| ETF | Asset class | 1M momentum | Signal | Weight |
|---|---|---|---|---|
GLD SPDR Gold Trust | Gold | +4.8% | HOLD | 33.3% |
XLE Energy Select SPDR | Energy | +3.2% | HOLD | 33.3% |
VNQ Vanguard Real Estate | Real Estate | +2.9% | HOLD | 33.3% |
Macro Rotation systematically allocates across 7 major asset classes — US equities, tech, gold, bonds, energy, small caps, and real estate — by rotating monthly into whichever ETFs show the strongest recent momentum. When markets are broadly weak, the strategy holds cash (SHY) to limit drawdown.
The strategy doesn't predict recessions or rate cycles — it simply follows what's working. By holding the top 3 ETFs each month, it maintains diversification while tilting towards the strongest macro trends. The −2.7% annual alpha vs. SPY reflects its defensive character: it underperforms in pure equity bull runs but shows significantly lower drawdowns in risk-off environments.
| ETF | Asset class | % months held | Role |
|---|---|---|---|
QQQ Invesco QQQ Trust |
US Tech / Growth | 56% | Growth engine |
IWM iShares Russell 2000 |
US Small Cap | 45% | Risk-on signal |
SPY SPDR S&P 500 ETF |
US Large Cap | 43% | Core equity |
GLD SPDR Gold Trust |
Gold | 42% | Safe haven |
XLE Energy Select SPDR |
Energy | 40% | Commodity cycle |
TLT iShares 20+ Yr Treasury |
Long Bonds | 37% | Rate hedge |
VNQ Vanguard Real Estate |
Real Estate | 37% | Inflation play |
SHY iShares 1–3 Yr Treasury |
Cash proxy | 8% | Risk-off only |
% of months each ETF was held (2015–2025, best params: mom=1m, top-3, no SMA filter)
Note: frequencies sum to ~3× monthly (3 ETFs held at a time). QQQ's dominance reflects the extended tech bull market 2017–2021 and 2023–2025.
| Mom | Top K | SMA | CAGR | Sharpe | Max DD | Win % |
|---|---|---|---|---|---|---|
| 1m BEST | 3 | None | +10.9% | 0.88 | −20.0% | 64.5% |
| 3m | 3 | None | +9.8% | 0.81 | −21.3% | 62.2% |
| 6m | 3 | None | +8.7% | 0.74 | −22.8% | 60.8% |
| 1m | 2 | None | +9.2% | 0.72 | −23.4% | 59.1% |
| 1m | 3 | 100d | +8.4% | 0.71 | −19.2% | 57.8% |
Grid search: 27 combinations across 3 lookbacks × 3 top-K values × 3 SMA settings. Ranked by Sharpe ratio. 27 combinations, 2015–2025 walk-forward.
Why 1-month momentum? Shorter lookbacks outperformed 3-month and 6-month across all parameter combinations. This suggests that macro ETF regime shifts (e.g., equity→gold→bonds) happen quickly and are best captured with a responsive signal rather than a slow one. The 1-month signal is also less prone to momentum crashes that affect 6-12 month equity momentum.
Why no SMA filter? Adding a 100-day or 200-day SMA trend filter reduced returns in this universe. Because the ETF set is diversified across uncorrelated asset classes, there's almost always something in an uptrend — the cash-rule (SHY fallback) is sufficient protection without over-filtering.
The alpha trade-off. Macro Rotation underperforms SPY by −2.7% annually over this period. This is expected: the 2015–2025 decade was dominated by US large-cap tech. The strategy's real edge is risk-adjusted: the −20% max drawdown compares favorably to SPY's −34% in 2020 and −25% in 2022, with a smoother equity curve.
Turnarounds. The strategy excelled in 2020 (+41.7%) and 2023 (+28.3%) by quickly rotating into whatever was leading — bonds and gold in COVID's early stages, then equities and energy in the recovery. In 2022 it rotated into commodities (XLE +65%) as equities fell, limiting the drawdown to −16.8% vs. SPY's −18.2%.
| Year | Strategy | SPY | Alpha | Cumulative |
|---|---|---|---|---|
| 2015 | −15.2% | +1.4% | −16.6% | −15.2% |
| 2016 | +21.6% | +12.0% | +9.6% | +3.1% |
| 2017 | +10.3% | +21.8% | −11.5% | +13.7% |
| 2018 | −2.0% | −4.4% | +2.4% | +11.5% |
| 2019 | +10.8% | +31.5% | −20.7% | +23.5% |
| 2020 | +41.7% | +18.4% | +23.3% | +75.0% |
| 2021 | +20.7% | +28.7% | −8.0% | +111.2% |
| 2022 | −16.8% | −18.2% | +1.4% | +75.8% |
| 2023 | +28.3% | +26.3% | +2.0% | +125.8% |
| 2024 | +10.2% | +23.3% | −13.1% | +148.8% |
| 2025 | +26.5% | +18.2% | +8.3% | +214.6% |
Alpha vs SPY is negative on average (−2.7%/yr) — the strategy trades return for diversification across asset classes. It outperforms in crisis years (2020, 2022) and rotation-friendly environments (2016, 2023, 2025).