Bowman Macro ResearchThe S&P 500, read by its income statement instead of its price tag. Three vectors, two indexes, one strategy you can mirror on PiTrade.
Live portfolio may not match index due to market externalities.
20companies earn half the eligible S&P 500's profits.
This fact keeps me up at night.
The eligible S&P 500 earned $2.64 trillion over the last four reported quarters. Twenty companies produced half of it. The top hundred produced 77%. The bottom half of the index, 243 companies, contributed 6.5%, and that's after netting its 18 loss-makers against the rest.
Returns follow profits. So with profits that concentrated, why not focus on the leaders?
For a year my advice was the most defensible advice there is, buy the S&P 500, because it already carries a profitability filter and the market takes care of the rest by rewarding profitable companies with bigger market caps. But a cap-weighted index owns the profit leaders by accident, in proportion to whatever their share prices happen to be doing. I wanted to own them on purpose, and no ETF tracks what I wanted to track.
So I built it.
Strip an equity down to first principles and it's a claim on a stream of future profits. Everything else (the ticker, the story, the multiple) is packaging. Profit growth is the return driver that doesn't need the market to change its mind. Profit dynamics is the term I use for the three measurable dimensions of that stream.
Pick any current index constituent. Each reading is ranked against all 485 eligible S&P 500 companies, consensus as of Sep 26, 2026.
Net margin: the share of each revenue dollar that survives to shareholders. Pricing power, cost discipline, and competitive position, compressed into one ratio.
Margin trajectory: whether that margin is strengthening or fading, measured forward as the consensus change in net margin between the next two fiscal years.
Forward EPS growth: how fast per-share earnings are expected to compound, FY2 consensus over FY1 on one consistent basis, so a one-off write-down can't pose as growth.
The tick on each track is the universe median. Percentiles are positions within the 485 eligible names, so 98th means only about ten companies score higher.
The claim that margins persist should be tested on outcomes before forecasts, so that's where I started: on the S&P 500 membership that actually existed at each formation date, including the 206 companies that have since left the index. A company's net-margin rank predicted its rank a year later at 0.71 and three years later at 0.60. Two-thirds of top-quintile names were still top-quintile a year on.
Consensus carries the same structure forward. Leadership rotates slowly enough that periodic re-ranking can track it.
0.71year-over-year rank correlation of realized net margins, point-in-time S&P 500 membership, FY2015–23 cohorts
The market doesn't believe that excellence persists. It does.
Investors have been paid for holding the firms that keep executing, at the risk that they stop. Novy-Marx called profitability "the other side of value"; Fama and French built it into their five-factor model as RMW; Bouchaud and co-authors showed why it survives being public: analyst expectations are sticky, and the anomaly is strongest where profits are most persistent. None of those studies tested my exact measures.
"But Jack, margins mean-revert."
They do. Fama and French put profitability's pull toward the mean at roughly 38% a year, and I'm not arguing with the paper. Three answers, in ascending order of importance.
Reversion is partial, and ranks are durable. The fattest quintile still ran a 24.8% median margin three years on, more than double the median cohort's.
The premium already survives reversion. Four decades of evidence are net of every margin collapse that actually happened.
Every constituent re-tests from scratch each quarter.
Consensus expects margins to widen for 81% of eligible names, by a median of just 61 basis points. Read that as a warning about analyst optimism: a small expected improvement is the default state of a consensus estimate and carries almost no information. The tail is different. The Frontier fishes there by construction, and its look-through trajectory (weighted across its holdings) is +542 bps, about nine times the universe median.
Akbas, Jiang, and Koch found the realized profitability trend predicts returns beyond the level. I score the consensus-forward version, which the literature hasn't validated. My adaptation, labeled as one.
Velocity is the Frontier's biggest bet and my own design judgment: no study documents a premium to high expected growth per se. The universe median is 10.4%; the Frontier's look-through is 55.2%. A detector keeps the pillar honest (apparent growth above 75% off a depressed margin is re-scored on the following fiscal-year leg, or dropped). The forward record decides.
A cap-weighted fund owns this map in proportion to market capitalization: mostly the middle, plus whatever the largest names happen to be doing. The Titans cluster high on the margin axis at moderate growth. The Frontier pushes toward the upper right. Eight names currently qualify for both.
A business can prove its profit dynamics two ways. Retrospectively, with billions in delivered net income and margins defended at scale. Or prospectively, with a consensus profit ascent steep enough that, if it's delivered, today's roster of giants gets rewritten. Those are different risk postures, and I think they deserve different indexes.
Profitability, proven at scale. The stock of profits.
Profitability in motion. The flow of profits.
The index I run my own money in, and the one live on PiTrade. Names under 0.50% are trimmed and the rest re-scaled.
The scores are built from percentile ranks. No z-scores, so there's nothing for an outlier to distort, and no manual override or committee anywhere in the process. No name, however famous, gets special-cased in either direction. Every constituent earned its seat through the same arithmetic.
Constituent-level, point-in-time consensus isn't in my licensed data, so any simulated history would embed look-ahead and survivorship bias. The indexes prove themselves in public, forward from launch.
Thirty names, a 10% cap, no sector caps. Technology is 58.5% of the Frontier and 38.8% of the Titans right now. If profit leadership rotates between reconstitutions, both indexes feel it fully until the next re-score. Expect volatility above the S&P 500's.
The Frontier is long its constituents' consensus profit path, and sticky expectations cut both ways: underreaction to deterioration is documented too. A cyclical upswing can score like secular expansion. Quarterly re-scoring bounds that exposure. It doesn't eliminate it.