Momentum Sector Rotation Strategy
Jan 2000 – Apr 2026
How this strategy works
Every quarter, the strategy scores each sector ETF by averaging its momentum rank
across two lookback windows. The universe covers all 11 GICS sectors: Energy,
Materials, Industrials, Consumer Discretionary, Consumer Staples, Health Care,
Financials, Information Technology, Communication Services, Utilities, and Real
Estate. The top N sectors by score are selected, but only if they are trading above
their 10-month moving average. Sectors below it are dropped. The portfolio splits
into two parts: a fixed core always held in SPY, and a tilt equally distributed
across the qualifying sectors. If no sector passes the trend filter, the entire
tilt collapses back into SPY until conditions improve.
Cumulative returns
Strategy
S&P 500
Drawdown
Strategy
S&P 500
Risk & return statistics
| Metric | Strategy | Benchmark |
|---|
Active returns (%)
Academic Inspiration
Moskowitz & Grinblatt (1999)
Demonstrates that momentum is primarily a sector-level phenomenon rather than a stock-picking one. Industries that performed well over the prior 3–12 months continue to outperform in subsequent periods. The foundation for ranking sectors by prior returns and rotating into the top performers.
Faber (2007)
Introduces the 10-month simple moving average as a binary trend filter: hold an asset when it trades above its SMA, move to cash otherwise. Applied across asset classes, this mechanical rule significantly reduced drawdowns relative to buy-and-hold with minimal drag on long-run returns.
Antonacci (2014)
Formalises the combination of cross-sectional momentum (ranking assets against each other) with absolute momentum (confirming each asset is in an uptrend before allocating). This dual filter is the direct ancestor of this strategy's approach: rank sectors by momentum, then gate each one through a trend filter before any capital is deployed.