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.
Best Fit Index: S&P 400 (Mid Cap)
Investment Process
1. Universe Construction
The starting universe is anchored by market capitalization, restricting eligibility to the top 1,500 stocks by market cap — ensuring liquidity and institutional-grade quality throughout.
2. Yield Filter
From that all-cap pool, the screen narrows sharply to the top 150 stocks by dividend yield, concentrating the candidate list on the most income-generative names.
3. Composite Ranking & Concentration Check
The 150 survivors are ranked on a composite score combining price momentum and yield, penalized for balance sheet weakness. The top 50 names on this composite advance. An additional industry concentration cap of 15% is applied, preventing any single sector from dominating the final portfolio.
4. Final Selection
From the remaining candidates, the model selects the top 10 stocks ranked by momentum acceleration — specifically the difference between 12-period and 6-period excess return scores. This isolates names whose momentum is not just positive but actively improving over the near term.
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.