, 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 Pfizer (PFE), Boeing (BA), PNC Financial Services Group (PNC), NextEra Energy (NEE), Norfolk Southern (NSC) and Kimberly-Clark (KMB). Notable large-cap deletions include Microsoft (MSFT), Johnson & Johnson (JNJ), JPMorgan Chase (JPM), Home Depot (HD) and Amgen (AMGN). Among the 54 companies selected for the first time, some of the highest ranked stocks2 are Liberty Oilfield Services (LBRT), ACCO Brands (ACCO), Live Oak Bancshares (LOB) and NV5 Global (NVEE).
On a sector basis, Energy, Industrials and Materials saw the biggest net gains in number of constituents, adding 12, 8 and 7 components, respectively. Financials and Industrials 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. Despite losing 9 names, Technology is the third largest sector with 67 stocks, comprising 16.75% of the Index. With 54 names and 13.5% of the Index, the fourth largest sector, Consumer Discretionary continued to shed members, losing twelve stocks, the largest net loss in number of constituents.
Carlos Diez, CEO and Founder of MarketGrader said, “From a sector standpoint, this selection period witnessed the continuation of some trends the Index has displayed over recent years, resulting in allocation levels not seen since the beginning or middle of the current bull market. Firstly, the decline in Consumer Discretionary and Health Care stocks brings their current weights in B400 to their lowest levels since March of 2009 and 2014, respectively, and well below their averages. Secondly, B400’s GARP stock selection methodology continues to gravitate towards Financials and Industrials, the former having hit the maximum allocation for seven consecutive rebalance periods and the latter showing significant strengthening in fundamentals. Lastly, the Index has found the most opportunities in Energy since September 2009; with 43 Energy constituents, B400 has more than tripled its allocation to the sector since selecting only 13 stocks two years ago.”
Diez added, “While there has been much discussion about historically high equity valuations and speculation as to the durability of a bull market, now past its ninth anniversary, B400’s ability to systematically scan the U.S. equity universe for growth-oriented values is compelling in a market environment where price gains can be expected to result from healthy earnings growth driven by an expanding economy.”
From a size, or market capitalization, perspective, the newly reconstituted B400 traded up, replacing 17 small-cap constituents with all large-cap names. With 106 total large-cap stocks, the Index has not seen such heavy weighting towards the top end of the capitalization segment since the September 2014 selection. Conversely, with only 68 constituents, small-caps have the least representation in the Index since the March 2014 class. Mid-caps, the segment where B400 traditionally finds the bulk of opportunities, were unchanged with 226 total stocks.
The reconstitution has once again raised the fundamental health of the Index; the average MarketGrader score for B400 companies is now 67.8, compared to 61.8 for the March selection class. This increase is a function of B400’s design, which selects the 400 highest scoring companies listed on U.S. exchanges every six months. 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, 183 companies were added to the Index upon the rebalance, a turnover rate of 45.75%, which is above B400’s historical turnover average of 41.92% and the highest rate of change since the March 2008 rebalance. 67 companies have been members of the Index for at least 2 consecutive years (4 reconstitutions). Of this group, 16 constituents have been B400 members for at least 5 years, including Grand Canyon Education (LOPE), Alaska Air Group (ALK), TJX Companies (TJX), Ross Stores (ROST) and Apple (AAPL)3.
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 36,000 companies in 94 countries, representing over $83 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.
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.
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 03/12/18.
2 In descending order by MarketGrader ranking, as of 03/12/18.
3 In descending order by MarketGrader ranking, as of 03/12/18.