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1997issue C041-4

Normalized yield rank rotation as a full portfolio procedure

A dividend-yield ranking rule becomes a full portfolio procedure when current yield is scaled by a multi-year estimated yield, the ten highest normalized-yield names are held in equal weight, and the book stays invested through an anniversary cycle even after a year that lagged the industrials.

  • The procedure ranks dividend-paying names by current yield divided by a multi-year estimated yield, then selects the ten highest normalized-yield names.
  • Index membership and a January 1 anniversary are scoring conventions. The same ranking can use a different menu or anniversary, and official scoring does not apply an optional three-month gap between ranking and execution.
  • Normalization became necessary after lower-yield growth names entered the industrials, because raw high yield no longer automatically isolated the most out-of-favor names.
  • The published system stays fully invested and rejects unused hybrid timing overlays as not worth the cost of being out of the market.
Entries in this reading3 entries
Seasonal analysis5 readingsMechanical trading system15 readingsCurrent trackRank rotation44 readings

How the ranking selects the book

The procedure ranks dividend-paying names by current yield divided by a multi-year estimated yield, then selects the ten highest normalized-yield names. Those names are held as a ten-name equal-weight book through the next anniversary.

Scoring conventions are not the only menu

Index membership and a January 1 anniversary are scoring conventions. The same ranking can use a different menu or anniversary. An optional three-month gap between ranking and execution can be used, but official scoring does not apply that gap.

Why raw high yield was no longer enough

Normalization became necessary after lower-yield growth names entered the industrials between 1985 and 1991, because raw high yield no longer automatically isolated the most out-of-favor names.

1996 New Dow strategy holdings: price change by rank

Equal-weight 1996 book: nine of ten names rose, AT&T fell 6.3%, and American Express led at +36.6%. Capital gain 18.16% plus 2.52% yield made 20.68% total return versus 29.11% for the DJIA. Values are the article’s Figure 1 table, not a scan of the cartoon.
Equal-weight 1996 book: nine of ten names rose, AT&T fell 6.3%, and American Express led at +36.6%. Capital gain 18.16% plus 2.52% yield made 20.68% total return versus 29.11% for the DJIA. Values are the article’s Figure 1 table, not a scan of the cartoon.New Dow strategy 10-stock book (official 1996 scoring) · calendar year 1996 · 1996-01-01T00:00:00.000Z to 1996-12-31T00:00:00.000Z

An official book that lagged still held to anniversary

In the 1996 official book, nine of ten holdings had positive price change and one large loser was enough to weigh on a ten-name equal-weight book. The 1996 official book returned 20.68 percent total, versus 29.11 percent for the Dow Jones Industrial Average with dividend reinvestment.

From 1985 through 1996 the procedure’s average total return was 24.34 percent versus 19.25 percent for the Dow Jones Industrial Average, with a 22.6 percent compound annual figure presented as the more meaningful long-horizon rate.

A cycle can stall after the rank is set

Before 1996 the procedure lagged the industrials in 1987 and 1990 and then recovered in 1988 and 1991. The archive ties that pattern to a cycle stalling in one phase while the ranking is already set for the next.

How the next book was sized

The 1997 book used 1999-2001 estimated yields and January 2, 1997 prices only to size equal-dollar holdings. Three incoming names posted normalized-yield ratios of 1.0, described as unusually low for a selected book.

The published system stays fully invested

The published system stays fully invested and rejects unused hybrid timing overlays as not worth the cost of being out of the market.

Educational research material, not investment advice. Historical source context does not establish present-day performance.
9 of 32 in the Rank rotation track
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All readings on this track · 32 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
  20. 2011The inverse-Fisher stochastic is a forecast layer until the book rules can be disabled
  21. 2012An underwater stretch is a sizing test for rank rotation
  22. 2015Rule-based ETF rotation as one testable procedure
  23. 2015MACD crossover evaluation by trend rank rotation
  24. 2015Persistence and strength as one close-to-close switch
  25. 2015Evaluating rank rotation after a persistence screen
  26. 2016Evaluating an annual valuation rank rotation
  27. 2017A two-step yield and price rank rotation for a five-name sleeve
  28. 2018Smoothed volatility and the missing rank-rotation exit
  29. 2018A five-condition scorecard that ranks stocks and can refuse the trade
  30. 2018Small-cap growth sleeve eligibility with trend and rank rotation
  31. 2018Evaluating rank-rotation momentum across fund wrappers
  32. 2019Evaluating an annual equity-gold momentum rank rotation
By fieldPortfolio construction35 readingsBy year19974 readings
All 44 readings tagged Rank rotation
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