Cyclical sectors in play as Barron’s 400 ETF rebalances

Oct 11th, 2021 | By | Category: Equities

The Barron’s 400 ETF (BFOR US), an NYSE Arca-listed ETF tracking the Barron’s 400 Index (B400), has pivoted towards cyclical sectors following the semi-annual reconstitution and rebalance of its underlying index.

Cyclical sectors in play as Barron’s 400 ETF rebalances

B400 has pivoted towards cyclical sectors following its latest reconstitution.

Co-created by Barron’s, a prominent US financial journal, and MarketGrader, an independent equity research and indexing firm, the ETF tracks the performance of 400 equally weighted US companies selected based on the strength of their financial statements and the attractiveness of their share prices.

MarketGrader utilizes a proprietary equity rating system to select stocks based on a combination of 24 fundamental indicators spanning growth, value, profitability, and cash flow factors, in line with a ‘growth at a reasonable price’ (GARP) strategy.

To maintain the GARP investment philosophy, the index is reconstituted and rebalanced twice a year, removing firms whose fundamental quality may have been eroded or whose share price no longer represents an attractive buy.

The newly reconstituted index replaced 175, or 43.8%, of its constituents, slightly above the historical average turnover of 42.2%.

Two trends stand out from a sector perspective. The first was the shift towards cyclical stocks with consumer discretionary, energy, industrials, and materials sectors collectively experiencing a net gain of 21 companies. Combined with the maximum permissible allocation of 80 companies to financials, this trend underscores the strength of the US economy as it continues its post-Covid recovery.

Carlos Diez, CEO of MarketGrader, said: “Such a robust exposure to industries most dependent on US 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.”

The second noticeable trend is the paring back of technology stocks. The sector experienced a net loss of ten names to arrive at 68 constituents, its lowest level in two years.

A total of 92 industries are represented in B400 with regional banks having the greatest exposure at 47 constituents, followed by medical specialties (22), specialty stores (19), semiconductors (17), and homebuilding (11).

Prominent large-cap additions include Regeneron Pharmaceuticals, Vertex Pharmaceuticals, Intuitive Surgical, Moderna, Stryker, and Gilead Sciences which highlights another trend favouring large-cap health care companies with strong growth characteristics and reasonable valuations.

Following the rebalance, 65 companies have been members of B400 for at least two years, with 13 having been selected for five consecutive years.

The Barron’s 400 ETF houses $150 million in assets and comes with an expense ratio of 0.65%.

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