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2014issue C0147-54

Rank-based sector rotation as a portfolio test

A monthly rank-rotation of nine sector funds holds the three strongest names in equal weight. Evaluation compares that transparent rule with a broad-market benchmark over the same dates, including downturns and later recoveries.

  • The procedure ranks nine sector exchange-traded funds and holds the three strongest names in an equal-weight sleeve, then repeats the ranking on a monthly cycle.
  • Entry, exit, and abstention are the same ranking step, so the test does not rely on discretionary stock picks.
  • Evaluation compares the rotation with a broad-market benchmark over the same dates, including the 2000 and 2008 downturns and the recovery after 2008.
  • Holdings inside the nine sector funds can change over time, which limits more extensive historical testing.
Entries in this reading3 entries
Current trackIndustry rotation29 readingsRank rotation76 readingsMomentum strategy103 readings

One ranking step and one holding set

The evaluated procedure ranks nine sector exchange-traded funds and holds the three strongest names in equal weight, then repeats the ranking on a fixed cycle. Those nine tradable sector funds are the candidate universe, so the rotation can be implemented without stock-level selection. Relative-strength ranking orders the funds by recent performance so only the highest ranks become the next portfolio. An equal-weight sleeve holds the selected sectors in equal size so the test isolates the ranking rule rather than a second weighting model.

The rotation is specified as a monthly rebalance, so entry, exit, and abstention are the same ranking step rather than discretionary stock picks. Rank-rotation orders candidates by a score and holds only the top-ranked names for a fixed interval. Industry-rotation reallocates among sector vehicles according to recent relative strength rather than holding a static market basket. The same rule is a momentum-strategy: it selects and retains the currently strongest names on the premise that relative leadership can persist over the system holding period.

What the evaluation window shows

Evaluation here means comparing a transparent rotation rule against a broad-market benchmark over the same dates, including downturns and subsequent recoveries. Over a 13-year window in which the nine sector funds were tradable, the rotation is described as outperforming its broad-market benchmark.

In the 2008 banking-crisis window, the rotation declined 37.45 percent while the SPY benchmark declined 38.28 percent. After that 2008 decline, the rotation is described as recovering more aggressively in 2009 and over the next three years taken together. The same evaluation notes resilience through two major downturns, in 2000 and in 2008.

Limits and a companion tracker

Holdings inside the nine sector funds can change over time, which the archive flags as a limit on more extensive historical testing.

A companion sector-performance tracker is presented as a way to see best and worst sectors across several time frames before a rank decision.

Educational research material, not investment advice. Historical source context does not establish present-day performance.
17 of 23 in the Industry rotation track
201741-47 pp.Next on Industry rotationReal estate as a ranked industry sleeveAfter the sector split, real estate sat in its own 29-holding sector fund, so the allocation was already a dedicated sleeve rather than a line inside financials.
All readings on this track · 23 readings
  1. 1985Industry leadership carryover as a bull-regime test
  2. 1988Constructing industry-group breadth and rotation measures
  3. 1992Trendline holds, trailing stops, and industry rotation
  4. 1994Inflation-deflation regimes inside the stock cycle
  5. 1996Sector rotation across economic cycle phases
  6. 2001Rebased relative performance charts for sector rotation
  7. 2001Place a small-cap growth idea inside a regime map
  8. 2004Rebuild every industry as a share of one rank scoreboard
  9. 2004Rate-hike regimes and sector rotation as a case study
  10. 2005A two-name style-index sleeve makes rank rotation one procedure
  11. 2006Consumer staples after a smokestack cycle
  12. 2007An intra-sector regime split between builders and equity REITs
  13. 2008Country and sector weights in an Africa regional-sleeve
  14. 2011Trend permission, priced entries, and sector rotation
  15. 2012Construct a regime-aware context from sector rotation
  16. 2012Regime overlays versus rank rotation
  17. 2014Rank-based sector rotation as a portfolio test
  18. 2017Real estate as a ranked industry sleeve
  19. 2017Theme sleeves: liquidity and commission filters before industry rotation
  20. 2018Retail sleeve construction through channel rotation and daily leverage
  21. 2020Water sleeve construction: satellite size, industry mix, and liquidity
  22. 2020A ranked research terminal as a three-layer watchlist procedure
  23. 2020Regression channels for sector rotation context
By fieldPortfolio construction104 readingsBy year201489 readings
All 29 readings tagged Industry rotation
Also on Industry rotation5 readings
2005A two-name style-index sleeve makes rank rotation one procedure2004Rebuild every industry as a share of one rank scoreboard2012Regime overlays versus rank rotation2012A weekly stock list scored for rank rotation and industry rotation2014Equal-weight sector ranks as a rotation procedure