Barron’s Launches New Research-Based Stock Market Index
Barron’s has launched a new stock market index it claims would have “handily beaten” standard market indexes over the last 10 years.
Unlike other indexes based on company size, the Barron’s 400 collects “the most fundamentally sound and attractively priced stocks from all corners of the market, using a proven and disciplined stock-selection process.” The index is based on the research methods of MarketGrader, a Miami firm that rates stocks by a proprietary formula that incorporates companies’ growth profile, profitability and stock valuation.
The index amounts to a twist on a growth-at-a-reasonable-price, or GARP, approach.
The Barron’s 400, using the current selection criteria, would have handily beaten standard equity indexes over the past 10 years — in bull and bear markets and in periods when large stocks dominated and when small stocks led the way, Barron’s claims. Over the past three years, when the S&P 500 index climbed by about a third, the B400, as Barron’s calls it, surged by 54%.
The index has been undergoing a rough patch during the recent market tumult, with a loss so far in the third quarter of 6.5%, compared with 2% for the S&P 500. Barron’s notes that many quantitative strategies that seek higher-quality stocks and shun riskier ones have been upended in recent weeks. Even with this pullback, the B400 is still up 5.4% for 2007, ahead of the S&P 500’s 3.9% and the DJ Wilshire 5000’s 4%.
As any stockpicker knows, it is easy to look backwards, so it will be interesting to see how the index performs going forward.
Barron’s, sister unit, Dow Jones Indexes, would like eventually to license the B400 as the basis for an exchange-traded fund and other financial products.
Details on how the B400 Index is compiled are available here.
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