iQ ETF Momentum Model
The model follows momentum wherever it leads — equities, bonds, commodities, or currencies.
Investment Objective
The iQ ETF Momentum Model casts the widest practical net in the ETF universe — equities, fixed income, commodities, sectors, international markets, thematic strategies, and factor funds — and each quarter identifies the 5 with the strongest momentum and improving capital flows. The premise is simple: money rotates, and the goal is to be in whatever the market is rewarding right now, not what worked last year. Leveraged ETFs are excluded throughout.
Best Fit Index: S&P 1500 (SPTM)
Investment Process
1. Universe Construction
The starting universe consists of all US-listed, investable ETFs (with leveraged ETFs explicitly excluded) across every major asset class and strategy category — U.S. and international equity, fixed income, commodities, currencies, thematic, buffered and factor ETFs — with BIL serving as the cash or money market fallback.
2. Seven Parallel Sub-Screens
Each sub-screen applies a unique combination of liquidity, momentum, alpha, and risk-capture filters to the shared universe:
Sub-Screen 1 — Capture Ratio Quality Filters to the top 25 by dollar volume, then isolates securities with the strongest 24-period downside capture ratio and top-tier 24-period upside capture ratio — seeking instruments that capture more upside than downside over a two-year horizon.
Sub-Screen 2 — Relative Strength + Alpha Confirmation Filters to the top 30 by dollar volume, then requires top-tier 10-period relative strength alongside top-tier 23-period alpha — combining near-term price leadership with longer-run risk-adjusted outperformance.
Sub-Screen 3 — Contrarian Alpha + Relative Strength Filters to the top 30 by dollar volume, then selects securities in the bottom 10 by 3-period alpha (recent short-term underperformers) that simultaneously rank in the top 5 by 10-period relative strength — a mean-reversion signal targeting temporarily lagging names within a dominant longer-term uptrend.
Sub-Screen 4 — Alpha Persistence + RSI Confirmation Filters to the top 25 by dollar volume, requires a high floor on 20-period alpha, and adds a 23-period RSI confirmation — seeking securities with sustained alpha generation that are not yet technically overbought.
Sub-Screen 5 — Alpha Persistence + Upside Beta Filters to the top 25 by dollar volume, applies the same alpha floor as Sub-Screen 4, and adds a 36-period upside beta filter — targeting instruments with durable alpha that also show strong sensitivity to market rallies over a longer horizon.
Sub-Screen 6 — Volume Trend + Upside Capture Filters to the top 25 by 12-period average dollar volume, applies a 22-period alpha floor, and adds a 36-period upside capture ratio requirement — identifying consistently liquid, alpha-generating securities with long-run asymmetric upside participation.
Sub-Screen 7 — Volume Trend + Alpha + RSI Identical volume and alpha filters to Sub-Screen 6, substituting a 23-period RSI confirmation for the upside capture ratio — the technical counterpart to Sub-Screen 6's fundamental signal.
3. Final Selection
Securities passing any of the seven sub-screens are combined and the top 5 names scoring above the 85th percentile of the composite signal are selected — holding only the highest-conviction opportunities where multiple signal dimensions align.
The Model reconstitutes every February, May, August and November.
Potential Benefits
Signal Diversification Through Parallel Architecture Running seven independent sub-screens simultaneously means the strategy is never dependent on a single factor working in any given market environment. Each sub-screen captures a distinct dimension of momentum — capture ratios, alpha persistence, relative strength, RSI, and upside beta — so the portfolio stays populated with high-conviction names even as individual signal types cycle in and out of favor.
Risk-Gated Entry Discipline The combination of a fund risk rating gate and a mandatory near-term uptrend confirmation means capital is never deployed into deteriorating or excessively volatile instruments, regardless of how attractive other signals appear. This entry discipline filters out high-risk candidates before any momentum scoring begins, embedding downside awareness directly into the universe construction step.
Alpha-Centric Selection with Technical Confirmation The repeated use of Jensen's alpha across multiple sub-screens — at short, medium, and longer lookback periods — keeps the strategy grounded in genuine risk-adjusted outperformance rather than raw price momentum alone. Layering RSI, upside beta, and capture ratios on top of alpha ensures the final holdings are not just strong performers but instruments generating excess returns with more participation in up markets than down.
Potential Risks:
Concentration Vulnerability Holding only five positions creates significant single-name risk. One adverse event in any holding — an earnings miss, a regulatory action, or a sudden liquidity event — can have a disproportionate impact on overall portfolio performance with little room for other positions to offset the damage. Momentum Reversal Risk The strategy systematically favors recent winners. In sharp market sell-offs or sector rotations, momentum-driven names tend to be among the hardest hit, creating the potential for rapid drawdowns across all five holdings at the same time. Factor Complexity Seven parallel sub-screens with overlapping but distinct factor combinations make it difficult to explain performance attribution clearly. When the portfolio underperforms, identifying whether the cause is a broken signal, a market regime shift, or random variation requires more analytical effort than a simpler single-factor approach would demand.