MarketGrader
MarketGrader uses a proprietary quantitative analysis system to identify companies with the strongest underlying fundamentals and the greatest potential for capital appreciation.
On a daily basis the system evaluates nearly every company listed on the New York Stock Exchange, the American Stock Exchange and NASDAQ. It looks at 24 fundamental factors for each company, roughly grouped into four major categories: Growth, Value, Profitability and Cash Flow.
Companies are assigned a grade from A+ to F in each of the 24 factors, and those grades are accumulated to assign each company an overall score between 1 and 100. Stocks with the highest grades are included in the indexes, subject to liquidity and diversification requirements.
The MarketGrader system is built on the premise that companies with strong fundamentals are well positioned to deliver strong performance in the market. The 24 factors highlight what we believe are key metrics of corporate strength, balanced against price to strive to give investors fair value from each stock.
MarketGrader Attributes
Sophisticated But Transparent
The MarketGrader system provides a sophisticated and robust quantitative evaluation of companies. However, it is also fully transparent, so you can see exactly what you’re investing in at any given day.
Tailored To Sector Realities
Most fundamentally-based systems used in the ETF industry rely on the same metrics to evaluate biotech stocks as they do to evaluate retailers. The MarketGrader process, in contrast, tailors certain metrics to each specific sector.
Equally Weighted
All MarketGrader portfolios are equally weighted, meaning that at each rebalance, an equal weight is assigned to each stock in the portfolio. Equal-weighting is intended to maintain the discipline “buy low, sell high” within the indexes, as gains can be taken from winning positions.
Regularly Rebalanced
The MarketGrader indices are rebalanced on a regular basis to ensure the companies within the index continue to have top graded fundamentals. The MarketGrader 40 rebalances on a quarterly basis, while the other five indexes our ETFs track rebalance semi-annually.
Liquid
The best measure of ETF liquidity is the liquidity of the underlying stocks in the index. Stocks in MarketGrader’s indices must exhibit a three-month daily average trading value of at least $2M. Aside from the costs associated with managing an ETF, this liquidity helps keep the price in line with the value the ETF’s underlying components.
Rules-Based Analysis
The MarketGrader system is a rules-based system, using a consistent and replicable investment process that is not influenced by emotion, manager turnover or other human factors. The data-driven process allows MarketGrader to fully evaluate the corporate fundamentals of more than 5,700 companies on a daily basis—far more than any human analyst could possible examine.
How does this differ from active management?
The goal of the SPA MarketGrader ETFs is similar to the goal of traditional active managers: Strive to deliver superior risk-adjusted returns. The difference is that MarketGrader indexes use a consistent and replicable investment process that is not influenced by emotion, manager turnover or other human factors.