Home / Ideas / Relative-Strength Sector Momentum (Faber Top-3)
Relative-Strength Sector Momentum (Faber Top-3)
buy the three sectors with the strongest trailing momentum, rebalance monthly
The canonical Faber relative-strength model outperformed buy-and-hold in ~70% of years on French-Fama sector data since the 1920s; it is the baseline every rotation idea should beat. Caveat: 12-1 momentum has been crowded and Sharpe-decayed since ~2008, so treat this as a benchmark, not an edge, and test a shorter lookback.
Universe
11 SPDR sector ETFs (XLK, XLF, XLE, XLV, XLI, XLP, XLY, XLU, XLB, XLRE, XLC).
How it works
Monthly, rank the 11 sectors by 6- to 12-month total return, hold the top 3 equal-weighted for one month, then rebalance.
Expected performance
Research-derived Sharpe estimate: 0.4–0.9. paper Sharpe 0.54 before a ~25% live realism discount).
Backtest this idea with SignalChain
This is a research lead — not a finished backtest. SignalChain takes an idea like this and runs the whole pipeline inside Claude Code: it researches the concept against academic and practitioner sources, sets benchmarks, writes and lints a VectorBT backtest, runs it, and grades the result PASS/FAIL. One command:
/signalchain Monthly rotation into the top 3 of 11 SPDR sector ETFs ranked by 6-month total return, equal weight
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Research & sources
- papers.ssrn.com — papers.ssrn.com
- quantpedia.com — quantpedia.com
- faculty.chicagobooth.edu — faculty.chicagobooth.edu
More Sector & industry rotation ideas
Not financial advice. This page describes a research idea, not a recommendation. Any performance figures are hypothetical, research-derived estimates and are not indicative of future results. SignalChain is a research and educational tool; you are solely responsible for any decisions you make.