Hi Ming, thanks for your questions. The following responses:

1) The index itself was not levered, but simply selected stocks with high debt-over-equity ratios, in addition to these being small and cheap. We used the sequential model for the stock selection.

2) We defined the universe as all US stocks above $500 million market cap and selected the 30% smallest companies of that universe.

3) There are mutual funds that replicate this strategy (small, cheap & levered) and smart beta ETFs that focus on small and cheap stocks. Including leverage as a factor is somewhat marginal.

On an unrelated note, adding a factor like high cashflow stability, which many PE target companies feature, and then leveraging the index would be an interesting follow on analysis.