When it comes to investment factors, market participants often believe they must decide between growth and value or spread bets around to access both factors.
The Barron’s 400 ETF (NYSEArca: BFOR) eases that burden by presenting investors with an efficient avenue to the concept known as growth at a reasonable price (GARP). The Barron’s 400 Index (B400), BFOR’s underlying index, is rooted in GARP principles, and that could be a compelling trait in the current market environment.
“For investors less inclined to time these swings, GARP offers several advantages. Since last March, regardless of the style currently in vogue, high beta – stocks that exhibit greater volatility than the market at large — low quality names have generally underperformed,” according to BlackRock. “Interestingly, these high beta names are most visible at both extremes of the value/growth spectrum. In other words, deep value as well as early or speculative growth tend to be high beta.”
For several months now, the market is signaling the time to embrace highly speculative fare passed. Rather, a sound approach today would be to embrace financially sound companies with attractive long-term prospects that aren’t richly valued. BFOR helps investors check that box. The exchange traded offers other benefits for patient investors.
“Apart from modest betas, the other argument favoring GARP is reliability; historically it has been the most “all-weather” investment style,” adds BlackRock. “As the last 18 months have demonstrated, equity style rotations are often hostage to swings in the economy. At this point in the cycle investors may want to moderate their macro-economic risk. GARP has the advantage of generally performing well in most environments.”
The $141.36 million BFOR allocates almost 22% of its weight to financial services stocks, making it an ideal consideration with interest rates poised to rise as soon as March. A combined 34% weight to consumer discretionary and industrial stocks affirms the fund’s cyclical lean. Investors might want to consider exercising patience with BFOR this year.
“GARP can underperform, particularly against value. That said, both growth and inflation are likely to moderate towards mid-year for a variety of reasons, including a substantial reduction in fiscal stimulus, along with the eventual easing of supply-chain related issues as the current Omicron wave passes and existing untapped labor pools can help fill a record number of job openings,” concludes BlackRock.
Alternatives to BFOR in the mid-cap growth space include the iShares Russell Midcap Growth ETF (NYSEARCA: IWP), the First Trust Mid Cap Growth AlphaDEX Fund (NasdaqGM: FNY), and the iShares Morningstar Mid Growth ETF (NYSEArca: JKH).
For more news, information, and strategy, visit the ETF Building Blocks Channel.
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.
