Before addressing that question, let’s summarize what the Barron’s 400 is all about.
The companies whose stocks comprise the index are in top-notch financial shape. MarketGrader scores them on 24 financial criteria and picks the best as index components. The scores are refreshed continuously, and the selection process is rerun twice a year to make sure the index always is tracking the strongest of the strong.
The Barron’s 400 is built on the belief that over time the market rewards companies which consistently grow their sales and profits, and whose stocks are not overpriced. Whether gigantic or small or somewhere in between, the companies whose stocks are in the Barron’s 400 are focused on growth.
So, if you are a growth investor seeking capital appreciation, the Barron’s 400 is right up your alley. This year through June 21, which includes last week’s big selloff, the Barron’s 400 has gained 14.6% vs. 11.9% for the Dow Jones U.S. Total Stock Market Index. The Barron’s 400 could represent the core of your portfolio—and certainly should at least be your benchmark.
Value investors ought not feel slighted. While the Barron’s 400 components are selected for growth potential, their prices are still in reasonable territory. In eight of nine sectors, the Barron’s 400 stocks’ PE ratios are below those of the universe from which they are selected. (See B400 Is a Growth Index and the Price Is Reasonable).
These stocks are not “deep value,” certainly, but they also aren’t likely to take as long to reach the outperformance stage. That means the Barron’s 400 could represent the shorter-term end of the value spectrum in your portfolio.
If you invest solely for current income, the Barron’s 400 probably isn’t the index for you. Our index currently yields 1.1%, which is no competition for the dividend-oriented indexes out there. But if you like capital appreciation in addition to those dividends and coupon payments, the Barron’s 400 might be the ideal “satellite” to your income-producing “core.”
“Style-box” investors, who mix growth and value with large, mid-sized and small stocks, could use the Barron’s 400 to represent the entire growth side of their investment matrix. That’s because the index includes all three size segments, as measured by market capitalization. But because the Barron’s 400 is equally weighted, the large stocks don’t dominate performance.
Pigeonholing the Barron’s 400 as just another growth index does a disservice. It can serve a wide variety of investors with markedly different approaches and methods. The Barron’s 400 is a very useful measure of ambitious, financially solid companies.