Barron’s 400 ETF Rebalance Identifies Growth at a Reasonable Price Opportunities in Cyclical Sectors, Reflecting Ongoing U.S. Economic Strength
Stockpicker’s Index Sees Largest Rotation of Companies Since Inception, With a Marked Shift Towards Large-Caps
DENVER–(BUSINESS WIRE)–$AAPL #B400–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. 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 and focus on long-term capital appreciation, 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 Visa (V), Home Depot (HD), Verizon (VZ), Coca-Cola (KO), UnitedHealth Group (UNH) and Merck (MRK). Notable large-cap deletions include2 Amazon.com (AMZN), Cisco (CSCO), Boeing (BA), NextEra Energy (NEE), Dominion Energy (D) and ConocoPhillips (COP). Notable large-cap names among the 34 companies selected for the first time include Costco (COST) and PayPal (PYPL), while some of the highest ranked stocks3 are Talos Energy (TALO), Intelligent Systems Corporation (INS), German American Bancorp (GABC) and Arena Pharmaceuticals (ARNA).
On a sector basis, Consumer Staples and Health Care saw the biggest net gains in number of constituents, adding 14 and 6 components, respectively. Despite these gains, with 22 total companies in the sector, or 5.5% of the portfolio, B400’s allocation to Consumer Staples sits just above its 10-year average of 5%, while Health Care remains below its 12% historical average allocation even after significant gains in recent B400 reconstitutions. Financials and Industrials maintained the largest weighting in B400, with 80 companies, or 20% of the Index each, the maximum sector allocation allowed according to B400’s rules-based methodology. The biggest net losers were Energy and Materials, which lost 16 and 5 constituents, respectively, and are now below their 10-year average membership levels.
Carlos Diez, CEO and Founder of MarketGrader said, “Against a backdrop of investor angst about a decelerating global economy and an inverted yield curve, it is important to note that the methodology that unemotionally judges stocks based on company fundamentals and selects them to the Barron’s 400 Index continues to find ample opportunities for long-term capital appreciation among U.S. equities. Financials and Industrials once again achieved the maximum allocation in B400, which is the 11th and 4th consecutive rebalance period this has happened, respectively. Given the sensitivity of these two sectors to the economic cycle and to the performance of the U.S. economy, we see this as an indicator of underlying economic strength despite the recent softening of headline GDP and ISM readings.”
From a size perspective, the newly reconstituted B400 shifted markedly towards large-caps, substituting 55 mid-caps and 31 small-caps with 86 names over $10 billion in market cap. The aggregate market cap of all Index constituents totals $14.14 trillion, which represents approximately 35% of the total free-float market cap of the US stock market4. With half of its 400 members classified as large-cap, more than double the historical average, B400 achieved an average market-cap of $35.36 billion and a median market cap of $9.93 billion, significantly larger than the March class. With only 33 constituents below $1 billion in the new class, B400’s allocation to small-cap stocks reached another record low. 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. Diez added, “Though B400 trended further towards large-cap names, the Index continues to behave more like a mid-cap exposure due to the equal-weighting of the Index, which can provide valuable diversification when any particularly crowded market segment corrects. Further, B400’s GARP stock selection strategy has and will continue to identify mid-caps as the market’s ‘sweet spot’ for the consistent creation of economic value and generation of shareholder value over the long-term.”
In total, 209 companies were added to the Index upon the rebalance, a turnover rate of 52.25%, well above B400’s historical membership rotation average of 42% and the largest change of members since the December 1997 base date, as well as the highest rotation of constituents since BFOR’s 2013 inception. “We expect B400’s recent turnover levels to revert to the mean over time as the gap between growth and value stocks narrows. Since the Index’s methodology looks at both growth and value—along with quality—in evaluating and selecting constituents, anytime one of these factors gets too far ahead of the other, it’s inevitable that MarketGrader’s system will recognize this as an opportunity to be somewhat of a contrarian, providing investors with a smart way to diversify their exposure to popular benchmarks,” Diez added.
The reconstitution has once again raised the fundamental health of the Index. 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.
45 companies have been members of the Index for at least 2 consecutive years (4 reconstitutions). Of this group, 11 constituents have been B400 members for at least 5 years, including Biogen (BIIB), Five Below (FIVE), Trex (TREX), Ross Stores (ROST) and Apple (AAPL)5.
For more information about the Barron’s 400 ETF (BFOR), please visit http://www.barrons400etf.com.
About MarketGrader
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 37,000 companies in 94 countries, representing over $85 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. For more information, please visit www.marketgrader.com.
About SS&C Technologies
SS&C is a global provider of investment and financial software-enabled services and software for the global financial services and healthcare industries. Founded in 1986, SS&C is headquartered in Windsor, Connecticut and has offices around the world. Some 18,000 financial services and healthcare organizations, from the world’s largest institutions to local firms, manage and account for their investments using SS&C’s products and services. For more information, visit www.ssctech.com.
About SS&C | ALPS Advisors Through its subsidiary companies, ALPS Holdings, Inc., which was acquired by SS&C Technologies, Inc. in April 2018, is a leading provider of innovative investment products and customized servicing solutions to the financial services industry. Founded in 1985, Denver-based ALPS Advisors, Inc., delivers its asset management and ALPS Fund Services, Inc., asset servicing solutions through offices in Boston, New York, Seattle, and Toronto – wholly-owned subsidiaries of SS&C Technologies, Inc. For more information about SS&C | ALPS and its services, visit www.ssctech.com. Information about ALPS Advisor 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 400℠ ETF shares are not individually redeemable. Investors buy and sell shares of the Barron’s 400℠ ETF on a secondary market. Only market makers or “authorized participants” may trade directly with the Fund, typically in blocks of 50,000 shares.
“The Barron’s 400 Index℠” is calculated by NYSE Euronext or its affiliates and published by MarketGrader. “Barron’s®,” “Barron’s 400℠” and “Barron’s 400 Index℠” 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 Index℠ and sublicensed for certain purposes by ALPS Advisors, Inc. ALPS’s Barron’s 400℠ ETF based on the Barron’s 400 Index℠, 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.
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BAR000202 9/23/2020
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1 In descending order by market cap, as of 09/10/19.
2 In descending order by market cap, as of 09/10/19.
3 In descending order by MarketGrader ranking, as of 09/10/19.
4 As of 09/10/19.
5 In descending order by MarketGrader ranking, as of 09/10/19.
Contacts
Media:
Andy Hicks
Director of ETF Portfolio Management & Research
ALPS Advisors, Inc.
Tel: (303) 623-2577
E-mail: andy.hicks@alpsinc.com