iQ Cyclical Super Sector Model

INVESTMENT OBJECTIVE

The iQ Cyclical Super Sector investment model seeks to generate long-term returns in excess of the of the S&P 500 Index by selecting stocks of companies from “cyclical” sectors.

INVESTMENT PROCESS

The iQ Cyclical Super Sector investment model implements the following rules-based process:

  • Begin with a starting universe of stocks of cyclical sectors in the S&P 500 Index.

  • Sort the stocks by Market Capitalization and keep the top 100.

  • Sort the remaining 100 stocks by the percent above 260-day low price and select the top 10

  • Keep the ten stocks until one falls out of the top 75 and replace it with the next stock in line.

This model reconstitutes every February, May, August and November and averages less than one position change every reconstitution.

CYCLICAL SUPER SECTORS - DEFINED

The Cyclical Super Sector is comprised of industries significantly impacted by economic shifts. When the economy is prosperous these industries tend to expand, and when the economy is in a downturn these industries tend to shrink. In general, the stocks in these industries have betas of greater than 1.

Cyclical Super Sector includes the following:

  • Basic Materials

  • Consumer Cyclical

  • Financial Services

  • Real Estate

Why invest in the Cyclical Super Sector?

Investing in the Morningstar Cyclical Super Sector can provide investors with exposure to companies that are highly correlated with the business cycle. This sector includes companies that are sensitive to economic conditions, such as consumer cyclical stocks, industrial stocks, and materials stocks.

Investing in this sector can provide benefits for investors looking to capitalize on economic growth and expansion. During periods of economic growth, cyclical companies tend to perform well as consumer spending increases, demand for industrial goods rises, and commodity prices increase. Additionally, these stocks may provide diversification benefits, as they may not move in tandem with the broader market or defensive sectors.

However, it's important to note that investing in the cyclical sector can be riskier than investing in more stable sectors, as these stocks can be highly sensitive to economic downturns and market volatility. As such, it may be prudent to incorporate cyclical stocks as part of a well-diversified portfolio that also includes defensive sectors and other asset classes.