A mechanical rank-rotation sleeve for monthly fund leaders

One book, one monthly procedure

This archive note describes a mixed mutual-fund book run as a single monthly procedure rather than as a collection of style labels. Rank rotation keeps, drops, or adds holdings by composite rank. Seasonal trading puts the score and the review on a fixed calendar clock: three-, six-, and nine-month windows plus a monthly ranking cycle, so entry, exit, and no-trade months share one schedule. The mechanical trading system is the complete, repeatable set of add, hold, sell, and cash-add rules, reconstructed as one procedure over the system holding period.

The surveyed universe contained about 85 no-load or low-load funds. It mixed equity and fixed-income names and included an average money-market fund plus three bond funds.

How the composite score is built

Each name received a composite score equal to the sum of three-, six-, and nine-month net-asset-value percentage changes after distribution adjustment. The windows overlap, so later months carry heavier implied weight. That sum is the composite score used when the monthly ranking is issued.

The opening book placed equal-dollar units in the three highest-scoring funds and was reviewed when a new monthly ranking was issued. An equal-dollar unit is a fixed cash increment used to open or add positions so new leaders enter at a comparable size.

Rank rules for add, hold, and exit

A holding stayed in the book if it remained inside the top 25 ranks. It was sold if it fell below that cutoff rank, the standing below which a holding is treated as lackluster and scheduled for exit. Any name that reached rank one, two, or three was added if it was not already held.

The rank-25 exit line was presented as an intuitive mark near one-third of the list, not a uniquely justified threshold, and could be moved with tolerance for weak results. Sale proceeds were redirected into the current top-ranked names. The add-the-leaders rule could still require fresh cash in a month with no sales.

Staged cash when leaders appear without sales

Cash was added in stages across the test years rather than committed as a single lump, because the add-leaders rule can demand new units even when the existing book is intact. Those reserved increments are staged cash, used only when the add-leaders rule fires without offsetting sales.

What the reconstruction recorded

In a 36-month reconstruction the book held 31 different funds, averaged about eight holdings per month, and required no trades in 11 of those months. Thirty-six completed buy-and-sell cycles had an average ownership of 8.2 months, and half of those cycles lasted six to 11 months.

The reconstruction is described as covering an interval in which a leadership trend became established.