Volatility-managed Sector Rotation

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updateRebalanced: N/AAuthor: Scott Juds

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CAGR

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23.5%

Compound Annual Growth Rate

Max Drawdown

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-31.2%

Worst peak-to-trough decline

Sharpe Ratio

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1.15

Risk-adjusted return metric

Win Rate

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70%

Percentage of positive months

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Allocation Locked

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Strategy Methodology

The Volatility-managed Sector Rotation (V-SR) strategy rotates into the top-performing US market sectors but adjusts position sizes based on volatility. It aims to capture growth in trending sectors while limiting exposure during high-stress periods.

check_circleSector Selection: Ranks the 9 main SPDR sector ETFs based on momentum (adjusted for volatility) over the past 3-6 months.
check_circleVolatility Scaling: Calculates the historical volatility of the selected sectors. If volatility is high, exposure is reduced in favor of cash.
check_circleMonthly Rebalance: The portfolio is reviewed on the last trading day of the month. Trades are placed at the open of the next month.

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Academic Backing

Inspired by the work on "Sector Rotation and Volatility" by Scott Juds. This approach builds on modern portfolio theory by acknowledging that inverse-volatility weighting can improve Sharpe ratios significantly over equal-weighting.

Parameters

Ranking Metric

Return / Volatility

Top Assets Selected

Top 3 Sectors

Risk Control

Target Volatility (12%)

Asset Universe

9 US Sector ETFs

Monthly Rebalancing Process

4-Step Execution

Step 1

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Scan Sectors

Check all 9 SPDR sectors

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Step 2

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Rank by Vol-Adj Momentum

Score = Return / Volatility

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Step 3

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Select Top 3

Pick the winners

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Step 4

balance

Weight by Volatility

Size positions inversely to risk

STEP 1 & 2

The Universe & Ranking

We start with the 9 Select Sector SPDR ETFs that divide the S&P 500. We rank them not just by raw return, but by return per unit of risk.

The 9 Sectors

XLK (Tech)

XLV (Health)

XLF (Financials)

XLB (Materials)

XLY (Cons Disc)

XLP (Staples)

XLE (Energy)

XLI (Industrial)

XLU (Utilities)

STEP 3

Top 3 Selection

We strictly buy only the top 3 ranked sectors. This naturally rotates capital into parts of the economy that are currently booming.

Current RankETFAction

1XLKBUY

2XLEBUY

3XLVBUY

4XLFIGNORE

STEP 4

Volatility Weighting

Instead of putting 33% into each of the top 3, we allocate based on volatility. Lower volatility assets get more capital.

Equal Weight (Traditional)

33%33%33%

Volatility Weight (V-SR)

45%35%20%

*Example: If Tech is very volatile, we buy less of it to keep portfolio risk constant.

Recent Monthly Returns

Year	Jan	Feb	Mar	Apr	May	Jun	Jul	Aug	Sep	Oct	Nov	Dec	YTD
2026	+6.89%	+0.00%	-	-	-	-	-	-	-	-	-	-	+6.89%
2025	+4.29%	-0.54%	-3.01%	+0.68%	+3.19%	+2.37%	+3.90%	-0.47%	+4.33%	+2.45%	+1.24%	+0.19%	+19.96%
2024	+2.91%	+3.92%	+3.80%	-4.49%	+4.59%	+0.44%	+6.05%	+5.42%	+2.39%	-0.03%	+8.35%	-4.11%	+32.43%