Update: U.S. Sector Rotation Strategy November 2018

Update: U.S. Sector Rotation Strategy November 2018

November 7, 2018 0 By Jeremy




Rules-Based Strategy Update: U.S. Sector Rotation Strategy November 2018

The U.S. Sector rotation strategy is a popular strategy for people looking to beat the market. This is the November 2018 strategy update which continues to provide traders with an indication of how the strategy performs in real life.

As a reminder, the U.S. Sector Rotation strategy buys the top three performing U.S. sectors based on the prior 3-month performance. It is based off a strategy outlined in a paper by Meb Faber. I provided information on how the strategy works in the U.S. Sector Rotation strategy overview.

You can continue to see the progress results of this system by subscribing to the Robotic Investing newsletter. I will email you whenever a new post goes live, including all of the strategy updates I track on the site.

U.S. Sector Rotation Strategy Rules-Based Investing

The U.S. Sector Rotation portfolio trades based on specific rules that tell the investor what sectors to hold each month. Here are the rules of the strategy:

  1. Trades the nine Sector SPDR ETFs.
  2. On the last trading day of each month, calculate the prior 3-month (63 trading days) return for each ETF using historical adjusted closing prices.
  3. Sort the ETFs from highest 3-month return to lowest 3-month return. The ETF with the best 3-month return has the strongest momentum.
  4. Buy Rules: If the S&P 500 index is trading above its 10-month (200 day) moving average, then buy the three sector ETFs with the highest 3-month return.
  5. Sell Rules: If the S&P 500 is trading below its 10-month (200 day) moving average, then sell all three ETFs and move to cash.
  6. Rebalance: At the end of each month, if the S&P 500 index is trading above its 10-month (200 day) moving average, sell the sector ETF(s) that have moved out of the top three, and replace with the sector ETF(s) that are now in the top 3.

This is one of the simpler systems to use and trade.

Monthly Signals: U.S. Sector Rotation Investing

Each month I generate the signals for the portfolio using TC2000. If you want to give TC2000 a try in order to generate the signals for the strategies on Robotic Investing, then use this link for $25 off.

There was a change to the portfolio for November 2018 – the system sold all holdings.

One of the rules is that the S&P 500 must be trading above its 10-month moving average in order to make any buys. The S&P 500 is below that level so the system is not making any new trades.

SPY Monthly Market Trend - November 2018

Using TC2000 to determine the top 3 ETFs to trade, we can see that this month’s holdings would be XLV, XLY, and XLP – if the market was in better shape.

US Sector Rotation Ranking - November 2018

Strategy Tracking & Performance: U.S. Sector Rotation Investing

Here is the portfolio tracker and performance chart for Stocks on the Move. I use the Morningstar Portfolio Tracker to track all the systems at Robotic Investing.

Each of the portfolios tracked use a hypothetical $50,000 starting value. This portfolio was started on July 2nd, 2018.

Portfolio Value:

US Sector Rotation Portfolio Value - November 2018

Portfolio Performance:

US Sector Rotation Portfolio Performance - November 2018

I update all of the strategies at Robotic Investing on a monthly basis. If you want to get notified when each strategy is updated, then please consider subscribing to my newsletter. You will only receive emails when posts have been updated.

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Featured Image: Wuxi, Jiangsu, China by Thomas Depenbusch (Depi)