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Lindley Estes is a business writer for The Free Lance-Star and Fredericksburg.com. This blog is on Fredericksburg-area business. Send an e-mail to Lindley Estes.

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Barron’s 400 seeking to include all market sectors

STOCK MARKET in- dices are far from a rarity.

In the U.S. alone, there are the Standard & Poor’s 400, 500 and 600; the Wilshire 5000; the Russell 2000 and many more.

Add one more to the list.

Barron’s magazine introduced its recently created stock market index in the Sept. 3 edition. It’s called the Barron’s 400, and the magazine claims it’s meant to be a money-making tool for investors. The Barron’s index, which includes 400 U.S. publicly traded companies, differs from others.

Most U.S. stock market indices represent a specific segment of publicly traded companies. For example, the Russell 2000 is made up of stocks with small market capitalizations, while the Standard & Poor’s 500 is composed of big companies.

The Standard & Poor’s indices aim to include companies representing a broad portion of the economy. There is little turnover.

The Barron’s 400 includes all size stocks. As of Aug. 24, it was about 34 percent large-cap, 19 percent mid-cap, 40 percent small-cap and 7 percent micro-cap. It includes all industry sectors; oil, industrial and financial stocks made up the largest portion as of Aug. 24.

Further, the Barron’s list more closely resembles an actively managed mutual fund in terms of its turnover. The list is recalculated every six months. In back-testing to 1998, an average of 160 stocks were eliminated every six months and replaced by new ones. That turnover rate isn’t especially tax-friendly.

Barron’s picks its list of stocks based on the research methods of MarketGrader .com. That firm rates stocks in the broad-market Wilshire 5000 based on a company’s growth, profitability, cash flow and stock valuation. The magazine considers it a “growth-at-a-reasonable-price” approach.

Each of the companies in the Wilshire 5000 is graded and then ranked. Real-estate investment trusts are eliminated, as are thinly traded stocks and those with a market cap under $250 million. At least a quarter of the Barron’s list must be companies with a market value of $3 billion or more. No industry can make up more than 20 percent of the index.

After all those and more tests are done, the remaining stocks with the highest rating become the B400, as Barron’s is calling it. Each stock is weighted equally in the index, which has beaten the market over the past several years.

“For investors, the index could be a short-cut to finding promising stocks,” Barron’s writes.

While Barron’s has provided investors with another starting point to research companies, it isn’t doing it for purely selfless reasons. The B400 could be licensed as the basis of an exchange-traded fund and other financial products. The list is likely to drive traffic to the company’s Web site.

Among the top-rated big companies in the B400 are famous names such as Harley-Davidson, PepsiCo and Microsoft. The full list is at Barrons400.com.

Permalink: http://news.fredericksburg.com/businessbrowser/2007/10/22/barrons-400-seeking-to-include-all-market-sectors/