Monthly Momentum Strategy (ETF Sector Rotation Strategy In EEM, SPY, And TLT)

In this short post, 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. That was until 2022, which was a very bad year for the strategy.

We backtest the following trading rules:

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 as shown below.

Want to learn more about the strategy? Check here »

https://www.quantifiedstrategies.com/a-monthly-momentum-strategy-in-etfs/