Evaluating equal-weight annual yield-rank rotation

What the procedure specifies

The mechanical-trading-system examined here is a rank-rotation rule. At each annual reset, members of a major blue-chip index are ordered by yield rank and the book is rotated into an equal-weight basket of the ten highest-yielding names. Selection and replacement occur on the final trading session of the calendar year, and that basket is held until the next year-end reset.

Why the basket is equal weight

Equal weighting is required by the procedure because a single name can lose more than half its value in one holding period. The equal-weight basket assigns the same stake to every selected name so later dispersion cannot be treated as a reason to have sized one name larger. The rules do not allow concentrating in whichever name later moves most.

How each holding year was checked

The historical check compared each selected name's purchase price with its price at the end of the same holding year. That comparison was treated as the test of whether the rules chose names that finished higher.

Advancers and decliners across three years

Across the three completed holding years examined, the mix of names that finished above versus below purchase price was uneven. One year had more decliners than advancers, one year was split five and five, and one year had seven advancers and three decliners. Two names finished each of the three completed holding years above their purchase prices, while several other names appeared as both advancers and decliners depending on the year.

The next reset and rule adherence

The candidate list for the next holding year reused the same ten names as the prior basket, aside from a merger that folded one former constituent into another listed name. Stated yields changed but membership did not. A name that declined in two consecutive holding periods still ranked first by yield on the following reset date. Omitting that name was treated as abandoning the procedure rather than as a permitted overlay. Rule adherence means every name the rank screen produces is taken, including those that just posted large declines.

How long the window is

The evaluation treated a three-year window as long enough for a reader to judge whether the full rule set fit them, while noting that others may regard that sample as too short.