iQ Small Cap Value Model
INVESTMENT OBJECTIVE
The iQ Small Cap Value Model seeks to generate long-term returns in excess of the total return of the S&P 600 Barra Value Index, with less down-market volatility than the index.
PROCESS
The iQ Small-Cap Value Model represents an equal-weighted portfolio of small-cap value stocks selected from the S&P 600 Small Cap Index.
Start with the 600 stocks of the S&P 600 Small-Cap Index.
Sort the 600 stocks by price-to-book ratio and select the lowest 300 stocks.
Sort the remaining 300 stocks by the Relative Strength Index (RSI) Index and select the top 250.
Sort the remaining 250 stocks by Value Momentum and Share Buyback and select the top 50.
Sort the remaining 50 stocks by Market Capitalization and select the smallest 10.
This model reconstitutes every February, May, August and November
Why invest in small-cap value stocks?
Investing in small-cap value stocks may provide the following advantages:
Potential for High Returns: Historically, small cap value stocks have shown the potential for higher long-term returns, offering significant capital appreciation opportunities.
Undervalued Opportunities: Small cap value stocks often trade at lower valuations, providing chances to invest in overlooked or undervalued companies.
Greater Growth Potential: Small cap companies in dynamic industries can experience faster growth rates than larger, more mature companies.
Diversification Benefits: Investing in small cap value stocks can diversify a portfolio, as their performance may not closely correlate with larger stocks or other asset classes.
Market Inefficiencies: The small cap market is less efficient and less covered by analysts, allowing for identifying undervalued stocks and benefiting from market inefficiencies.
Acquisition Potential: Small cap value stocks may attract acquisition interest from larger companies, potentially leading to higher stock prices and gains for investors.
Favorable Economic Conditions: Small cap value stocks tend to perform well during economic growth and recovery, benefiting from increased business activity.
Investing in small cap value stocks involves significant risks and may not be suitable for all investors. These stocks are from smaller companies with potentially less established track records and may experience higher volatility and price fluctuations than larger, more established companies. Small cap value stocks are also susceptible to economic, industry-specific, and company-specific risks. The value investing approach may not always lead to favorable outcomes, and the stocks may not achieve their perceived value.