Evaluating an annual contrarian sector rank-rotation

A fixed nine-sector universe

The candidate universe is limited to nine sector funds covering materials, energy, industrial, financial, technology, consumer staples, utilities, health care, and consumer discretionary.

Rank-rotation is an annual reordering of that fixed sector universe by prior-year percentage return, then holding a fixed-count sleeve for the next calendar year.

The rank-rotation rule buys equal dollar amounts of the three weakest sectors by prior-year percentage return and holds that equal-dollar sleeve for one year before repeating the rank. The calendar hold leaves the selected sleeve unchanged until the next rank.

The procedure is framed as a sector-rotation counterpart to an annual equal-weight high-yield stock basket. Sector-rotation here means shifting capital among market-sector funds instead of among a short list of individual company stocks, substituting sector funds for a small number of individual company names.

Starting sleeve and contrarian-strategy premise

Because the sector funds' first full calendar year is 1999, the evaluated rotation sequence begins in 2000 with financials, consumer staples, and utilities as the lagged-loser sleeve.

The contrarian-strategy selects the prior year's weakest sectors. The archive premise is that repeating business cycles can follow relatively weak sector years with relatively stronger ones.

Evaluation comparators

A same-universe opposite rule that instead holds the three prior-year winners is computed as an academic comparator. Evaluation places the lagged-loser sleeve beside a broad-market proxy, the high-yield stock basket, and that prior-year winner sleeve, including a $10,000 initial-capital growth path across those four tracks.

Reported yearly percentage returns for the compared procedures omit the effect of reinvesting dividends.