Quantitative Equity Model (QEM)

This is a completely unique approach to investment, and is available and may only be appropriate to ‘Sophisticated Investors.’ Through the strict use of a defined set of rules designed by our team, this bottom-up investment approach is actively traded through Boston Private Wealth.

The basis of the rules of the QEM are as follows:

• Financial Health Assessment
  • The company must have a strong balance sheet, with consistent growth and a conservative debt position.
• Market Capitalisation
  • To qualify, a stock must have a market capitalisation of greater than $400 million.
  • Generally, stocks are over $450million to meet the other criteria.
• Management Assessment
  • Positive and consistent Return on Assets (ROA) and Return on Equity (ROE) are essential.
• Liquidity Test
  • There are a number of liquidity tests which are utilised to ensure that any position can be traded in and out of with ease.
• Momentum
  • A stock must have a positive momentum trend before it is purchased. Boston Private Wealth utilises two momentum indicators to ensure this trend.
• Payout Ratios
  • Companies are not required to pay a dividend to be included in the QEM, however if they do, they must have a payout ratio no greater than 80%.
• Forward Growth Potential
  • The model uses consensus forecast data to ensure the forecast Earnings Per Share (EPS) is on an upward trend.
• Trailing Stop-Loss Mechanism
  • Stop-loss mechanism at 20% which rises proportionately to the market. This allows for a maximum possible loss of 20% whilst avoiding setting a limit to the maximum upside.
• The ‘Lynch’ Ratio
  • Similar to the PEG ratio, this methodology allows Boston Private Wealth to rank all qualified companies, and purchase the top 20 stocks.

If a stock doesn’t fit all of the above criteria, it cannot form part of the QEM.  Ideally there are 20 stocks held at 5% weighting, however if there are not 20 stocks that meet every criteria and are undervalued, the monies simply sit in cash.

This approach is unlike any index or benchmark.  It is completely objective, and does not take into account any opinion or bias.