iQ Defensive Super Sector Model

INVESTMENT OBJECTIVE

The iQ Defensive Super Sector Model seeks to generate long-term returns in excess of the total return of the S&P 500 with less down-market risk by selecting stocks of companies of defensive sectors.

DEFENSIVE SUPER SECTOR-DEFINED

The Defensive Super Sector is comprised of industries that are relatively immune to economic cycles. These industries provide goods/services that consumers require in both good and bad times, such as healthcare, utilities and consumer goods. In general, defensive stocks have betas less than 1.

The Defensive Super Sector includes the following industries and sectors:

  • Aerospace

  • Healthcare

  • Utilities

  • Consumer Staples

  • Consumer Durables

RULES-BASED SELECTION PROCESS

The Model implements the following rules-based process:

  • Begin with a starting universe of stocks of S&P 500 defensive sectors

  • Sort the stocks by market capitalization and select the top fifty (with no more than 10% from any one industry.

  • Rank the remaining stocks by Cash Flow to Price and select the top ten.

The Model continues to hold the ten stocks until one drops out of the top 20. The Model reconstitutes every Feb, May, Aug and Nov.

Why invest in the Defensive Super Sector

Morningstar's Defensive Super Sector is comprised of companies that are expected to perform relatively well during economic downturns or periods of market volatility. These companies tend to have stable earnings and cash flows, lower levels of debt, and are less sensitive to changes in the overall economy.

Investing in the Morningstar Defensive Super Sector can be beneficial for investors looking for a more defensive portfolio that can weather market turbulence. Defensive stocks can provide a buffer during market downturns and may perform better than more cyclical sectors during periods of economic uncertainty.

However, it's important to note that defensive stocks may not perform as well as growth-oriented stocks during bull markets or periods of economic expansion. Therefore, investors may want to consider a diversified portfolio that includes exposure to both defensive and growth-oriented sectors.