Dow Jones Indexes and Barron’s have unveiled the Barron’s 400 index, which tracks the performance of highly liquid U.S. stocks, highlighting America’s most promising companies as defined by fundamentals-related rules-based criteria.
“The Barron’s 400 index is the result of successful cooperation and teamwork between Dow Jones business units,” explains Michael A. Petronella, president of Dow Jones Indexes. “We’ve combined our 10 years of proven expertise in building innovative, rules-based indexes with Barron’s excellent reputation as a trusted source of financial news and analysis to deliver this unique, leading-edge stock market indicator to the investment community.”
To be eligible for inclusion, stocks are first evaluated according to fundamental criteria that measure profitability, cash flow and alignment with “growth” and “value” style characteristics. MarketGrader.com, a research firm based in Coral Gables, Fla., does the fundamental analysis and ratings.
Once stocks make the initial cut, Dow Jones Indexes then applies additional rules-based screens. Securities must have a minimum float-adjusted market capitalization of $250 million and at least 100 of the index’s 400 stocks must have market capitalization of more than $3 billion. Index constituents must also trade an average of at least $2 million daily for the preceding three months.
The top 400 stocks that meet these criteria become part of the index. Components are equal-weighted and industries are capped at 20 percent of the index to ensure diversification. Real estate investment trusts are ineligible for inclusion. The index is reviewed semi-annually in March and September.
All the screening seems to have translated into performance — historically speaking, at least so far. As of August 31, the prospective Barron’s 400 had gained 221.04 percent since a back-tested inception on December 31, 1997, while the Dow Jones Wilshire 5000 was up 59.25 percent in the same time period. Naturally, while such numbers are impressive, only time will tell if future results follow suit.
Dow Jones Indexes intends to license the new index to underlie financial products such as mutual funds, exchange-traded funds and other investment vehicles.
Ron DeLegge is the San Diego-based editor of www.etfguide.com.