All Cap High Yield Model
Investment Objective
The All Cap High Yield Model seeks to generate long-term capital appreciation and income through a concentrated, rules-based allocation to 10 high-dividend U.S. equities. Candidates are evaluated across three independent quantitative dimensions — price momentum, capital efficiency, and analyst sentiment — with the goal of owning dividend-paying companies that are financially sound, gaining market recognition, and experiencing positive fundamental revisions.
Investment Process
The All Cap High Yield Model operates on a 3-month rebalancing cycle, drawing exclusively from U.S.-domiciled equities. Two baseline filters are applied across all factor passes: a dollar volume liquidity screen retaining the top 1,500 most actively traded names, and a dividend yield filter restricting the universe to the top 150 yielding stocks — anchoring the portfolio to meaningful income-generating companies with sufficient market depth.
From this filtered universe, stocks are evaluated across three independent factor dimensions:
Price Momentum: Stocks are ranked by 6-month price momentum, advancing the top 30, then narrowed to the top 10 by 3-year change in asset turnover — combining price strength with improving operational efficiency.
Capital Efficiency: Stocks are ranked by interest coverage ratio, retaining the top 30, then narrowed to the top 10 by payout ratio — prioritizing companies with both the capacity to service debt and the commitment to return earnings to shareholders.
Analyst Expectation: Stocks are ranked by the buy-to-sell analyst recommendation ratio relative to its 3-month exponential moving average, advancing the top 30, then narrowed to the top 10 by 12-month minus 1-month price momentum — capturing improving analyst sentiment alongside durable intermediate-term price strength while avoiding short-term reversal effects.
The final portfolio of 10 holdings is drawn from the 85th percentile and above of the composite ranking across all three passes. The model reconstitutes every February, May, August and November.
Potential Advantages
Anchoring the starting universe to the top 150 dividend-yielding stocks keeps the portfolio oriented toward companies with demonstrated cash return capacity, while the liquidity filter ensures these are names that can be traded efficiently at institutional size. Together, these two baseline screens do meaningful work before any factor ranking begins — eliminating financially marginal high-yielders and thinly traded names that would otherwise distort results.
The three-factor structure covers distinct dimensions of stock behavior that do not tend to move together. Momentum reflects what the market is currently rewarding; capital efficiency speaks to whether the business can sustain its dividend through varying economic conditions; and analyst revision captures shifts in fundamental expectations that have not yet been fully absorbed by price. Running each as an independent pass, rather than blending into a single composite score from the outset, ensures that only stocks with genuine multi-dimensional merit reach the final selection.
The asset turnover improvement filter within the momentum pass is worth noting specifically — it distinguishes companies that are growing revenues relative to their asset base from those simply carried by a rising market, adding a layer of operational quality to what would otherwise be a pure price signal. The payout ratio screen within the capital efficiency pass similarly focuses on dividend commitment rather than yield alone, identifying management teams with confidence in their forward earnings. The 3-month rebalance cadence gives these signals adequate time to play out without allowing the portfolio to become stale.
Potential Risks: Concentrating in 10 holdings means a single dividend cut or earnings disappointment can have an outsized impact on portfolio returns. The yield filter, while central to the strategy's income mandate, can create unintended sector concentration in utilities, financials, and energy — areas that are particularly sensitive to interest rate movements. The reliance on analyst recommendation trends assumes sell-side sentiment is a forward-looking signal, yet analyst revisions frequently lag material changes in company fundamentals. Additionally, payout ratio and interest coverage, while useful indicators of dividend health, are backward-looking metrics that may not adequately signal deterioration in a company's ability to sustain distributions during periods of rapid earnings decline.