Not many ETFs can lay claim to as intriguing an approach as the ALPS Barron’s 400 ETF (BFOR). The equal weight growth ETF doesn’t just offer an equal weight variation on the U.S. total-market segment. Its application of growth at a reasonable price (GARP) methodology could potentially prove to be a very appealing option right now. With U.S. stocks expensive and the market top heavy, such a specialized ETF may be worth examining.
What exactly about current conditions may drive investors toward an equal weight approach? With just seven or so firms driving the vast majority of the S&P 500’s growth this year, a dip for those firms could be impactful. While many portfolios have benefited significantly from tech exposure this year, setting limits can help.
Perhaps more relevant, however, is how much U.S. stocks cost right now. Twelve-month earnings yield data on U.S. stocks, minus the 10-year government bond yield, sat at just 1.1% compared to 5.7% in Europe earlier this year. That and other measures speak to an expensive U.S. equities market.
BFOR’s Equal Weight Growth ETF GARP Approach
Those two actors speak to the potential for an equal weight growth ETF with a GARP approach. The GARP methodology looks for firms with consistent earnings growth but without those blisteringly high valuations. In BFOR, that tends to produce more small-cap exposure than other indexed strategies. BFOR still retains a 45% allocation to large-cap firms based on VettaFi data, but SMIDcaps combine for 51% of its holdings.
BFOR, which recently hit its 10-year ETF milestone, has notable long-term performance to consider, too. The equal weight growth ETF has returned 10.3% over the last three years, outperforming both its ETF Database Category and FactSet Segment averages per VettaFi. For investors looking for a strategy that can adapt to cost and concentration risk challenges but also emphasizes growth, BFOR could be one to watch.