A Smarter Approach to U.S. Equity Investing

Strategy Overview

Our approach targets large and mid-cap U.S. companies, building a diversified, equal-weighted portfolio across sectors and constituents. Unlike passive index strategies that mirror the market regardless of valuation or momentum, our strategy actively selects stocks that we believe, offer a compelling balance of relative value and positive price trends observed across multiple time horizons, within each sector.

At the heart of our process is a proprietary scoring mechanism, developed through extensive in-house quantitative research. This system enables us to evaluate companies based on multiple dimensions of valuation and momentum, helping us surface opportunities where market pricing may not fully reflect underlying strength.

The selection process is entirely systematic, relying on a transparent ruleset designed to ensure consistency, repeatability, and removal of behavioral biases. Our algorithm applies consistent logic across the investable universe — the human role is to monitor and refine the process, not to override it.

What Makes  This Strategy Distinct?

We focus on two key pillars that work together to drive long-term consistency: how we allocate capital across sectors & positions, and how we select the individual positions within them.

Sector Allocation and Position Weighting

We seek to allocate capital evenly across sectors and individual securities with the goal of reducing concentration risk. This approach is designed to help limit reliance on any single sector or stock for portfolio performance. Historically, in periods where a specific sector has underperformed (such as financials during the global financial crisis or technology stocks during the dot-com downturn), sector-equal weighted portfolios have shown a tendency to be less affected than market-cap weighted ones. While results will vary with market conditions, this type of structural balance may help provide broader diversification during periods of market stress. In addition, diversification across sectors and securities may help mitigate idiosyncratic risk associated with individual companies or sectors, though it cannot eliminate broader market risk.

Historical Returns

For this analysis, we compared multiple weighting methodologies for the S&P 500—market-cap weighted, position-equal weighted, sector-equal weighted, and sector & position equal weighted—to evaluate how portfolio structure influences long-term performance. The market-cap and equal-weighted benchmarks are sourced directly from official S&P Global data, while the sector-equal-weighted composites were reconstructed internally using the same annual rebalancing schedule applied at the start of each calendar year.

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The sector-equal-weighted and position-equal-weighted versions generally show more balanced performance across cycles, reflecting diversification across industries and constituents. In contrast, the traditional market-cap-weighted index has led in the most recent period, largely driven by outsized contributions from a handful of large technology companies—highlighting both its recent strength and its concentration risk. A companion table summarizes cumulative performance across the full observation window.

Returns Summary (2000 to 2025)

Stock Selection (Value + Momentum)

We focus on stocks that are relatively cheap within their sectors but also exhibit strong momentum —a historically underappreciated combination that can help avoid value traps while still capturing upside trends.

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Active, But Thoughtful

While the strategy is active in nature, it operates on a controlled weekly rebalance schedule — lower frequency than short-term trading algorithms yet active enough to adapt to market dynamics. This balance helps limit unnecessary turnover and mitigate trading cost drag.

Designed to Outperform

While we don’t rely on backtested or simulated performance to promote this strategy, our internal research and scenario analysis give us strong conviction. This is not a “black box”. It's a transparent, rules-based framework built with careful consideration, continuous monitoring, and rigorous discipline — all with a goal of outperforming broad U.S. equity benchmarks over time.

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Strategy Comparison Table

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Who Is This Strategy For?

This strategy may be a good fit for investors who:

• Prefer individual stock ownership over pooled vehicles like ETFs or mutual funds
• Appreciate active management rooted in research and rules-based decision-making
• Are comfortable with portfolio adjustments on a weekly basis, including potentially higher short-term capital gains in taxable accounts
• Seek strategies suitable for retirement or tax-advantaged accounts, where frequent trading does not trigger tax consequences
• Want diversified exposure to U.S. equities, while benefiting from disciplined stock selection that emphasizes both valuation and momentum

References and Data Sources

1. Global Industry Classification Standard (GICS)
2. S&P 500 sector indexes (market cap weighted)
3. S&P 500 equal weight sector indexes
4. S&P 500 equal weight index
5. S&P 500 index (market cap weighted)

Raw index data as been obtained from Bloomberg. Sector equal weight index data prior to 2003 was reconstructed by using the positions within the market-cap weighted sector indexes, and the official S&P 500 index rebalancing historical dates.

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Disclaimer

The performance figures and index returns presented in this article are provided for informational and illustrative purposes only. Index returns represent the performance of the underlying index, including the reinvestment of dividends, but do not reflect any management fees, trading costs, or advisory expenses. Indexes are unmanaged, cannot be directly invested in, and therefore actual results for investors will differ.

Performance results for client accounts may vary based on factors such as cash balances, timing of deposits and withdrawals, or the specific execution timing of trades. While actual returns are reported on a time-weighted basis to minimize the impact of inflows and outflows, real-world accounts are traded individually and may experience differences from the model portfolio results due to intra-day trade timing and client-specific circumstances.

Friedenthal Financial does not operate a pooled fund; client accounts following the same model are typically traded together as a block for consistency and fairness.

Past performance is not a guarantee of future results. Market conditions, economic developments, and other factors can cause future returns to differ materially from those shown.

• All investing involves risk, including the potential loss of principal.
• Any forward-looking statements are based on current expectations and are subject to change without notice.
• Nothing in this article should be construed as personalized investment advice or a solicitation to buy or sell any security.