More exchange traded funds (ETFs) could be on the way based on the announcement today that Dow Jones Indexes and Barron’s will collaborate to launch the Barron’s 400 Index. The index will track the performance of highly-liquid U.S. stocks from American companies as defined by fundamentally-weighted, rules-based criteria. As of August 31, 2007, the estimated Barron’s 400 Index, based on back-tested data, is up 321.04% since its inception on December 31, 1997.
To be eligible for inclusion, stocks are rated by fundamental criteria that measure companies’ profitability, cash flow and “growth” and “value”-style characteristics. Stocks must then pass additional rules-based screens applied by Dow Jones Indexes, reports Michael Santoli for Barron’s Online. The top 400 stocks that meet these criteria are selected as components of the Barron’s 400 Index, which is reviewed semi-annually in March and September. Components are equal weighted and industries are capped at 20% of the index to ensure diversification. Real estate investment trusts (REITs) are ineligible for inclusion.
Dow Jones Indexes intends to license the new index to underlie financial products such as mutual funds, ETFs and other investment vehicles. For Barron’s, the new index will provide additional subject matter for articles and analysis in the print publication and on Barron’s Online.
The question that remains is: Who will be the first ETF provider to create an ETF that will track the Barron’s 400 Index?
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.