Scott Martindale is the Senior Vice President for Sabrient Systems, a quantitative equity research firm in Santa Barbara, CA, and subsidiary Gradient Analytics, a forensic accounting research firm. He serves on the leadership team with a focus on institutional sales, marketing, business development, client relations, and product development. He is an experienced trader of stocks, options, and ETFs. His prior experience includes analytical, engineering, and managerial positions with Chevron Corp. Scott holds BS and MS degrees in civil engineering from the University of Arizona, and an MBA from California State University-Hayward. Sabrient Systems offers quantitative equity research, tools, and strategies, and publishes indexes as the basis for ETFs, UITs, and structured products. The firm builds fundamentals-based multi-factor models and relative rankings, including thematic value, growth, momentum, and dividend models, an Earnings Quality Rank (EQR), and a bottom-up Sector and ETF evaluation and ranking model. Gradient Analytics publishes in-depth fundamental research focusing on the earnings quality and anomalous executive behavior of individual companies, both U.S. and International, primarily identifying red flags to avoid meltdowns in long positions and identify short candidates. Sabrient acquired Gradient in 2011.
A traditional index seeks to represent an entire market or sector (i.e., beta = 1) by owning all or most of the stocks in that market or sector and weighting them by market cap. Because this type of static indexing has historically implied broad market-matching returns through passive investing, investors have commonly turned to actively managed mutual funds when seeking market out-performance. However, while static indexing provides a way to gain general exposure to broad markets or sectors, enhanced indexing based on quantitative ranking models (e.g., “active quant,” “factoring,” or “smart beta”) has greatly expanded the range of choices and offers real potential for market-beating returns by layering alpha generation on top of beta exposure. ETFs that track these quantitative indexes provide dynamic and exciting alternatives to the traditional actively-managed open-end mutual funds and market-cap weighted ETFs. We provide examples of enhanced indexing models that have been working in today’s challenging equity markets.