The Barron’s 400 ETF (NYSEArca: BFOR) and its underlying benchmark, the widely observed Barron’s 400 Index (B400), just completed its most recent semi-annual rebalancing, swapping around companies that have undergone shifts in their fundamental strengths.
The Barron’s 400 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.
The rules-based index was designed to provide investors a way to track some of the highest-performing U.S. companies based on the strength of their financial statements and the attractiveness of their share prices. To maintain the index’s growth at a reasonable price, the index is reconstituted and rebalanced twice a year. The rebalancing act also reveals what companies have fallen behind, along with firms that are on the up-and-up.
This time around, prominent large-cap additions to B400 include Marriot International (MAR), Las Vegas Sands (LVS), Dollar General (DG), Dollar Tree (DLTR) and Take-Two Interactive Software (TTWO). Notable large-cap deletions include Alphabet (GOOG), Starbucks (SBUX), Reynolds American (RAI), Carnival (CCL) and Activision Blizzard (ATVI). Among the 47 companies selected for the first time, some of the highest ranked stocks are Corcept Therapeutics (CORT), Viper Energy Partners (VNOM), BancFirst (BANF) and Hudson Technologies (HDSN), according to a press release.
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The energy and consumer staples sectors experienced the largest net gains as the index added 15 and 5 components, respectively, to the sectors. On the other hand, consumer discretionary saw the the most losses with 14 companies removed. Financials remain the largest sector tilt in the ETF, making up 20% of the index, the maximum sector allocation allowed, followed by technology and industrials.
“B400’s GARP stock selection methodology continues to gravitate towards Financials,” Carlos Diez, CEO and Founder of MarketGrader, said in a note. “While the sector has generally enjoyed high representation in the Index throughout the second longest bull market in history, this rebalance period saw particular breadth in fundamental strength for Financials amongst the universe of U.S. equities. Energy, meanwhile, experienced the most significant resurgence in the number of members and as a proportion of B400’s portfolio that it has in years. This indicates that profits within the sector may be rebounding, though the best opportunities for capital appreciation require methodical and systematic consideration of balance sheets to uncover.”
The rebalancing has also improved the overall fundamental health of the index. According to marketGrader, the score for the B400 companies is now 68.1, compared to 63.7 during its March selection class. The indexing methodology selects the 400 highest scoring companies in the U.S. every six months and grades them on a scale of 0 to 100 based on a combination of growth, value, profitabiliy and cash flow.
For more information on ETF indices, visit our indexing category.