It is important to remember that the iQ Monthly Long/Short Model's short strategy has a negative upside capture ratio to the S&P 500 Index, implying that the Model's short strategy will frequently be down when stocks are up. This is a normal feature of the Model and should be accepted by any iQUANT member who uses it.

iQ Monthly Long/Short Model

IMPORTANT! The Model assumes a 2% annual fee to account for the borrow costs on the short selections.

Equities are an important driver of long-term capital appreciation. However, equity markets can experience high volatility and fail to deliver the expected positive returns. Long-short equity strategies can become a key pillar in asset allocation for advisors seeking this equity exposure but looking for better downside risk mitigation for their clients.

INVESTMENT OBJECTIVE

The iQ Monthly Long/Short Model seeks to provide long term total return by selecting long and short equity positions utilizing a targeted and repeatable “quantamental” process.

RULES-BASED SELECTION PROCESS

LONG STRATEGY (100%)

The iQ Monthly Long/Short Model implements the following rules-based process to select its long positions:

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

  • Apply a multi-factor ranking process that includes the following factors and select the top ten:

    • Sales Growth Acceleration

    • Operating Cash Flow to Enterprise Value Ratio

    • Accrual Ratio (Balance Sheet)

    • Stochastic Indicator

    • Short Interest Trading Volume

    • High vs. Low Price (12 months)

    • Change in Sales versus EPS

    • EBITDA to Asset Ratio

  • The Model reconstitutes monthly.

SHORT STRATEGY (30%)

The iQ Monthly Long/Short Model implements the following rules-based process to select its short positions:

  • Begin with a starting universe of the largest 900 domestically-traded stocks.

  • Apply a multi-factor ranking process that includes the following factors and select the worst ten:

    • Working Capital Turnover

    • Change in Amihud Ratio

    • Stochastic Indicator

    • Sales to Enterprise Value Ratio

    • High vs. Low Price (1 month)

    • Operating Cash Flow to Price Ratio

  • The Model reconstitutes monthly.

The Model shorts 30% of the value of its long positions.

The benefits of long/short investment strategies

Long-short investment strategies involve taking both long and short positions in stocks or other assets. Here are some potential benefits of long-short investment strategies:

1. Downside Protection: One of the main benefits of long-short investment strategies is that they can provide downside protection during periods of market volatility or economic downturns. By taking short positions, investors can profit from the decline in value of certain assets, which can help offset losses on long positions.

2. Potential for Higher Returns: Long-short investment strategies have the potential to generate higher returns than a traditional long-only investment approach. This is because short positions can help generate profits in bear markets, while long positions can benefit from market upswings.

It's important to note that investing in long-short investment strategies can also come with risks, such as market volatility, liquidity risks, and potential investment losses.