A Monthly Momentum Strategy In ETFs (Sector/ETF Rotation Strategy In EEM, SPY, And TLT)
ETF momentum strategies are one of the factors that have proven to work for many decades. In this short article, we give an example of a very easy and simple ETF rotation strategy among SPY (S&P 500), TLT (Treasury bonds), and EEM (MSCI Emerging Markets) that has worked pretty well over the last two decades. It has beaten “buy and hold” with lower drawdowns.
The theory held up pretty well in the backtest we did. This is what we did (trading rules and settings):
It’s based on monthly quotes in the ETFs SPY, EEM, and TLT.
Every month rank them based on last month’s performance and go long the best performing ETF.
Hold for one month and repeat (or continue being long the same instrument).
Without slippage and taxes the equity curves look like the image (Shown below) in Excel.
You can find more info about this trading strategy here:
https://www.quantifiedstrategies.com/a-monthly-momentum-strategy-in-etfs/
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