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1990issue C121-9

Cycle-tested five-year fund rank rotation

A static five-year winner list is a weak construction input because names on it typically leave that list within a few months. This archive article teaches a cycle-aware filter: keep a fund only when it still occupies the top slice of long-window results at both a ranking peak and a ranking trough, then rotate a closed roster by placing already-known window roll-off into the ranks before the next extreme is confirmed.

  • A static five-year winner list is a weak construction input, because names on it typically leave that list within a few months.
  • A fund is classed as cycle-enduring only if it appears on the top-30 five-year ranking at both a confirmed high turning point and a confirmed low turning point.
  • Only names from the last designation remain eligible at the next one, so the next roster is a rank-rotation among a closed 30-name set.
  • After the last confirmed designation, the rule switches to adjusted forecast ranks and rotates out names predicted to lose top-30 status before the next extreme is locked.
Entries in this reading3 entries
System optimization2 readingsSeasonal trading5 readingsCurrent trackRank rotation31 readings

Why a static winner list is a weak input

A static five-year winner list is treated as a weak construction input because names on it typically leave that list within a few months. The archive workflow therefore does not treat a long-window winner list as a finished roster. It asks whether a name still occupies the top slice of five-year results when the ranking cycle is at a peak and when that same cycle is at a trough.

How a designation pair is locked

A fund is classed as cycle-enduring only if it appears on the top-30 five-year ranking at both a high turning point and a low turning point of that ranking cycle. A ranking extreme is used as a designation date only when it is at least six months from the prior extreme and the reversal has held for three months. Those two most recent confirmed turning points are the designation pair that locks a new roster of cycle-enduring funds. The pair is typically about a year apart.

What the eligible universe includes

The eligible universe is limited to no-load equity funds in aggressive-growth, growth, growth-income, income, and sector groups. Gold funds, international funds, and funds still charging a sales load above 3% are excluded. In this workflow, a cycle-enduring fund is a no-load equity fund that remains inside the top-30 five-year ranking at both the latest confirmed high and the latest confirmed low of that ranking cycle.

Quarterly checks and the disqualification scan

After a designation, status is rechecked at least quarterly. A name that leaves the top 30 is not restored even if it later reappears, because it must remain on the list between turning points. A faster disqualification scan counts every fund with a higher five-year return than the weakest designated winner, including newcomers. More than 29 superior names removes its cycle-enduring status.

Rank rotation inside a closed set

Only names from the last designation’s top 30 remain eligible at the next designation. The next roster is a rank-rotation among a closed 30-name set rather than an open search of the whole universe. Rank rotation drops a name as soon as it loses, or is forecast to lose, top-30 durability and replaces it with a stronger remaining candidate.

Window roll-off and the truncated base

Window roll-off is the known effect of the quarter from five years earlier leaving the five-year record. That historical piece is certain even though the incoming quarter is not. Forecast ranks start from a truncated base after the known five-year-ago quarter is removed, leaving a 57-month figure. That truncated base is then restored with each new month so already-known window roll-off sits in the ranking before the next turning point is confirmed. The adjusted rank forecast is a reranking of the closed 30-name candidate set after the truncated base is restored with newly arriving months, so already-known future window effects sit inside the rank.

Volatility and the path off the list

Higher-volatility names tend to leave the top 30 before ranking lows, and lower-volatility names tend to leave before ranking highs. Later designated winners showed betas from 0.5 to 1.1, versus betas as high as 1.4 in earlier years.

When the construction rule switches

As time passes after the last confirmed designation, the construction rule switches from the old confirmed roster to the adjusted forecast ranks. It then rotates out names predicted to lose top-30 status before the next extreme is locked.

Annualized five-year returns at the August 1988 low and July 1989 high

At the August 1988 ranking trough the top thirty eligible no-load equity funds clustered near 13–18 percent annualized five-year return; at the July 1989 ranking peak the same window stretched to about 22–34 percent. Names that occupy the top slice at both turning points are the cycle-enduring roster the article keeps; the rest of each list is a one-climate winner. Values are the printed ranks and annualized five-year total returns from the source table, not a redraw of the page.
At the August 1988 ranking trough the top thirty eligible no-load equity funds clustered near 13–18 percent annualized five-year return; at the July 1989 ranking peak the same window stretched to about 22–34 percent. Names that occupy the top slice at both turning points are the cycle-enduring roster the article keeps; the rest of each list is a one-climate winner. Values are the printed ranks and annualized five-year total returns from the source table, not a redraw of the page.No-load equity mutual funds (NLFI eligible universe) · five-year annualized total return · 1988-08-01T00:00:00.000Z to 1989-07-31T00:00:00.000Z

NLFI monthly five-year total returns including reinvested distributions, annualized; gold and international funds excluded; funds still charging a sales load above 3 percent excluded. Turning points required at least six months apart and a three-month confirmation. Asterisks mark funds unavailable to new shareholders or still charging more than 3 percent load; P marks confirmed perennial funds.

Educational research material, not investment advice. Historical source context does not establish present-day performance.
3 of 19 in the Rank rotation track
19911-9 pp.Next on Rank rotationBlue-chip rank rotation by relative-strength-index slopeRank rotation ranks a fixed candidate list by relative performance, owns current leaders, exits when rank or slope no longer supports the holding, and treats abstention from weak names as part of the same rule.
All readings on this track · 19 readings
  1. 1987A mechanical rank-rotation sleeve for monthly fund leaders
  2. 1989Rank rotation in a five-name no-load sleeve
  3. 1990Cycle-tested five-year fund rank rotation
  4. 1991Blue-chip rank rotation by relative-strength-index slope
  5. 1992Currency rank rotation and intermarket timing
  6. 1992Rank rotation and relative strength for portfolio construction
  7. 1994MACD crossovers then short-horizon rank rotation
  8. 1994A comparable group-trend ledger from published ranks
  9. 1997Normalized yield rank rotation as a full portfolio procedure
  10. 1997Constructing an investor preference index from two capitalization-weighted series
  11. 1998Constructing anchored momentum from a centered average
  12. 2000Rank rotation, a stop-loss order, and Relative Strength Index in fund switching
  13. 2003A one-fund daily rank is a two-sleeve construction problem
  14. 2004Evaluate rank rotation only where persistence already exists
  15. 2004Sector fund rank rotation with regression and trailing stops
  16. 2006Evaluating equal-weight annual yield-rank rotation
  17. 2007Weekly preferred-symbol reselection for mechanical trend systems
  18. 2011Portfolio capacity and entry pacing for mechanical systems
  19. 2011Rank rotation as a testable ETF construction procedure
By fieldPortfolio construction30 readingsBy year19908 readings
All 31 readings tagged Rank rotation
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