Strategies · Library · ETFs
§4.1Trend
Sector momentum rotation
Hold the sector ETFs that did best over the past 6 to 12 months and sell the laggards, rebalancing every month or few. Recent winners tend to keep winning for a while, and ETFs avoid buying many single stocks.
Open in the builderAs a long-only proxy; see how ARCANE uses it.
- Asset class
- ETFs
- Held for
- Months
- Data
- ARCANE has the data
- Symphony
- Builds as a long-only proxy
The rule
- Signal
- Cumulative return of each sector ETF over a formation window of 6 to 12 months
- Entry and exit
- Buy the top tenth by past return; hold 1 to 3 months, then re-rank. A market-neutral version shorts the bottom tenth.
- Sizing
- Equal across the chosen ETFs
How it fails
- Momentum crashes at turning points
- Turnover costs
- Few sectors, so the top tenth is small
Data it needs
- daily adjusted closes
Daily closes for sector ETFs are available.
How ARCANE uses it
A Call on which sector leads next quarter could cite the current momentum ranking; Alpha can show the ranking as evidence (paper only).
Builds as a long-only proxy. Top-N filter by cumulative return over sector ETFs; the short leg is dropped.
Filed under the trend card
Hold each market in the direction of its own return over the past year, and size every position to the same expected volatility.
A paper plan from this card holds 21 to 252 days, stops at 2× the expected move and uses at most 100% of your risk budget. The card
Source: Kakushadze and Serur (2018), 151 Trading Strategies, §4.1, p. 62 of the SSRN version. Described in our words. Trend is ARCANE’s filing, not the book’s.