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Investment Process
The MLM Focused Equity™ strategy uses a proprietary, quantitative, large-cap equity model designed by Mount Lucas principals. The construction of the portfolio is described in more detail below.
Overview
  1. Universe: S&P 500
  2. Selection:
  3. Value Stocks: Proprietary model ranks stocks by value criteria, selects top 10 stocks every six months, and holds each portfolio of 10 stocks for one year (maximum of twenty value stocks).
  4. Momentum stocks: Proprietary model ranks stocks by momentum criteria, selects top 10 stocks every six months, and holds each portfolio of 10 stocks for one year (maximum of twenty momentum stocks).
  5. Weighting:
  6. Value: 80 percent
  7. Momentum: 20 percent

Detailed Process
The portfolio is constructed by selecting a basket of 10 value and 10 momentum stocks, twice per year. At each selection interval the model ranks S&P 500 stocks (excluding utilities, ADRs, and all stocks not passing a basic earnings test) based on predetermined value criteria and selects the top 10. Next, the model ranks the same universe based on specific momentum criteria and again selects the top 10. The model then invests 80 percent of the capital into equally sized positions of the 10 value stocks, and allocates the remaining 20 percent into equally sized positions of the 10 momentum stocks. The positions are then held for one year. Six months later, the process is repeated, and the model selects another 10 value and 10 momentum stocks that are also held for one year, creating a "laddered" portfolio of up to 40 stocks.
Note that it is possible for a stock to appear in both the value and momentum portfolios during selection, and it is also possible to select the same value (or momentum) stock during consecutive six-month selection intervals. Thus, while as many as 40 unique stocks may appear in the portfolio (10 value, 10 momentum, twice per year) at any given time, the portfolio is often comprised of fewer equity listings as a result of these overlaps.
After a stock is held for one year it is sold if it is not again ranked among the top 10 value or momentum stocks.