Thesis: a 12-1 momentum rotation across US sector ETFs still beats SPY after costs, but by much less than academic estimates. Treat it as a test, not a promise. Variants tried: 1 (no tuning). Your odds: about 0.4 that it beats SPY net over the horizon.
Setup: $100,000 paper capital, opened 2026-10-02. Benchmark SPY total return. Long-only, no leverage, max 25% per position, 5 bps per trade (check results at 20 bps too).
Horizon: 36 months, to 2029-10-02. Judge at the end or at a trigger below. Expect wide intervals and a possibly inconclusive verdict.
Selection rules, fixed in advance:
1. Universe: the 11 SPDR Select Sector ETFs.
2. On the last trading day of each month, rank sectors by return from 12 months ago to 1 month ago.
3. Hold the top 4 at 25% each.
4. Sectors with a negative 12-1 return are skipped, and that weight stays in cash.
5. Trade only on that date, and skip trades under 1% of portfolio value.
6. No discretionary overrides. Any rule change is dated and resets the variants count.
Track: net return versus SPY, maximum drawdown, turnover, dollar costs, and a block-bootstrap interval on the excess Sharpe ratio.
Invalidation, any one ends the thesis:
- At 36 months, net return trails SPY and the 90% bootstrap interval on excess Sharpe lies entirely below zero.
- Drawdown exceeds SPY's by more than 10 points for 6 straight months.
- Annualized turnover exceeds 400%, or costs at 20 bps would exceed 1.5% of capital per year.
- Over any 24 months, sector weights stay within 5 points of SPY's for 80% of months, meaning the rotation adds nothing.
Caveats: sectors share market beta, so returns will track SPY closely. Momentum crashes after sharp rebounds may or may not occur in your window. Published anomalies decay, so the historical edge is likely overstated. Paper portfolio only, not investment advice.
Starting cash: $100,000.00. Benchmark: SPY. First valuation: . Results through .
Since inception, through 01 Oct 2026
Measure
Portfolio
SPY
Equity
$99,950.02
$100,000.00
Return
-0.05%
0.00%
Max drawdown
0.05%
0.00%
PortfolioSPYUSD. One closing valuation; history starts here.
Current holdings
Current quantities valued at each symbol's latest recorded close. All amounts are USD.
Symbol
Quantity
Close
Price date
Value
Weight
XLB
514.781742
$48.54
$24,987.51
25.00%
XLE
398.524816
$62.70
$24,987.51
25.00%
XLK
126.320745
$197.81
$24,987.51
25.00%
XLV
150.346009
$166.20
$24,987.51
25.00%
Cash
USD
$0.00
0.00%
Current holdings plus cash
$99,950.02
100.00%
Last 10 trades
Latest 4 trades, newest first. Fees are 0.05% of trade value.
Recorded (UTC)
Trade
Quantity
Price
Price date
Fee
Reason
Buy XLB
514.781742
$48.54
$12.49
Rank 4 on the 12-1 proxy: 1.1017/0.9267-1, about +18.9%. Next is XLI at about +14.2%, so the cutoff gap is not marginal. Held at 25%.
Buy XLV
150.346009
$166.20
$12.49
Rank 3 on the 12-1 proxy: 1.1801/0.9629-1, about +22.6%. Positive, so it qualifies under rule 4. Held at 25%.
Buy XLK
126.320745
$197.81
$12.49
Rank 2 on the 12-1 proxy: 1.3896/1.0649-1, about +30.5%. Positive, so it qualifies under rule 4. Held at 25%.
Buy XLE
398.524816
$62.70
$12.49
Rank 1 of 9 available sector ETFs on the 12-1 proxy: (1+52w)/(1+4w)-1 = 1.4583/0.9761-1, about +49.4%. Top 4 at 25% each under rule 3.
This $100,000 paper portfolio, benchmarked to SPY (the SPDR S&P 500 ETF), tests one claim: US large caps are not the only place to earn a return, and a long-only basket tilted toward fiscally constrained, export-earning and commodity-linked businesses can match SPY with a different risk profile. The incentive is plain. Governments that cannot borrow cheaply lean on inflation, and firms that earn hard currency or own real assets keep their value when the local unit loses it.
Rules: long-only, no leverage, no shorts, at most 25% of portfolio value in any one position, and a cost of 5 basis points (0.05%) per trade, charged on each buy and sell. Hold between 6 and 12 liquid, US-listed ETFs or stocks. Review monthly, trade only when a rule fires, and keep cash below 20%.
Horizon: 36 months from 2026-10-02, with formal scorecards on 2027-10-02, 2028-10-02 and 2029-10-02.
Selection rules. First, favor holdings whose revenue comes mostly from outside the United States or from commodities, such as broad emerging-market equity funds split by country (never treated as one place), gold miners, energy and agriculture producers, and dollar-earning exporters. Second, require average daily trading volume large enough that a position of up to $25,000 trades without moving the price. Third, cap any single country at 30% of the portfolio. Fourth, drop a holding when it falls more than 20% below its highest close since purchase and the cause is a change in rules, not in prices.
Evidence that invalidates the thesis: trailing 12-month return below SPY by more than 8 percentage points on two consecutive annual scorecards; a maximum drawdown worse than SPY's by more than 10 percentage points; or turnover costs above 0.5% of portfolio value in any year. Any of these ends the thesis, and the result is reported as it stands.
Starting cash: $100,000.00. Benchmark: SPY. First valuation: . Results through .
Since inception, through 01 Oct 2026
Measure
Portfolio
SPY
Equity
$99,956.02
$100,000.00
Return
-0.044%
0.00%
Max drawdown
0.044%
0.00%
PortfolioSPYUSD. One closing valuation; history starts here.
Current holdings
Current quantities valued at each symbol's latest recorded close. All amounts are USD.
Symbol
Quantity
Close
Price date
Value
Weight
DBC
457.813829
$32.75
$14,993.40
15.00%
EEM
299.224736
$66.81
$19,991.20
20.00%
EFA
145.821853
$102.82
$14,993.40
15.00%
GLD
47.006174
$382.76
$17,992.08
18.00%
XLE
191.303384
$62.70
$11,994.72
12.00%
XOM
48.812606
$163.82
$7,996.48
8.00%
Cash
USD
$11,994.72
12.00%
Current holdings plus cash
$99,956.02
100.00%
Last 10 trades
Latest 6 trades, newest first. Fees are 0.05% of trade value.
Recorded (UTC)
Trade
Quantity
Price
Price date
Fee
Reason
Buy XOM
48.812606
$163.82
$4.00
Integrated oil major with large non-US operations and dollar-denominated commodity revenue. Kept small because it overlaps with XLE's top holdings.
Buy XLE
191.303384
$62.70
$6.00
Energy producers earn revenue priced in global commodity markets. Sized so that combined US-domiciled energy exposure with XOM stays at 20%, under the 30% country cap.
Buy DBC
457.813829
$32.75
$7.50
Broad commodity futures exposure (energy, metals, agriculture) covers the real-asset leg beyond gold and captures the commodity-linked return the thesis targets.
Buy GLD
47.006174
$382.76
$9.00
Gold is the hard-asset ballast the thesis is built on: it holds value when fiscally constrained governments inflate, and it does not depend on any single country's earnings.
Buy EFA
145.821853
$102.82
$7.50
Developed ex-US equities (Japan, Europe, UK, Australia) diversify the non-US sleeve away from emerging-market currency risk and keep the basket from being one place.
Buy EEM
299.224736
$66.81
$10.00
Core emerging-market equity sleeve. Revenue earned largely outside the United States, spread across several countries so no single country exceeds the 30% cap at the portfolio level.
