iQ SMid Cap 10 Model

INVESTMENT OBJECTIVE

The iQ SMid Cap 10 Model seeks to outperform the S&P 1500 Index by applying a disciplined investment strategy which adheres to pre-determined screens and factors applied to the S&P 600 and S&P 400 small and mid cap indices.

INVESTMENT PROCESS

The iQ SMid Cap 10 investment model implements the following rules-based process:

  • Begin with 1,000 stocks that comprise the S&P 600 (small cap) and S&P 400 (mid cap) indexes.

  • Sort the 1,000 stocks by earnings per share and select the top 150.

  • Sort the remaining 150 stocks by long-term McGinley Dynamic* and select the bottom ten.

  • The Model continues to hold the ten stocks until one drops out of the bottom 20.

This model reconstitutes every February, May, August and November and averages less than one position change per reconstitution.

A word about small and mid-cap stocks

Investing in small and mid-cap stocks can offer several potential benefits for investors. Here are some reasons why investors might choose to invest in small and mid-cap stocks:

1. Higher Growth Potential: Small and mid-cap stocks are generally newer and smaller companies, which means they have the potential for higher growth rates than more established large-cap companies. If these companies are successful in growing their business, their stock prices could potentially rise at a faster pace than larger, more established companies.

2. Undervaluation: Smaller companies may be overlooked by investors and therefore be undervalued compared to larger, more well-known companies. This means that investors may be able to purchase these stocks at a lower price, which could lead to higher returns if the company's value increases.

3. Diversification: Investing in small and mid-cap stocks can provide investors with diversification benefits. By adding exposure to smaller companies to a portfolio, investors can potentially reduce their overall risk by spreading their investments across a broader range of companies.

4. Potential for Mergers and Acquisitions: Small and mid-cap companies can be attractive targets for larger companies looking to acquire new businesses. If a small or mid-cap company is acquired, the stock price may rise substantially, providing a potential opportunity for investors.

However, investing in small and mid-cap stocks can also be riskier than investing in large-cap stocks, as these companies may be more vulnerable to economic downturns or industry-specific risks.

*The McGinley Dynamic indicator is a type of moving average that was designed to track the market better than existing moving average indicators.  The Indicator addresses the issue of varying market speeds by incorporating an automatic adjustment factor into its formula which speeds, or slows, the indicator in trending, or ranging, markets.