iQ Sensitive Super Sector Model

INVESTMENT OBJECTIVE

The iQ Sensitive Super Sector investment model seeks to generate long-term returns in excess of the of the S&P 500 Index by selecting stocks of large companies from sectors whose betas are close to 1.

INVESTMENT PROCESS

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

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

  • Sort the stocks by Market Capitalization and keep the top 30.

  • Sort the remaining 30 stocks by free cashflow-to-sales and select the top 10

  • Keep the ten stocks until one falls out of the top 15 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.

SENSITIVE SUPER SECTORS - DEFINED

The Sensitive Super Sector is comprised of industries that ebb and flow with the overall economy, but not severely so. Sensitive industries fall between the defensive and cyclical industries as they are not immune to a poor economy, but they also may not be as severely impacted by a poor economy as industries in the Cyclical Super Sector. In general, the stocks in these industries have betas that are close to 1.

Sensitive Super Sector includes the following Sectors:

  • Communication Services

  • Energy

  • Industrials

  • Technology

Why invest in the Sensitive Super Sector?

Morningstar categorizes stocks into "super sectors" based on their primary economic activity. The "sensitive" super sector is a subset of the broader consumer cyclical sector and includes companies that produce goods and services that are sensitive to changes in economic conditions, such as automobiles, housing, and retail.

Investing in the sensitive super sector can provide benefits such as:

1. Diversification: Investing in a specific sector can provide diversification benefits by adding exposure to a different set of companies that operate in a distinct industry.

2. Potential for higher returns: The sensitive super sector has the potential to generate higher returns than the broader market during periods of economic expansion, as the companies in this sector tend to benefit from an increase in consumer spending.

3. Tailored exposure: Investing in the sensitive super sector allows investors to target a specific area of the market and tailor their exposure to their investment goals and risk tolerance.

It is important to note that investing in a single super sector or industry can also be riskier than investing in a diversified portfolio that includes exposure to multiple sectors.