b400-rebalance-image

Barron’s 400 Index Leans Into Natural Resource Companies In Latest Rebalance

Facebook
Twitter
LinkedIn

The Barron’s 400 Index (B400), a collaboration between MarketGrader and Barron’s, which seeks to track the most fundamentally sound companies in the United States based on a Growth-at-a-Reasonable-Price (GARP) methodology, completed its most recent semi-annual reconstitution and rebalance at the close of trading on Friday, March 18th. The Index replaced 177 of its 400 constituents, equivalent to a turnover of 44.3%, slightly higher than its historical average turnover of 42.3%.

Major Sector Surprises

The Index experienced one of the biggest rotations we have seen in its entire history, which could be reflecting the impact that inflation is having on the U.S. economy. This change is especially clear when comparing the Index’s new sector breakdown to that from a year ago (March 2021). More specifically, Energy gained 33 names in the just six months, and 37 names in the last year[1]. When combined with the Materials sector, which gained three names in six months and nine in the last year, this means that commodity or natural resource-oriented companies today account for 17.3% of B400’s weight, vs. only 5.8% in March 2021. This is a remarkable turnaround in just a year’s time.

On the other hand, Technology lost 17 names in the last six months and 27 names in the last year, and Health Care, which we consider a growth sector as well, lost 14 names in six months and 18 in the last year. Thus, two of the pandemic era winners, Technology and Health Care, went from a combined 33% of B400 in March 2021, to 21.8% today. The complete sector rotation from the last rebalance (Sept. 2021) appears in Figure 1.

Figure 1. Sector Changes in B400 from September 2021 to March 2022

  September 2021 March 2022

Net Gain
or Loss

Historical Average**
Sector Companies % Companies % Cos. %
Cons. Discretionary 80 20% 79 19.8% -1 71 18%
Consumer Staples 17 4.3% 15 3.8% -2 19 5%
Energy 7 1.8% 40* 10% +33 34 9%
Financials 80 20% 80 20% 0 64 16%
Health Care 50 12.5% 36 9% -14 47 12%
Industrials 69 17.3% 68 17% -1 68 17%
Materials 26 6.5% 29 7.3% +3 21 5%
Technology 68 17% 51 12.8% -17 69 17%
Telecommunications 2 0.5% 0 0% -2 2 0.5%
Utilities 1 0.3% 2 0.5% +1 6 1.5%
*The Energy sector includes four companies classified by FactSet as “Investment Trusts,” which derive their income from oil and gas projects or from rent generated from the ownership of land tied to oil and gas production. **Historical averages are calculated starting in Sep. 2007, when the Index was launched. Source: MarketGrader.

Lastly, in terms of sector exposures, Financials once again reached its 80-count cap, the 16th consecutive time (equivalent to eight years) this has happened. Forty of these companies, remarkably, are Regional Banks. Among this group, one of B400’s previous Regional Bank constituents, First Horizon Corp. (FHN), agreed to be acquired by Toronto Dominion Bank for $13.4 billion on February 28th. The $25 per share acquisition price represented a 37% premium to the bank’s share price before the acquisition was announced. More importantly, it represented a premium of 64% from the price at which FHN had been added to B400 at its last rebalance in September 2021.  Twenty-six industries will be represented in B400 by at least five companies after the Index’s upcoming rebalance. They appear in Figure 2.

Figure 2. Industries with Most Constituents in B400, March 2022

Source: MarketGrader

Acquisitions

In addition to the pending acquisition of First Horizon Corp. (FHN) by TD Bank described above, five B400 members were involved in a merger or acquisition in the last six months. Two of them survived in the Index prior to the rebalance as shares of the newly merged entity:

BancorpSouth Bank (BXS), a member of B400, merged with Cadence Bank (CADE). According to the Index rulebook, Cadence Bank became a member of B400 following the completion of the merger.

Herman Miller Inc. (MLHR), a member of B400, merged with Knoll, Inc. According to the Index rulebook, the newly formed entity, MillerKnoll, Inc. (MLKN), remained a member of B400 following the completion of the merger.

Three B400 members were acquired outright. We list them below along with the share price gain from the Index rebalance date (9/20/21) through the date each acquisition was completed.

Athene Holding (ATH) was acquired by Apollo Global Management on Dec. 31, 2021. ATH last traded at $83.33 on 12/31/21, a 27.9% premium to the $65.14 at which the stock was added to the Index on 9/20/21.

Atlantic Capital Bancshares (ACBI) was acquired by SouthState Corp. (SSB). It last traded independently on 2/16/22 at $32.43, a 43.75% premium to the $22.56 at which it was added to the Index on 9/20/21.

Xilinx Inc. (XLNX) was acquired by Advanced Micro Devices, Inc. (AMD). XLNX last traded on 2/11/22 at $194.92, a 29.1% premium to the $150.99 at which it was added to the Index on 9/20/21.

Additions and Deletions

The 223 companies retained by B400 from the September rebalance had an average return (between September 30, 2021, and March 2, 2022, when the new constituents were selected) of 6.69%. On the other hand, the 175 companies that were removed from the index (excluding the two that were merged into current Index constituents), had an average return of -4.28%. The Index itself gained 1.9% from the September rebalance date through March 2, 2022, the day before the new selections were made (price-only return). For calendar year 2021, B400 gained 31.4% on a total return basis, ahead of the S&P 500 Index’s 28.7%.

Twenty-four companies were added to B400 for the very first time, with Tesla (TSLA) being the most prominent among them. The complete list appears in Figure 3.

Figure 3. First-Time Selections to the Barron’s 400 Index

TickerCompany NameMarket CapSectorGrade
TSLATesla Inc724,330,359,626Consumer Discretionary63.6
CTRACoterra Energy Inc.19,382,389,721Energy75.65
OVVOvintiv Inc12,250,818,276Energy79.84
DOCSDoximity, Inc. Class A9,292,526,027Technology75.92
CIVICivitas Resources, Inc.3,937,300,808Energy70.53
DENDenbury Inc.3,509,456,405Energy71.39
COOPMr. Cooper Group, Inc.3,339,922,290Financials76.44
NMRKNewmark Group, Inc. Class A3,282,949,767Financials74.05
ARCBArcBest Corporation2,159,500,872Industrials80.43
VIRVir Biotechnology, Inc.1,705,900,792Health Care78.77
GOGLGolden Ocean Group Ltd1,498,291,690Industrials77.78
DVAXDynavax Technologies Corporation1,356,129,533Health Care77.76
AOSLAlpha and Omega Semiconductor Ltd.1,100,686,574Technology85.08
MNRLBrigham Minerals, Inc. Class A1,001,714,754Energy*76.13
OBNKOrigin Bancorp, Inc.913,008,785Financials79.61
HWKNHawkins, Inc.835,431,929Industrials75.13
CCRNCross Country Healthcare, Inc.768,253,034Industrials75.49
KRPKimbell Royalty Partners, LP712,102,772Energy*75.83
HBNCHorizon Bancorp, Inc.705,454,664Financials73.17
TMSTTimkenSteel Corp669,950,256Materials80.21
FFICFlushing Financial Corporation659,115,343Financials74.5
FLNGFLEX LNG Ltd631,267,031Energy79.22
AMRKA-Mark Precious Metals, Inc.607,850,780Industrials76.88
ETDEthan Allen Interiors Inc.577,772,942Consumer Discretionary73.56
*Classified as “Investment Trusts” by FactSet and as “Energy” by MarketGrader.

Following the new selection, it’s worth noting that 66 companies have been members of B400 for at least two consecutive years (four semi-annual selections). Twenty-eight companies have been B400 members for at least three consecutive years and 11 of them have been members for at least five consecutive years. They are: Western Alliance Bancorp. (WAL), Applied Materials (AMAT), Texas Instruments (TXN), Copart (CPRT), Arista Networks (ANET), Apple (AAPL), NVIDIA (NVDA), NVR Inc. (NVR), Paychex (PAYX)Veeva Systems (VEEV), and Adobe (ADBE).

To conclude, we always like to mention the 30 constituents of B400, following the latest rebalance selection, that have been selected to the Index the most times. They appear in Figure 4.

Figure 4. Top 30 Companies with Most Selections to the Barron’s 400 Index

TickerCompany NameSelections
MSFTMicrosoft Corporation44
AMGNAmgen Inc.41
HDHome Depot, Inc.39
AAPLApple Inc.37
FDSFactSet Research Systems Inc.36
JNJJohnson & Johnson36
BBYBest Buy Co., Inc.35
TJXTJX Companies Inc35
CTSHCognizant Technology Solutions Corporation Class A34
AMATApplied Materials, Inc.33
FASTFastenal Company33
NVRNVR, Inc.33
WATWaters Corporation33
EMREmerson Electric Co.32
INTCIntel Corporation32
EWBCEast West Bancorp, Inc.30
ADBEAdobe Inc.28
CPRTCopart, Inc.28
ORLYO’Reilly Automotive, Inc.28
RHIRobert Half International Inc.28
UNPUnion Pacific Corporation28
APHAmphenol Corporation Class A27
GGGGraco Inc.27
HOGHarley-Davidson, Inc.27
JKHYJack Henry & Associates, Inc.27
NVDANVIDIA Corporation27
PAYXPaychex, Inc.27
TPRTapestry, Inc.27
WSMWilliams-Sonoma, Inc.27
CSCOCisco Systems, Inc.26
Most selections count is based on B400’s inception date on December 31, 1997. Source: MarketGrader.

[1] The Energy sector includes four companies classified by FactSet as “Investment Trusts,” which derive their income from oil and gas projects or from rent generated from the ownership of land tied to oil and gas production.

Related Product

Investors interested in following the Barron’s 400 Index may do so via the Barron’s 400 ETF (NYSE Arca: BFOR).

Similar Articles