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Backtest A Rotation Strategy Since 1969

Summary

RotationInvest.com now allows using any of our backtesting tools with historical data going back as far as 1924. In this article we will look at the performance of a simple rotation strategy between 3 asset classes, US Large Cap, US Small Cap, Global Stocks, US Financial Sector, US Intermediate Term Treasury Bonds, and US Intermediate Term Total Bond Market based on their momentum since 1969.

Example Strategy

Funds Selected: US Large Cap, US Small Cap, Global Stocks, US Financial Sector, US Intermediate Term Treasury Bonds, and US Intermediate Term Total Bond Market

Position Score: 3 Month Momentum. Note: we found anywhere from 2 to 12 months work almost as well.

Equity

Equity Chart without a Log Plot

Equity Chart without Log Plot On

Performance shows 12.36% returns since 1969, with a 0.92 Sharpe Ratio and a maximum month to month draw down of 24.6%. Beside the strategies performance you can see that US Large Cap had 9.23% returns during the same period, but had a 50.65% drawdown and only a 0.59 Sharpe Ratio.

Below you can see how often the strategy traded into each equity or bond option:

Looking at the yearly return we see 1973 was the worst year with a 12.3% loss on the year, while 1982 was the strongest year with 42.3% gains for the year.

See https://www.rotationinvest.com/blog/historical-data-since-1924 for more information about our historical data options inside our tools.

Additional disclosure: This data is provided partially by St. Louis Fed Web Services [FRED], read their terms of service before using: research.stlouisfed.org/...
This product uses the FREDĀ® API but is not endorsed or certified by the Federal Reserve Bank of St. Louis.