iQ Cyclical Super Sector Model
Investment Objective
The iQ Cyclical Super Sector model makes a deliberate bet on economic expansion. When the economy is growing, cyclical businesses tend to lead — and this strategy concentrates exclusively in four of those sectors: Basic Materials, Consumer Cyclical, Financial Services, and Real Estate. By owning the largest, most established names within those sectors that are already demonstrating price strength from prior lows, the model seeks to deliver returns in excess of the S&P 500 while keeping turnover low.
Best Fit Index: S&P 400 (Mid Cap)
Investment Process
1. Universe Construction
The eligible universe is restricted to stocks within the cyclical super sector, ensuring every candidate is economically sensitive and positioned to benefit from expansionary conditions.
2. Market Cap Filter
The universe is narrowed to the top 100 stocks by market capitalization, focusing the process on the most liquid and institutionally accessible cyclical names.
3. Final Ranking
Candidates must rank in the top 10 by their price relative to the 52-week low on a 20-day lagged basis, eliminating stocks still in deteriorating price trends and favoring those already recovering or advancing. Positions are sold when they fall below rank 75, an exit rule that avoids unnecessary turnover.
The model reconstitutes every February, May, August, and November and averages less than one position change per reconstitution.
Potential Benefits
Cyclical Exposure with Discipline By restricting the universe to the cyclical super sector, the model is purpose-built to capitalize on economic expansions and recovery phases, while the systematic ranking process prevents undisciplined chasing of momentum.
Built-in Quality Control The market cap filter naturally skews toward larger, more liquid names, reducing the risks associated with smaller cyclical stocks that can be volatile and thinly traded during downturns.
Trend Confirmation The 52-week low price filter acts as a practical entry timing mechanism, favoring stocks already in recovery rather than catching falling knives — combining value instincts with price confirmation.
Potential Risks: A strategy built entirely around cyclical sectors will underperform meaningfully during economic slowdowns — the same sensitivity that drives outperformance in expansions works in reverse when growth contracts. Concentrating in 10 holdings across four sectors amplifies this, as a single macro shock affecting credit markets, commodity prices, or consumer spending can impact multiple positions simultaneously. The buffer rule, while effective at reducing turnover, also means a deteriorating position may be held longer than a more responsive process would allow during a rapid cyclical downturn.