In the regular process of semi-annual index rebalancing, the Barron’s 400 ETF (BFOR) has undergone some changes in its holdings. The rebalancing led to the reduction of some marquee stocks, reshuffling the sector allocations of the fund.
Background of BFOR
The ETF tracks the performance of the Barron-s 400 Index, before fees and expenses. The index uses the MarketGrader U.S. Coverage Universe to select 400 stocks in its portfolio and look for the high performing U.S. stocks based on four fundamental factors such as growth, valuation, profitability and cash flow (see: all the Total U.S. Market ETFs here).
This approach has proven fruitful for BFOR as it is easily crushing the ultra-popular broad market funds – the SPDR S&P 500 (SPY) and SPDR Dow Jones Industrial Average ETF (DIA) – by wide margins. The fund gained nearly 33% since its June 2013 debut compared to gains of 27.3% for SPY and 18% for DIA. From the year-to-date look, the ETF is up 3.9% while SPY and DIA have lost 0.38% and 0.78%, respectively.
Despite the strong performance, the product has not been able to garner enough investor interest as depicted by its AUM of $211.4 million. One of the main reasons for the unpopularity might be its expense ratio of 0.65%, which is one of the highest in the multi-cap ETF space. Further, it trades in light volume of about 31,000 shares a day on average, probably ensuring additional cost in the form of wide bid/ask spread.
Index Rebalance and New Holdings
Post rebalancing of the index, two sectors saw major changes. The ETF has increased its exposure to the health care sector, which now accounts for 9.8% of the total asset base. Six new health care companies are added to the index and ETFs (read: 4 Top-Ranked Health Care ETFs for a Healthy Portfolio).
On the other hand, allocation to the technology sector was reduced to 12.8% as 10 tech companies have left the index. Despite the changes, consumer discretionary, financials, and industrials remained the top three sectors of the fund with each making up for around 20% share.
In terms of security, American Airlines Group (AAL) found its way to the index and the ETF for the first time ever. Some other big names that were added to the holdings list are SStarbucks (SBUX), Johnson & Johnson (JNJ), Celgene (CELG) and Ameriprise Financial (AMP). All these were replaced by Wells Fargo (WFC), Verizon Communications (VZ), International Business Machines (IBM), McDonald (MCD) and Lowe’s (LOW).
With these changes, the fund currently holds 401 securities in its basket that are widely spread across each of them with nearly 0.25% share each (read: 3 IBM Proof Tech ETFs for 2015).
Clearly, the new holdings suggest modest change in exposure to both sectors and securities for many investors. However, the objective of the fund remains the same, offering quality exposure to investors seeking to stay invested in the broad market. The high quality stocks seek safety and protection against volatility in turbulent times and thus, outperform in a crumbling market.