DENVER--(BUSINESS WIRE)--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. The rules-based and fundamentals-driven B400 was designed to give investors a means of tracking some of America’s highest-performing companies based on the strength of their financial statements 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 with a proprietary fundamental methodology. To maintain B400’s growth at a reasonable price (GARP) investment philosophy, 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 regardless of sector or market capitalization.
Prominent large-cap additions to B400 include Citigroup (C), Constellation Brands (STZ), Intercontinental Exchange (ICE), Microsoft (MSFT), Nvidia (NVDA), Qualcomm (QCOM) and Raytheon (RTN). Amongst the 66 companies selected for the first time are AT&T (T), MSCI, Pinnacle Foods (PF), S&P Global (SPGI) and Shell Midstream Partners (SHLX). Notable large-cap deletions include Berkshire Hathaway (BRK.B), Intel (INTC), Johnson & Johnson (J&J), Union Pacific (UNP), UnitedHealth Group (UNH) and Verizon Communications (VZ).
On a sector basis, Materials had the biggest net gain in number of constituents, adding 6 components and resulting in a 4% overall weight in the Index. Health Care saw the second largest net gain, with 3 additions pushing the sector’s allocation to 12%. Consumer Discretionary had the biggest net loss – shedding 6 constituents – but at 18% of B400’s overall composition, it remains the third most represented sector. For the third consecutive selection period, Financials and Industrials both reached the maximum sector allocation of 20% of the Index, or 80 companies.
Carlos Diez, CEO and Founder of MarketGrader said, “B400’s continued significant allocation towards companies in cyclical sectors speaks to the strength of the fundamentals underpinning the U.S. economy. At the industry level, one theme that stands out with this reconstitution is homebuilding and construction. By our count, nearly one quarter of the constituents in the new B400 class are dependent on the housing market. With an index that chooses its members on the basis of their fundamentals and the attractiveness of their share price, this indicates the significant benefits the housing market is providing these companies, and hints at the opportunities for investors. Long a bellwether for economic activity, the string of good data coming out of the housing market recently, corroborated by the health of these B400 components, suggest doubts about the ability of the domestic economy to absorb further rate increases are overblown.”
From a size perspective, the newly reconstituted B400 saw large-cap stocks fall further out of favor, losing a quarter of their components to wind up with a 16.75% allocation in the Index. The 22 outgoing large-caps resulted in the addition of 18 mid-cap stocks and 4 small-cap companies. With 244 constituents in the new B400 class, mid-caps comprise the majority of the Index. Small-caps encompass 89 names for a 22.25% allocation. Diez commented, “Once again, we saw B400’s composition shift smaller. Large-caps’ higher exposure to lower-growth overseas markets continues to contribute to their decline in the Index. MarketGrader’s fundamental GARP ratings find more favor currently with smaller companies that derive a higher proportion of their business domestically. This too is suggestive of the relative health of the U.S. economy and the attractiveness of the domestic market as a location for investors seeking capital appreciation, particularly the mid-cap growth segment.”
The reconstitution has elevated the fundamental health of the Index; the average MarketGrader score for B400 companies is now 67.81, compared to 66.5 for the March selection class. This increase is a function of B400’s design and has been witnessed with each successive B400 selection class. Deleted companies had an average score of 54.9, representative of their diminished appeal to B400’s rigorous selection parameters, while incoming selections had an average score of 66.1. 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 factors – 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.
In total, 172 companies were added to the Index upon the rebalance, a turnover rate of 43%, slightly above B400’s since inception average of 42%. 82 companies have been members of the Index for at least 2 consecutive years (4 reconstitutions). Of this group, 50 have been members for at least 3 years and 19 have been B400 members for at least 5 years, including Apple (AAPL), F5 Networks (FFIV), Home Depot (HD), Manhattan Associates (MANH), MasterCard (MA), Nike (NKE), Priceline Group (PCLN) and Tractor Supply Company (TSCO).
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.
For more information about the Barron’s 400 ETF (BFOR), under the ALPS trust, please visit http://www.barrons400etf.com.
About MarketGrader
MarketGrader.com 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. Seeking only the most financially healthy companies trading at attractive prices, MarketGrader Indexes cover Domestic, International and Global equities from a global universe of more than 35,000 companies across 100 markets, representing over $72 trillion in market capitalization. In 2007, MarketGrader created the firm’s flagship Barron’s 400 Index in conjunction with Barron’s, America’s premier financial magazine.
About ALPS
Through its subsidiary companies, ALPS Holdings, Inc. is a leading provider of innovative investment products and customized servicing solutions to the financial services industry. Founded in 1985, Denver-based ALPS delivers its asset management and asset servicing solutions through offices in Boston, New York, Seattle, and Toronto. ALPS is a wholly-owned subsidiary of Kansas City-based DST Systems, Inc. For more information about ALPS and its services, visit www.alpsinc.com. Information about ALPS 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 400SM ETF shares are not individually redeemable. Investors buy and sell shares of the Barron’s 400SM ETF on a secondary market. Only market makers or “authorized participants” may trade directly with the Fund, typically in blocks of 50,000 shares.
ALPS Portfolio Solutions Distributor, Inc., 1290 Broadway, Ste. 1100, Denver, CO 80203 is the distributor for the Barron’s 400SM ETF.
“The Barron's 400 IndexSM” is calculated by NYSE Euronext or its affiliates and published by MarketGrader. “Barron's®," "Barron's 400SM” and "Barron's 400 IndexSM" 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 IndexSM and sublicensed for certain purposes by ALPS Advisors, Inc. ALPS’s Barron’s 400SM ETF based on the Barron’s 400 IndexSM, 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.
ALPS, A DST Company, and ALPS Portfolio Solutions Distributor, Inc. are not affiliated with Barron’s or MarketGrader.
*Registered Representative of ALPS Distributors, Inc. and ALPS Portfolio Solutions Distributor, Inc. ALPS Distributors, Inc. and ALPS Portfolio Solutions Distributor, Inc. are affiliated.
1 All MarketGrader scores are as of 9/13/16.
