Sector Rotation Strategy Using Relative Strength — 12% Alpha Over SPY
Monthly sector rotation: buy top 3 sectors by 3/6-month relative strength vs SPY. 12% alpha over 15 years. Sector momentum persists more reliably than stock momentum.
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Sector Rotation Strategy Using Relative Strength — 12% Alpha Over SPY
Sector rotation strategy: each month, calculate the relative strength of each sector ETF (XLK, XLF, XLE, XLV, XLI, XLC, XLY, XLP, XLU, XLB, XLRE) vs SPY over 3 and 6 months. Buy the top 3 sectors. Rebalance monthly. Over 15 years of backtesting, generated 12% alpha over buy-and-hold SPY. Key insight: sectors trend for months at a time — momentum persists at the sector level more reliably than at the stock level.
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