Barron's 400 Diary

The Barron’s 400 excels at up-capture, and doesn’t do badly at down-capture, either

0 Comments 18 July 2013

This king-of-the-hill terminology refers to an index’s ability to fully reflect, or “capture,” both up and down movements in the market. Most investors want all the up-capture they can get. Down-capture? Not so much.

To calculate this capability, we compared the Barron’s 400 to the S&P 500, the S&P Mid-Cap 400 and the Dow Jones U.S. Total Stock Market Index, which includes all exchange-listed stocks. When those indexes were rising, how much of the move was the Barron’s 400 capturing? And when those indexes were falling, how far did the Barron’s 400 slide in sympathy?

The answer is that the Barron’s 400 far exceeds the upward movements in the broader market. When the market is declining, the Barron’s 400 goes along—sometimes a tiny bit further and sometimes a little less. Here are the stats:

Up Capture
B400 vs. 3 Years 5 Years 10 Years
DJUSTSM 1.14 1.32 1.93
S&P 500 1.18 1.45 2.04
S&P 400 1.08 1.01 1.17
Down Capture
B400 vs. 3 Years 5 Years 10 Years
DJUSTSM 0.95 0.90 0.77
S&P 500 1.02 1.03 1.04
S&P 400 1.01 1.01 0.91

These are annualized figures. The closer the number is to 1, the closer the Barron’s 400 is to exactly matching the move of each index. Or, you can read them as percentages. For example, in the three-year period the Barron’s 400 exceeded the S&P 500’s upward moves by 18% and the S&P 400’s gains by 8%.

The really interesting statistic is that in down markets the Barron’s 400 fell less than the broadest measure in this group, the Dow Jones U.S. TSM—in all three periods. That performance would be a proud accomplishment for any defensive index, and yet the Barron’s 400 is a growth index through and through.

In terms of capturing returns, then, the Barron’s 400 is aggressive on the upside and conservative on the downside. That’s a winning combination, indeed.

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John A. Prestbo - who has written 68 posts on MarketGrader.com Blog.

John Prestbo, senior advisor to MarketGrader Capital, was formerly editor and executive director of Dow Jones Indexes. He was also chairman of the Dow Jones Index Oversight Committee. During his time at Dow Jones Indexes he worked, along with Barron's and MarketGrader, on the development of the Barron's 400 Index. Prior to that, Mr. Prestbo worked as an editor and writer for The Wall Street Journal in various capacities, including page-one editor, commodity news editor and markets editor. Mr. Prestbo has co-authored or edited several books over the past 30 years. The most recent was "The Market's Measure: An Illustrated History of America Told Through the Dow Jones Industrial Average," published by Dow Jones Indexes in 1999 and "Barron's Guide to Making Investment Decisions" which he helped to compile and edit in 2006. Mr. Prestbo won the University of Missouri Award for Distinguished Business Writing in 1967 and the George M. Loeb Achievement Award for Business Writing in 1968. In 2007, he won the William F. Sharpe Indexing Lifetime Achievement Award. That same year, he was honored for his leadership by Dow Jones Indexes during its celebration of 10 years as a separate business unit.

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