Monthly ETF Rotation System Rules & Results – $SCHH, $IYR, $TLO, $SPY

As some of you know, I recently began trading two monthly ETF Rotation Systems.  One is a Basic ETF Rotation system that trades a diverse group of markets and the other covers similar markets using Schwab Commission Free ETF’s.  The Basic System is intended to take the place of the ETF Portion of the Donchian Channel System while the Schwab System is being traded in one of my retirement accounts.  The Donchian system is still being traded on a few Forex pairs.

This post covers the December results for both systems and provides a little more information on the rules and markets traded.


December was a good month for the Schwab Commission Free Rotation system, which held positions in Long Term U.S. Treasuries and Real Estate ($TLO and $SCHH).  The Basic Rotation System was invested in Real Estate and the S&P 500 ($IYR and $SPY) and didn’t perform quite as well.

The hypothetical monthly return for the Schwab system was 2.73% while the Basic System had a hypothetical return of 0.27%.  Hypothetical returns are calculated using adjusted close data from Yahoo Finance and applied to a $10,000 initial account balance.  The Schwab ETF Rotation system has been traded a month longer the basic system and, as a result, has an additional data point in the equity curves below.

12.31.14BasicEquitySchwab Commission Free ETF Rotation System Equity

For the month of January 2015, the Schwab system is holding Real Estate and Global Real Estate ($SCHH and $RWO). The Basic system is holding Real Estate and U.S. Small Cap Equities ($IYR and $IWM). The full January rankings for both systems are shown in the Market Momentum Newsletter.

Information regarding actual positions, historical rankings, and hypothetical equity for both systems is being maintained on the following two pages:

Basic ETF Rotation System Results

Schwab Commission Free ETF Rotation System Results

ETF Rotation System Trading Rules:

I haven’t dug too deeply into the specific rules for the ETF Rotation Systems so they’re being presented here for your reference.  I backtested the systems using ETFReplay and designed them to fit with my comfort level.  If you plan trade an ETF Rotation System, I highly recommend using a tool to backtest and design a system to fit with your comfort level.  In order to be successful with any system, it’s essential that it fits with your personality.  I know that might seem like some sort of touchy, feely nonsense, but it isn’t.  Trust me . . . or don’t.

Monthly ETF Rotation System Trading Rules:

  1. On a monthly basis, rank and order the ETF’s for each system using the 3 month total returns.  The two ETF Rotation System portfolios are presented below.
  2. Invest 50% of desired equity in the top 2 ETF’s if price is trading above the 6 month (120 day) simple moving average.  For example, if a $10,000 account was going to commit to two positions and invest 100% in the system, each positions would be $5,000.  If only one ETF is trading above the moving average, hold the other position in cash or $SHY.
  3. Ignore price fluctuations during the month and rank again at the end of the month.

Basic ETF Rotation System Markets:

Basic ETF Rotation SystemDescriptionMarket
AGGiShares Core Total US Bond (4-5yr)US Bonds
TLTiShares Barclays Long-Term Treasury US Bonds
BWXSPDR Barcap Global Ex-U.S. BondInternational Bonds
PCYPowershares Emerging Markets Bond (7-9 yr)International Bonds
EEMiShares MSCI Emerging MarketsEmerging Markets Equity
EFAiShares MSCI EAFEInternational Equity
VEUVanguard FTSE All-World ex-USInternational Equity
DJPDow Jones-AIG Commodity IndexCommodities
GLDSPDR Gold SharesCommodities
IWMiShares Russell 2000 Index FundUS Small Cap Equities
SPYSPDR S&P 500 IndexUS Equities
VNQVanguard MSCI U.S. REITUS Real Estate

Schwab Commission Free ETF Rotation System Markets:

Schwab Commission Free ETF Rotation SystemDescriptionExposure
SCHBSchwab US Broad Market ETFUS Equities
SCHASchwab US Small CapUS Equities
PGXPowershares Preferred PortfolioUS Preferred Stock
SCHFSchwab International Equity ETFInternational Equities
SCHESchwab Emerging Markets EquityInternational Equities
SCHCSchwab International Small Cap EquityInternational Equities
SCHHSchwab US REIT ETFReal Estate (US)
RWOSPDR Global Real Estate ETFReal Estate (International)
SCHZSchwab Aggregate Bond ETFUS Bonds
SCHRSchwab Intermediate Term Treasury ETFUS Government Bonds
TLOSPDR Barclays Long Term Treasury ETFUS Government Bonds
HYMBSPDR S&P High Yield Municipal Bond US Municipal Bonds
SCHPSchwab US TIPS ETFUS Government Bonds
PCYPowershares Emerging Markets Sovereign Debt PortfolioInternational Bonds
BWXSPDR Barclays International Treasury Bond ETFInternational Bonds
USCIUnited States Commodity Index Commodity
SGOLETFS Physical Swiss Gold SharesCommodity

Feel free to email me or leave a comment below if you have any questions about the systems.

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