iQ Mid Cap Growth Model
INVESTMENT OBJECTIVE
The iQ Mid Cap Growth Model seeks to generate long-term returns in excess of the total return of the S&P 400 Barra Growth Index, with less down-market volatility than the index.
PROCESS
The iQ Mid-Cap Growth Model represents an equal-weighted portfolio of mid-cap growth stocks that have displayed strong 9-month price momentum and share buyback ratios.
Start with the 400 stocks of the S&P 400 Mid-Cap Index.
Sort the 400 stocks by price-to-book ratio and select the top 200 stocks.
Sort the remaining 200 stocks by Share Buyback Ratio and select the top 40.
Sort the remaining 40 stocks by 9-month price momentum and select the top 10.
This model reconstitutes every February, May, August and November
What makes this model special?
There are several potential reasons to utilize the iQ Mid Cap Growth Model:
Focus on Growth Potential:
S&P 400 Mid-Cap Index: This index targets mid-sized companies with higher growth potential compared to large-cap companies in the S&P 500.
Share Buyback Ratio: Companies that buy back their shares are signaling confidence in their future prospects and potentially increasing the value for remaining shareholders. A high Share Buyback Ratio indicates a larger portion of profits used for buybacks, suggesting management's belief in the stock's undervaluation.
Momentum Investing:
9-month Price Momentum: Selecting stocks with strong recent price increases aims to capture stocks on an upward trend. The strategy attempts to benefit from continued momentum.
Diversification:
A Starting Universe of Over 200 Stocks: This provides a broader selection compared to a very narrow focus.
Multiple Criteria: Using a combination of factors (index, buybacks, momentum) can help diversify within the chosen universe of stocks and potentially reduce risk by not relying solely on one factor.
This data-driven strategy pinpoints companies poised for breakout success, combining the power of targeted buybacks with price momentum.
Investing in mid-cap growth stocks involves risks, and investors should carefully consider their financial objectives and risk tolerance before making any investment decisions. Mid-cap stocks may experience higher volatility and carry greater market and business risks compared to large-cap stocks. Growth stocks, in particular, may have higher valuations and may be more susceptible to market fluctuations.