The Barron’s 400 ETF , a smart beta exchange-traded fund that seeks to track the Barron’s 400 Index (B400), completed its most recent semi-annual reconstitution and rebalance on Friday, September 17, 2021. Following the new stock selection, B400 replaced 175, or 43.8%, of its constituents, slightly above its historical average turnover of 42.2%. B400 was designed to give investors a means of tracking some of America’s highest-performing companies based on the strength of their financials 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. In order to adhere to B400’s growth at a reasonable price (GARP) investment philosophy and focus on long-term capital appreciation, 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 covered by MarketGrader’s research, regardless of sector or market capitalization.
Prominent large-cap additions to B400 Include Regeneron Pharmaceuticals (REGN), Vertex Pharmaceuticals (VRTX), Intuitive Surgical (ISRG), Moderna (MRNA), Stryker Corp. (SYK), and Gilead Sciences (GILD), underscoring a trend favoring large cap health care names with strong growth characteristics and reasonable valuations.
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. Combined with the maximum permissible 80-company allocation to Financials, this trend underscores the strength of the U.S. economy as it continues its post-Covid recovery. “Such a robust exposure to industries most dependent on U.S. economic strength makes B400 a unique, broad, and well diversified way for investors to participate in the country’s ongoing economic renaissance without having to do individual stock selection themselves,” said Diez.
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.
A total of 92 industries are represented in B400, with Regional Banks having the most companies in the Index for a single industry (47), followed by Medical Specialties (22), Specialty Stores (19), Semiconductors (17), and Homebuilding (11). At the other end of the spectrum, 27 industries are represented by a single company each.
Thirty-four companies were selected to B400 for the first time ever, with the five largest being Moderna (MRNA), Carrier Global (CARR), Seagen (SGEN), Textron (TXT), and ZoomInfo Technologies (ZI). On the other hand, 65 companies have been members of B400 for at least two years, with 13 having been selected to B400 for five consecutive years, while 39 returned to B400 after an absence of at least two years.
The reconstitution has once again raised the fundamental health of the Index. This increase is a function of B400’s design, which selects the 400 highest scoring companies listed on U.S. exchanges, every six months. 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 four categories of fundamental analysis – 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. The 221 companies retained by B400 from the March selection had an average MarketGrader grade of 75.2, whereas the 175 companies that were replaced had an average grade of 61.5 (four companies has been removed from the Index in between rebalance periods because of corporate actions). The 179 newcomers at this most recent rebalance had an average MarketGrader grade of 73.5.
Among the current constituents following the latest B400 reconstitution, 15 companies have been selected to the Index in at least 30 different semi-annual periods (equivalent to 15 calendar years). The 10 companies with the most overall selections include Microsoft (MSFT) – 43 selections, Nike (NKE) – 39 selections, Apple (AAPL) – 36 selections, PepsiCo (PEP) – 36 selections, FactSet Research (FDS) – 35 selections, Johnson & Johnson (JNJ) – 35 selections, Best Buy (BBY) – 34 selections, T. Rowe Price (TROW) – 34 selections, Cognizant Technology Solutions (CTSH) – 33 selections, and Oracle (ORCL) – 33 selections.
For more information about the Barron’s 400 ETF (BFOR), please visit http://www.barrons400etf.com.