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Sabrient Defensive Equity Index
The Sabrient Defensive Equity Index (SBRDE) is a large-cap index designed to achieve a superior risk-return during periods of weakness in the markets and/or the overall American economy, while still offering the potential for gains during periods of market strength and economic growth.
(This index is available for sector-specific and mid-cap or small-cap licensing.)
We take a nontraditional approach to the design of a defensive portfolio. We start with a broad universe of U.S. stocks and ADRs and winnow it to approximately 1000 companies with market capitalizations in excess of $1 billion. Then, instead of focusing solely on low-beta, non-cyclical, “steady-Eddy”' stocks, as is traditional, we use uses a 100% multi-factor, rules-based, quantitative approach to select the 100 stocks for the Index.
The Index is designed to actively represent a group of securities that reflect occurrences such as low relative valuation, conservative accounting, dividend payments, and a history of out-performance during weak market periods. We believe this nontraditional approach creates a more intriguing version of a defensive portfolio with the potential to outperform, on a risk-adjusted basis, the Russell 3000 Index and other broad market benchmarks under most market conditions. This selection process and portfolio re-balance are repeated quarterly.
- Potential Index constituents include all equities trading on major U.S. exchanges.
- The Defensive Equity Index is comprised of approximately the 100 highest-ranking securities chosen from a subset of eligible companies using a 100% rules-based quantitative ranking methodology. To prevent undue industry sector concentration, limits have been placed on the number of securities in the Index that may share a particular sector or industry classification based upon industry standard sector classifications.
- Each security is ranked based on the composite scoring of a handful of specially-targeted factors, and is sorted from highest to lowest. The constituent selection methodology was developed by Sabrient as an effective, quantitative approach designed to identify those companies that offer the greatest potential for maintaining value during difficult market conditions and thus providing the investor with a defensive portfolio. The highest ranked stocks generally reflect qualities such as a strong free cash flow, dividend payments, and a recent history of out-performance during weak market days.
- Stocks that have a low Sabrient Earnings Quality Rank (EQR) of 1 (worst) are excluded, as are stocks that have a rating of D or F (on a scale of A-F, with F being the worst) from Gradient Analytics, a Sabrient subsidiary that specializes in forensic accounting analysis.
- The 100 highest-ranking companies are chosen and given a modified equal weighting in the portfolio.
- The constituent selection process and Index re-balance are repeated once per quarter.