Profitability
Gross profit ÷ total assets (Novy-Marx). Higher = more cash from each dollar of capital.
As of 2026-06-02 · 35 names held · backtest spans 221 months
Trailing returns
Cumulative return vs SPY
Performance stats
| Metric | Factor | SPY |
|---|---|---|
Annualized return (1 + total) ^ (252/4612) − 1 | +12.76% | +11.20% |
Annualized volatility daily-return stdev × √252 | +22.50% | +19.74% |
Sharpe ratio ann return ÷ ann vol (rf = 0) | 0.57 | 0.57 |
Max drawdown worst peak-to-trough on the cumulative series | -48.91% | — |
Information ratio ann excess return ÷ tracking error (vs SPY) | 0.17 | — |
Monthly hit rate share of months where factor return > SPY | 53% (117/221) | — |
How it's computed
What. At each month-end, take each ticker's most recently reported gross_profit (revenue − cost of goods sold) and divide by total_assets. This is gross profitability as defined by Novy-Marx (2013).
Why it has worked. Novy-Marx showed that *gross* profitability has roughly the same Sharpe as value, but is nearly uncorrelated with it — so combining the two materially improves a portfolio. Gross profit is harder to manipulate than bottom-line earnings (which can be inflated via one-time gains, accruals, etc.), so it's a cleaner read on what the business actually produces. Scaling by total assets puts firms of different sizes on the same footing.
Caveats. Sector-tilted: software and pharma will dominate the top quintile because of high gross margins, while capital-intensive sectors (utilities, materials) cluster at the bottom. The factor works partly *because* of and partly *despite* this sector tilt. A sector-neutral construction would mute the effect.
Current sector mix
| Sector | Names | % of screen | |
|---|---|---|---|
| Information Technology | 13 | 37.1% | |
| Consumer Discretionary | 8 | 22.9% | |
| Industrials | 6 | 17.1% | |
| Health Care | 5 | 14.3% | |
| Consumer Staples | 3 | 8.6% |
Current top quintile (35 names)
| Ticker | Name | Sector | Signal ↓ | Z-score |
|---|---|---|---|---|
| ADBE | Adobe Inc. | Information Technology | 71.9% | 3.74 |
| AAPL | Apple Inc. | Information Technology | 54.3% | 3.74 |
| FFIV | F5, Inc. | Information Technology | 39.8% | 3.74 |
| AMAT | Applied Materials | Information Technology | 38.0% | 3.51 |
| ROK | Rockwell Automation | Industrials | 35.8% | 3.23 |
| PTC | PTC Inc. | Information Technology | 34.7% | 3.08 |
| CIEN | Ciena | Information Technology | 34.2% | 3.02 |
| DPZ | Domino's | Consumer Discretionary | 27.7% | 2.19 |
| HPQ | HP Inc. | Information Technology | 27.3% | 2.13 |
| J | Jacobs Solutions | Industrials | 26.5% | 2.03 |
| NVDA | Nvidia | Information Technology | 26.0% | 1.96 |
| AVGO | Broadcom | Information Technology | 25.3% | 1.88 |
| TDG | TransDigm Group | Industrials | 23.2% | 1.61 |
| JCI | Johnson Controls | Industrials | 22.6% | 1.54 |
| COO | Cooper Companies (The) | Health Care | 21.6% | 1.41 |
| SWKS | Skyworks Solutions | Information Technology | 21.2% | 1.36 |
| DECK | Deckers Brands | Consumer Discretionary | 21.2% | 1.36 |
| TPR | Tapestry, Inc. | Consumer Discretionary | 20.4% | 1.25 |
| GWW | W. W. Grainger | Industrials | 20.3% | 1.24 |
| IDXX | Idexx Laboratories | Health Care | 20.2% | 1.22 |
| FAST | Fastenal | Industrials | 18.9% | 1.05 |
| RL | Ralph Lauren Corporation | Consumer Discretionary | 18.6% | 1.02 |
| LULU | Lululemon Athletica | Consumer Discretionary | 17.9% | 0.93 |
| CL | Colgate-Palmolive | Consumer Staples | 17.4% | 0.86 |
| MTD | Mettler Toledo | Health Care | 17.3% | 0.85 |
| PODD | Insulet Corporation | Health Care | 16.8% | 0.79 |
| ULTA | Ulta Beauty | Consumer Discretionary | 16.5% | 0.75 |
| WSM | Williams-Sonoma, Inc. | Consumer Discretionary | 16.3% | 0.73 |
| ADSK | Autodesk | Information Technology | 15.1% | 0.56 |
| ORLY | O’Reilly Automotive | Consumer Discretionary | 15.0% | 0.55 |
| COR | Cencora | Health Care | 15.0% | 0.55 |
| FTNT | Fortinet | Information Technology | 14.9% | 0.54 |
| IT | Gartner | Information Technology | 14.6% | 0.50 |
| SYY | Sysco | Consumer Staples | 14.4% | 0.48 |
| HRL | Hormel Foods | Consumer Staples | 14.1% | 0.44 |