Step 1 · Score each company on Quality
Momentum tells us where a company is going. Quality tells us whether the business is likely to sustain that momentum. All four quality metrics are scored within industry groups - a bank is compared to other banks, a software company to other software companies - ensuring meaningful comparisons.
Return on Assets
How profitably does the business use what it owns?
For every dollar of assets on the balance sheet, how much profit does the business generate? High ROA means the company runs lean and efficiently - it doesn't need a lot of capital to produce strong earnings.
Gross Income / Assets
Core business value per asset dollar
How much gross profit does the core operation generate relative to total assets? This strips out interest, taxes, and overhead - measuring how strong the underlying product or service is before anything else gets subtracted.
Buybacks Inverted
Is the company returning cash to shareholders?
Share buybacks return capital directly to investors and signal that management believes the stock is worth owning. More buybacks earns a higher quality score. Inverted means: more buybacks → better score.
Accruals Inverted
Are reported earnings trustworthy?
Accruals measure the gap between accounting earnings and actual cash collected. A large gap is a red flag - earnings may be inflated. Low accruals signal that what the company reports is what it actually earns. Inverted means: lower accruals → better score.
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Industry-relative scoring
All four quality metrics are ranked within each company's industry group (RBICS sector classification). A community bank's ROA is compared to other banks; a specialty chemicals company to other specialty chemicals companies. This ensures the score reflects genuine quality relative to peers, not structural differences between industries.
Step 2 · Score each company on Momentum
The momentum score captures the price-trend signal across three timeframes, adjusting for how volatile each stock's price normally is.
12-Month Price Trend Universe-wide ranking
Has the stock been rising over the past year?
The stock's return over the past 12 months, skipping the most recent month (which tends to be noisy). Adjusted for how volatile the stock normally is - a calm, steady 20% gain is a stronger signal than a volatile stock that happened to close 20% higher. Ranked against the entire universe, not just one sector.
6-Month Price Trend Universe-wide ranking
Is the positive trend continuing more recently?
Same approach over a shorter six-month window. The combination of 12-month and 6-month signals helps distinguish persistent outperformers from stocks that had a strong year but have recently lost momentum.
3-Month Earnings Estimate Revisions Sector-normalized
Are analysts raising their profit forecasts?
When professional analysts covering a company revise their earnings estimates upward over the past three months, it typically signals the business is performing ahead of expectations. Downward revisions are a warning sign. This is the one momentum metric scored within sectors, since analyst revision patterns differ meaningfully across industries.
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Why price momentum is ranked universe-wide here
Unlike quality metrics - where a tech company's ROA shouldn't be compared to a utility's - price momentum reflects a universal investor behavior. A rising stock in any sector signals investor conviction. By ranking momentum across the full universe rather than within sectors, we identify companies with the strongest absolute price trajectory, not just the best-performing company in a weak sector.
Step 3 · Combine scores and apply asymmetric adjustment
The quality and momentum scores are combined into a single composite. Then an asymmetric adjustment is applied that penalizes below-average companies more severely than it rewards above-average ones. A company cannot score well on one factor alone and rely on it to carry the other.
The 60/40 weighting - and why it's this way
Momentum · 60%
Quality · 40%
Momentum leads because a high-quality company with no price trajectory may be a great business, just waiting for a catalyst that hasn't arrived yet. Quality scoring provides insight on whether the momentum is warranted - or just hype. Together they identify companies where genuine business strength and market recognition are both present and reinforcing each other.
Asymmetric adjustment - bad scores penalized more than good ones are rewarded
A company at +2.0 earns a score of 3.0. A company at −2.0 collapses to 0.33 - less than one-ninth as much. The formula is intentionally harder on weakness than it is generous with strength.
Illustrative examples - why both factors must be present
ATI Inc.
Specialty materials & titanium · Aerospace & defense demand
Quality score
Strong - high ROA, disciplined accruals
Momentum score
Strong - sustained price outperformance
EPS revisions
Analysts consistently raising estimates
Both factors firing together. A specialty-metals producer with real pricing power and a growing aerospace and defense backlog - and a stock the market has steadily rewarded as bookings and margins improve. Quality is warranting the momentum; the composite reflects both.
✓ High composite - advances to selection
Sterling Infrastructure
Infrastructure services · Data-center & electrification build-out
Quality score
Exceptional - high returns, low accruals
Momentum score
Strong - multi-year price outperformance
EPS revisions
Rising - estimates climbing as backlog grows
Site-development and e-infrastructure work tied to data centers and electrification has driven accelerating revenue and expanding margins. The market has rewarded the re-rating and analysts keep raising estimates - a clean combination of operating quality and price momentum.
✓ High composite - advances to selection
Penalized - quality without momentum
Snap-on
Professional tools & equipment · High quality, no price trend
Quality score
Strong - high ROA, clean accruals, steady buybacks
Momentum score
Weak - flat 6- & 12-month price trend
EPS revisions
Flat - no upward estimate revisions
Strong on every quality factor - high return on assets, clean accruals, consistent buybacks - but the momentum factors are flat: no 6- or 12-month price trend and no upward earnings-estimate revisions. With momentum weighted 60% of the composite, a strong quality score alone can't lift the name into the top tier, so it is screened out at reconstitution despite clearing the quality gate.
~ Low composite - unlikely to be selected
Penalized - momentum without quality
Dutch Bros
Drive-thru coffee · Capital-intensive store expansion
Quality score
Weak - low ROA, capital-heavy, no buybacks
Momentum score
Strong - powerful 6- & 12-month price trend
EPS revisions
Rising - analysts lifting estimates
Powerful price momentum and rising earnings estimates - but the quality factors lag. A capital-intensive store-expansion model keeps return on assets low and plows cash back into growth rather than returning it through buybacks, so the quality score is weak. Under the asymmetric adjustment, that weak quality score is penalized hard enough to pull the composite below the selection line - strong momentum alone can't carry it.
~ Low composite - unlikely to be selected
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The key mid cap insight
In small cap, momentum is used as a filter - to weed out value traps after quality and value scoring. In the mid cap sleeve, momentum is a primary factor - because momentum is a desirable characteristic that mid cap equities are uniquely positioned to contribute.
Step 4 · Select the top companies and buffer against unnecessary turnover
Selection Rules
New entrant threshold · Top 20%
A company must rank in the top 20% of the sleeve universe by composite score to be newly added to the index. Only the highest-scoring companies on the combined Quality + Momentum measure advance. (~72 companies selected)
Existing holding buffer · Top 40%
A company already in the index does not need to rank in the top 20% to stay - it can remain if it still ranks within the top 40%. This prevents a company from being sold and repurchased the following quarter due to minor ranking fluctuations.
If still short of target count
If fewer than the target number of companies meet both rules, the highest-ranking eligible companies not yet selected are added to reach the target. The count floor is maintained.
Step 5 · Assign a weight to each selected company
Each selected company is weighted by the product of its adjusted composite score and its free float market cap. Companies with stronger quality and momentum signals, and with larger investable market presence, receive more of the sleeve's weight.
How this differs from other weighting approaches
Pure market cap weighting rewards the largest companies regardless of momentum or quality. Equal weighting ignores size and creates liquidity challenges. This approach ensures the highest-conviction holdings - those scoring best on both factors - carry the most weight, while size keeps the portfolio grounded in market reality.
S&P approach
Pure market cap - largest by market cap gets most weight, regardless of momentum or quality trend
Equal weight
Same weight for all - ignores both size and signal strength
Equity Ascent
Score × market cap - conviction and size both matter; highest combined score earns highest weight
Output - Mid Cap Sleeve · Equity Ascent Index
~72 Mid Cap Holdings
Strongest combination of operating quality and confirmed price momentum
Neither factor alone is sufficient - both must be present
Stability buffer reduces unnecessary turnover and costs
Weighted by quality-momentum score × size - not pure market cap
Targets the scaling phase - where quality businesses accelerate as market recognition compounds
20%
of the final index weight
Large Cap: 60% ~ 200 equities
Mid Cap: 20% ~ 72 equities
Small Cap: 20% ~ 108 equities
