Perhaps at just the right time, the Barron’s 400 ETF (NYSEArca: BFOR) is getting a bit more cyclical while dialing back exposure to some corners of the market that can struggle when interest rates rise.
The Barron’s 400 Index (B400), BFOR’s underlying index, recently completed its most recent semi-annual reconstitution and replaced 175, or almost 44%, of its components. New additions to the index include plenty from cyclical value sectors.
“From a sector standpoint, besides the underlying strength seen among large cap health care names mentioned above, two other trends stood out following the most recent rebalance, according to Carlos Diez, MarketGrader’s CEO. The first was the increase in cyclical names across the Consumer Discretionary, Energy, Industrials, and Materials sectors, which, in the aggregate had a net gain of 21 companies relative to the March selection,” said a statement issued by the index provider.
BFOR’s index takes 400 stocks from the broader MarketGrader U.S. Coverage Universe by using a methodology that selects components based on the strength of their fundamentals in growth, valuation, profitability, and cash flow, and then screens components for certain criteria regarding concentration, market capitalization, and liquidity.
BFOR as a Rising Rates Play
BFOR also has some utility as a rising rates play, which is timely because 10-year Treasury yields are trending higher. The fund’s underlying index is currently at its cap of 80 financial services stocks, and 47 of those names are regional banks — a group highly correlated to 10-year Treasury yields. On a related note, some sectors saw weights reduced in BFOR’s index.
“The second noticeable trend from B400’s new selections is the reduction in the total number of Technology names selected to the Index; the sector had a net loss of 10 names and its new 68-count total puts it at its lowest level in two years. It also puts it two stocks below its historical count of 70 selections per rebalance period,” added MarketGrader.
That could be advantageous to investors because tech stocks struggled when 10-year yields surged earlier this year. Tech stocks currently account for 15.34% of BFOR’s roster, behind financial services and consumer discretionary names.
Alternatives to BFOR in the mid-cap growth space include the iShares Russell Midcap Growth ETF (NYSEARCA: IWP), the First Trust Mid Cap Growth AlphaDEX Fund (NasdaqGM: FNY), and the iShares Morningstar Mid Growth ETF (NYSEArca: JKH).
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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.