Asset Class Rotation With Filter

The simple asset rotation scheme previously described, has taken a beating during the recent market crash. The asset classes used were US Stocks, foreign stocks, US REITS, US Bonds, and commodities. The plot above shows that the monthly rotation scheme outperformed SPY, but was not any better during the high speed crash late in 2008.


The performance of the basic top 3 of 5 asset classes scheme is substantially improved with the addition of a filter to avoid taking positions if the asset class is below its 200 day moving average. Take a look at the plot immediately above. Although the filtered rotation approach will lag if the market continues straight up to its 200 day moving average, the avoidance of large losses is also an important consideration.