Evaluating rank-rotation momentum across fund wrappers

A second experimental factor

Editorial framing. This article treats the fund-wrapper as a second experimental factor rather than as a detail of implementation. One monthly rank-rotation momentum-strategy is locked. Every rank-sleeve is scored against a market baseline. A moving-average cash gate is then overlaid so the evaluation can ask whether vehicle choice, not the signal, is changing the result.

One locked monthly procedure

A monthly sample from 2000 to 2017 compared nine sector exchange-traded funds with nine sector mutual funds under the same rank-rotation momentum-strategy.

Each month, sectors were ranked by that month's dividend-adjusted percentage price change. The following month's return of each rank from rank1 through rank9 was recorded.

Scoring every rank-sleeve

Each rank was judged by average annual return, the standard deviation of annual returns, and largest-annual-decline. A broad-market exchange-traded fund was used as the baseline.

In that historical comparison, the fourth-ranked sleeve was the strongest of the nine ranks for both the mutual-fund set and the exchange-traded-fund set.

Overlaying a moving-average cash gate

A moving-average filter with lookbacks from two to twelve months allowed the selected sector trade only when price was at or above the average and otherwise held cash.

For the fourth-ranked mutual-fund sleeve, an eight-month moving-average gate reduced annual-return volatility and the largest-annual-decline relative to the ungated version.

For the fourth-ranked exchange-traded-fund sleeve, a three-month moving-average gate produced the most favorable return-and-volatility pairing among the gated exchange-traded-fund ranks in that test.

What the wrapper still changed

Across lookbacks from two to twelve months, average annual returns of the gated fourth-ranked mutual-fund sleeve stayed inside a narrow band. The standard deviation of those lookback-level averages was 0.81%.

After the moving-average gate was applied, the fourth-ranked mutual-fund sleeve still compared more favorably than the fourth-ranked exchange-traded-fund sleeve on average annual return, volatility, and largest-annual-decline in that sample.

Editorial reading

Editorial reading. The archive does not claim that the fourth rank, the eight-month gate, or the three-month gate is a rule for later markets. The useful evaluation point is that a locked rank-rotation momentum-strategy can still change its evaluation picture when the fund-wrapper and the cash-gate lookback are allowed to vary.

Editorial reading. Keep the signal, the vehicle, and the gate as separate factors. Mixing them hides whether the fund-wrapper, not the ranking rule, is doing the work.