FV: Sector Rotation

Sector rotation sounds simple: own the strongest areas of the market and avoid the weakest. The results, however, are anything but uniform. A review of six managed and model-based sector-rotation strategies, as shown in the table below, found outcomes ranging from modest returns with limited drawdowns to triple-digit gains with much larger drawdowns. 9% Six Sector Rotation Portfolios, with results through May 2026 Managed Funds Did Not Deliver A Clear Edge Sector Rotation Model 1 is the aptly named mutual fund “Sector Rotation Fund” (NAVFX), managed by Grimaldi Portfolio Solutions.

04% annually, including acquired-fund expenses, according to its prospectus. 35% for its latest fiscal year. In the risk-and-return review, NAVFX did not show a clear advantage over the S&P 500, based on a comparison to the SPDR S&P 500 ETF (NYSE: SPY ). 6% less than SPY over the past 10 years.

That’s not enough of a risk reduction to justify the lower return. Sector Rotation Model 2 is the First Trust Dorsey Wright Focus 5 ETF (NASDAQ: FV ). 89% total expense ratio. It’s a fund-of-funds, holding five First Trust sector or industry ETFs.

But convenience has not translated into benchmark-beating performance. 6% for the S&P 500 Index. srt3). This model portfolio’s algorithm ranks a set of Fidelity Select sector funds by momentum over the past year.

Then the model picks the top three funds to buy. 2%. Sector Rotation Model 4 is similar to Model #3, but holds the top five ranked sector funds. This more diversified approach produced a stronger historical result.

3% maximum drawdown. So adding two holdings improved return and reduced drawdown. srt3 in terms of both total return and risk (as measured by maximum drawdown). srrs) which uses a set of sector ETFs as its investment universe.

This approach applies a 10-month return measure and a 10-month moving average. Funds that fall below the moving average are excluded, and the portfolio can move partly or entirely to cash if no sectors are above their 10-month moving averages. 9% maximum drawdown. It has lagged the S&P 500 over the last five years, but its defensive rule materially reduced the worst historical decline.

Its maximum drawdown is the lowest in this list. srqr). This model lies at the other extreme of risk and return. This model selects from over 100 sector funds and owns only one at a time.

3% annualized 10-year return. srqr has far outpaced major benchmarks, as the chart below shows. 7% maximum drawdown (based on month-end total return). srqr vs.

srqr model has more than doubled in the past year. But over the past decade, it’s also exposed investors to drawdowns large enough to test their ability to remain invested. What Investors Should Ask “Sector rotation” describes a broad idea, not a uniform investment product. These six models we’ve looked at show this.

Before comparing sector rotation strategies, funds, and model portfolios, investors should ask: How many holdings can the portfolio own? What momentum lookback period does it use? How often does it rebalance? Can it move to cash?

What are the fund fees, trading costs and tax consequences? Are the reported results live, backtested or a combination of both? The label matters less than the rules. srqr) delivered the highest return with the greatest concentration risk.

Disclosure And Methodology Disclosure: The author has no financial ties with ETFs and mutual funds covered. srt3). Methodology: Results reflect month-end total-return data through May 31, 2026. srt3) have been published monthly since June 2016, so their 10-year results are live, out-of-sample history.

Model returns reflect the expenses of the underlying funds held but do not include trading costs, slippage, or taxes. The returns assume monthly rebalancing. NAVFX and FV are independently managed funds; their results are actua