The Barron’s 400 Index (B400) opened this week with 196 new members, having completed its latest semi-annual reconstitution and rebalance on Friday, March 15th. This represented the largest rotation in 11 years, equivalent to 49% of its entire roster, and well above its historical average turnover of 41.8%. This rotation also seemed pretty timely following the index’s strong 22% bounce from the 2018 bottom it hit on Christmas Eve, which allowed it to take profit in many of its September holdings while selecting a new crop of fundamentally-sound companies.
Sector Changes
The sector with the biggest net increase following B400’s rebalance was Health Care, which gained 11 constituents and now accounts for 9.25% of the index, two and a half percentage points below its historical average of 11.8%. The second biggest gainer was Technology, with a net addition of seven names and a new total of 70 companies, putting it just a half point above its historical average of 17%. The biggest net losers were Consumer Discretionary, which, with a loss of five stocks continued a trend seen in recent rebalance periods, and whose weight in B400 is now 14.5%, well below its historical average of 18%; and Materials, which also shed five companies and now accounts for 5% of B400, exactly in line with its historical average. Figure 1 displays B400’s new sector configuration relative to the September 2018 selection and to its historical sector allocations.
Figure 1. B400 Sector Changes After March 2019 Rebalance
| Sep-18 | Mar-19 | Net Gain or | 10 Yr. Average | ||||
| Sector | Companies | % | Companies | % | Loss | Cos. | % |
| Cons. Discretionary | 63 | 15.75% | 58 | 14.50% | -5 | 73 | 18% |
| Consumer Staples | 11 | 2.75% | 8 | 2.00% | -3 | 19 | 5% |
| Energy | 47 | 11.75% | 43 | 10.75% | -4 | 36 | 9% |
| Financials | 80 | 20.00% | 80 | 20.00% | – | 58 | 14% |
| Health Care | 26 | 6.50% | 37 | 9.25% | 11 | 47 | 12% |
| Industrials | 80 | 20.00% | 80 | 20.00% | – | 69 | 17% |
| Materials | 25 | 6.25% | 20 | 5.00% | -5 | 21 | 5% |
| Technology | 63 | 15.75% | 70 | 17.50% | 7 | 69 | 17% |
| Telecommunications | 0 | 0.00% | 0 | 0.00% | – | 2 | 1% |
| Utilities | 5 | 1.25% | 4 | 1.00% | -1 | 6 | 2% |
Source: MarketGrader Research
One sector and one industry trend are worth highlighting. First, the Financials sector reached its 20% cap (80 companies) for the tenth straight rebalance, or five full years, the longest such stretch on record across all sectors in B400’s history. We should also add that, had it not been for the index’s 20% hard cap by sector, a full 139 Financials would have been selected to B400, or almost 35% of the entire index. The average market cap for the 80 Financials that were selected to the index is $14.96 billion and the median market cap is $2.45 billion.
The second, albeit small, trend worth highlighting is the increase in Steel companies from four, six months ago (and three a year ago), to seven today, mostly as a way to underscore what the current administration’s tariffs have done for these companies’ businesses. While a mere seven out of 400 companies might seem unremarkable, it should be noted that there are only eight BUY-rated companies (out of a total of 16) in MarketGrader’s U.S.-listed Steel coverage universe, which means that 88% of them were selected to B400. Among all 16 Steel companies covered, 44% were selected. In other words, for U.S. Steel companies the odds of being selected to B400 were almost as high as the odds of not being selected, something we seldom see across most industries, since B400 represents about 8% of all U.S. listed companies.
Highlights of Market Cap Segment Changes
The changes across B400’s three broad market cap segments are hardly worth mentioning given that the net results were not that different from the September 2018 selection. More specifically, while the large cap segment (>$10 billion) lost two names and small caps (<$1 billion) lost one name, mid caps gained three. It’s worth noting, though, that with 28.5% of the weight, large caps now represent a fairly higher weight than they have in the past, based on an average historical weight of 21.4%. Likewise, with 15.8% of the index’s weight, small caps are now almost 10 points below their historical weight of 25.2%.
The newly reconstituted B400 has an average market cap (based on March 20th prices) of $27.1 billion and a median market cap of $4.5 billion.
Company Longevity and First Time Selections
B400 welcomed 30 companies to its ranks for the first time ever, while 58 companies made their return after an absence of at least two years. On the other hand, of the 204 companies that remained in B400 from September’s selection, a total of 62 have been selected to the index for at least two consecutive years. Thirty-three have been selected for at least three consecutive years and 14 have been B400 members for five consecutive years.
Among the newly reconstituted B400, 30 companies stand out for having been selected to the index (not consecutively) in at least 22 rebalance periods, or the equivalent of 11 calendar years, a true hallmark of fundamental consistency. And among this select group, seven have been B400 members in at least 30 rebalance periods. The list of all 30 companies with at least 22 semi-annual selections appears below in Figure 2.
Figure 2. Companies Selected to B400 at Least 22 Times
| Ticker | Company Name | Times Selected |
| MSFT | Microsoft Corporation | 38 |
| AMGN | Amgen Inc. | 37 |
| ROST | Ross Stores, Inc. | 34 |
| TJX | TJX Companies Inc | 32 |
| AAPL | Apple Inc. | 31 |
| CTSH | Cognizant Technology Solutions Corp. Class A | 30 |
| JNJ | Johnson & Johnson | 30 |
| TROW | T. Rowe Price Group | 29 |
| WAT | Waters Corporation | 29 |
| DLTR | Dollar Tree, Inc. | 28 |
| EWBC | East West Bancorp, Inc. | 28 |
| FAST | Fastenal Company | 28 |
| INTC | Intel Corporation | 28 |
| AMAT | Applied Materials, Inc. | 27 |
| NVR | NVR, Inc. | 27 |
| TPR | Tapestry, Inc. | 26 |
| BIIB | Biogen Inc. | 25 |
| RHI | Robert Half International Inc. | 25 |
| CSCO | Cisco Systems, Inc. | 23 |
| FFIV | F5 Networks, Inc. | 23 |
| ORLY | O’Reilly Automotive, Inc. | 23 |
| SYK | Stryker Corporation | 23 |
| APH | Amphenol Corporation Class A | 22 |
| ADBE | Adobe Inc. | 22 |
| BKNG | Booking Holdings Inc. | 22 |
| CPRT | Copart, Inc. | 22 |
| EOG | EOG Resources, Inc. | 22 |
| GPS | Gap, Inc. | 22 |
| SNV | Synovus Financial Corp. | 22 |
| TSCO | Tractor Supply Company | 22 |
Source: MarketGrader Research
Investors who follow B400 through ALPS’s Barron’s 400 ETF (BFOR) may read more about the fund’s rebalance below:
https://www.businesswire.com/news/home/20190318005267/en/Barron’s-400-ETF-Finds-Growth-Reasonable-Price
