Strategy Card

Sector Relative Strength Rotation (3/6/12m vs SPY) — strategy card

Spec ID: spec-sector-momentum-rotation-etf-top50-1767027941_v19 · Generated: 2026-07-17 09:40 UTC

Cluster: Momentum · Sub Cluster: Sector Etf Relative Strength Rotation

One-line description

Monthly sector-rotation strategy that ranks eligible U.S. sector ETFs by 3/6/12-month relative strength versus SPY and holds the top 3 equal-weighted names. Signals are lagged one day and traded at the next open with transaction-cost and spread-aware slippage assumptions.

Why this trade exists

Sector leadership tends to persist over intermediate horizons as macro, earnings, rate-sensitivity, and investor-flow regimes evolve more slowly than daily price noise. Ranking sector ETFs relative to SPY attempts to isolate where equity-market leadership is strongest rather than simply buying broad market beta.

The ETF implementation is liquid, transparent, and capacity-friendly relative to single-name sector baskets. Monthly rebalancing balances responsiveness to regime change against turnover and execution cost drag.

Algorithm

[code omitted from public view]

Parameters

Param	Value	Notes
Rule type	SECTOR_MOMENTUM	Sector relative-strength rotation
Universe	Top 50 U.S. ETFs by capitalization	Further filtered to sector ETFs using provider metadata/name/category rules
Benchmark	SPY&US&ETF	Relative-strength denominator
Lookbacks	63, 126, 252 trading days	Approx. 3/6/12-month horizons
Relative strength	total_return(etf, LB) / total_return(SPY, LB)	Computed for each lookback
Composite score	Mean z-score across lookbacks	Cross-sectional normalization by horizon
Selection count	3 ETFs	Hold highest-ranked candidates
Position sizing	Equal weight	Max 40% per position
Gross leverage	1.0x	Long-only, no volatility targeting
Rebalance	Monthly, first trading day	Signals lagged 1 trading day
Execution	Next open	Uses prior available signal information
Liquidity filter	ADV shares >= 250,000 over 63 days	Volume-based ETF tradability screen
Missing data handling	Require 252 days history; drop if missing any lookback	Reduces unstable rankings
Stop loss	None	No explicit drawdown exit
Costs	10 bps transaction cost + spread-proxy slippage	Spread proxy estimated over 20 days
Backtest window	2020-01-01 to 2026-07-01	Specified test interval; available data context shows 2018-01-01 to 2023-01-01
Reported trades	56	From supplied metrics summary

Look-ahead audit

#	Concern	Status
1	Signal timing	Signals use lagged information and execute at next open, reducing same-bar look-ahead risk.
2	Lookback returns	Rankings use trailing 63/126/252-day total returns only; no forward returns used in scoring.
3	Universe formation	Top-50 ETF universe and sector classification should be verified as point-in-time; survivorship risk remains if current constituents/classifications were used historically.
4	Liquidity filter	ADV filter must be computed only from prior 63 trading days; specification is consistent with this requirement.
5	Corporate actions / total return	ETF total returns should rely on adjusted prices/distributions known at the time; vendor adjustment methodology should be audited.
6	Benchmark alignment	SPY return windows must be aligned to ETF timestamps and exclude future benchmark observations.

Caveats / known limitations

• Strategy is concentrated in only 3 sector ETFs, so sector crowding and regime reversal risk can be material.
• No volatility targeting, stop loss, or explicit market-risk filter; drawdowns can remain equity-like or worse during broad selloffs.
• Relative strength versus SPY may still retain substantial market beta and does not guarantee absolute positive momentum.
• Sector ETF identification from metadata/name matching may introduce survivorship or classification bias if not point-in-time.
• Backtest interval and data-period metadata are not fully aligned in the supplied context; results should be revalidated on a clean point-in-time dataset.
• Reported win rate and profit factor are high for a monthly ETF strategy and should be checked for trade accounting, partial fills, and mark-to-market methodology.
• Capacity is likely reasonable in large ETFs, but open-price execution and spread slippage can worsen during stressed rebalance dates.

Results

The supplied backtest shows strong absolute performance for a simple monthly sector relative-strength model, with total return of 159.28%, Sharpe of 1.21, Sortino of 1.49, and 56 trades. Risk is not trivial: volatility is 20.39% and max drawdown is -23.83%, consistent with a concentrated long-only equity-sector rotation. The high reported win rate of 85.71% and profit factor of 26.94 are encouraging but should be independently audited given the short effective sample and metadata/date inconsistencies.

Backtest metrics snapshot

Metric	Value
Total Return	159.28%
Sharpe	1.21
Sortino	1.49
Calmar	0.66
Max Drawdown	-23.83%
Volatility	20.39%
Win Rate	85.71%
Profit Factor	26.94
Total Trades	56
Symbols	50 (AGG, BIL, BIV, BND, BNDX, BSV, DIA, EFA, GLD, IEFA, +40 more)