By combining the momentum screen with a value group, the methodology may identify early movers with upward price movement while also side stepping value traps.
XSHQ tries to reflect the performance of the S&P SmallCap 600 Quality Index, which includes the highest-quality companies taken from the benchmark S&P SmallCap 600 Index based on three quality metrics to single out company’s profitability, earnings quality and financial risks.
The quality metric could enhance risk-adjusted returns by focusing on those with strong balance sheets and proven profitability and earnings quality. Holdings are then weighted by their total quality score multiplied by market cap.
“S&P Dow Jones Indices has seen an increased popularity of its factor indices, and most recently, a growing interest in capturing multiple factors within one benchmark,” Vinit Srivastava, Managing Director of Strategy Indices at S&P Dow Jones Indices, said in a note. “For market participants, the S&P 500 High Momentum Value Index and the S&P SmallCap 600 Quality Index are examples of how factors may be combined or applied across capitalizations.”
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