On a previous post highlighting Seeking Alpha contributor Varan's strategies, I touched on a strategy called "Fidelity Sector Rotation". This strategy looks at the 8-week performance of 44 Fidelity Sector funds and a Vanguard Long-Term Treasury fund at the close of the first week of each quarter, and invests in the top performer for the following quarter.
Varan backtested the strategy for the period 1991-2011 with CAGR +25% with a maximum annual loss of -11%, beating the S&P500 index in 17 out of 21 years. Forward-testing it up to date, the strategy returned +1.74% in 2012, +38.5% in 2013 and
To help with the rotations, I created a ThinkOrSwim study that automatically updates and shows the current leader of the basket. All one has to do is to check this after the close of the first week of each quarter (first week of January, April, July and October). The only difference to Varan's study is that the prices used are close prices and not adjusted close prices (dividends and splits not taken into account).
The funds are commission-free with a Fidelity account, but since I don't have a Fidelity account,
and fund commissions are somewhat bigger for me than ETF commissions, I also created a list of ETF substitutes. It is worth noting though that some of the ETFs track the corresponding fund's performance better than others, so to use the strategy in its most pure way, the sector funds should be used, rather than the ETFs.
QH Fidelity Sector Rotation Spreadsheet
Henri,
ReplyDeleteThanks for your work! I just downloaded:
QH Fidelity Sector Rotation TOS Study
QH Fidelity Sector Rotation Spreadsheet
The TOS study selects FSAGX and the Spreadsheet selects FBIOX
Shouldn't they be the same?
Good question Gary,
DeleteTOS, doesn't support adjusted close prices, whereas with the spreadsheet, I'm using adjusted close prices (which better reflect the actual returns, taking into account dividends and splits). And you're correct, according to my spreadsheet, FBIOX was selected for the 1st quarter of 2015, it is however worth noting that according to Varan's calculations, FSELX is the selection for the 1st quarter (with FBIOX as a close second). The transaction dates for 2015 are 1/9, 4/10, 7/10, and 10/9.
Thanks Henri! That makes sense regarding the different selections. Would it be possible for you to export the Google sheet to a workable excel sheet? Thanks again for your great work!
ReplyDeleteThanks Gary - I probably won't, since I find Excel to be inferior to Google Sheets in this case, since Excel doesn't to my knowledge support the "ImportHTML" function, which is integral to updating the data in real-time (whenever you refresh the page). What are you finding better in Excel in comparison?
DeleteThanks Henri. I wanted to have the ranking column show 3 digits after the decimal point to better reflect how close two funds actually are... I cant see your formulas but I assume the ranking column is showing that funds return for the period? If not is it possible to add a column that shows actual return for that 3 month period? I was also trying to figure out how Varan came up with FSELX when it appears the system selection based on returns for the period would have been FBIOX. Any thoughts?
ReplyDeleteGood idea, I've increased the decimal by one. The "D-I" columns are actually not in use for this study. The formula used is in the "J" column =X!$G$2/X!$G$10, where "X" is the name of each tab, "G2" is the adjusted close of the most recent week, which is divided by "G10", the adjusted close 8 weeks ago. If you want to play around with the formulas etc., just go to "File - Make a Copy" and you'll be able to edit your own copy of the spreadsheet. I'm not sure how Varan's calculations differed from my spreadsheet's calculations, please let me know if you figure it out!
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