iQ Defensive Super Sector Model
Investment Objective
The iQ Defensive Super Sector Model is built for investors who want meaningful equity participation without taking on the full volatility of the broader market. By concentrating in five sectors that hold up regardless of where the economy stands — Aerospace, Healthcare, Utilities, Consumer Staples, and Consumer Durables — and focusing specifically on dividend-paying companies with strong cash positions, the strategy seeks to deliver returns in excess of the S&P 500 while cushioning downturns. The Model reconstitutes every February, May, August, and November.
Investment Process
The model draws from five defensive sectors/industries of the U.S. equity market — Aerospace, Healthcare, Utilities, Consumer Staples, and Consumer Durables. Two baseline filters are applied before any ranking begins: companies growing their share count are removed, as is any company not currently paying a dividend. These screens focus the universe on businesses generating enough cash to return capital to shareholders.
From the remaining universe, the top 50 stocks by 12-month average market capitalization advance, anchoring the portfolio to the larger, more established names within the defensive space. From those 50, the final portfolio of 10 stocks is selected by ranking on cash to price — identifying companies carrying the most cash relative to their market value.
Potential Benefits
Restricting the universe to defensive sectors means the strategy's lower-volatility character is structural. Aerospace, Healthcare, Utilities, Consumer Staples, and Consumer Durables all share a common economic logic — demand for their products does not disappear when consumers pull back or businesses retrench. That resilience is baked into the opportunity set from the start.
The dividend and share count filters reinforce quality in a concrete way. A company paying a dividend has made a public commitment to returning cash to shareholders. A company not diluting its shareholders is not relying on equity markets to fund its operations. Together these screens remove financially fragile names before size and valuation filters even come into play.
Cash to price as the final ranking metric is well-suited to a defensive strategy. Cash-rich companies can maintain dividends through downturns, fund operations without accessing credit markets at unfavorable rates, and invest opportunistically when asset prices are depressed. In a defensive portfolio, balance sheet cash is not idle — it is optionality.
Potential Risks: A portfolio concentrated in defensive sectors will lag meaningfully during strong bull markets when cyclical and growth stocks dominate returns — this is the deliberate trade-off the strategy makes in exchange for down-market resilience. The dividend filter can introduce sector concentration particularly in Utilities and Consumer Staples, leaving the portfolio exposed if regulatory changes or input cost pressures compress margins across those industries simultaneously.