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Academic audit

FailedETF rotation

Rotation Strategy for SPY, EEM, EFA, TLT, and GLD

The three-gate gauntlet · genuine only if it clears all three and survives adversarial refutation
Gate 1
Survivorship-free
immune
clean panel
Eliminated here
Gate 2
Placebo ≥ P95
P49.3
outranked ~99 of 200 baskets
Gate 3
Cost-aware net
RF +4.83
positive, not certified
Failed
Worst 12-month leg (RF)-0.88
−1.00 floor0
Every strategy here — winners included — loses in its worst 12 months. Depth is honest context, not the verdict.
Rejected at the luck gate — its net ranked no better than random baskets (below the P95 skill line).

This is a Faber-style global tactical asset allocation rule that ranks five liquid ETFs — SPY (US equity), EEM (emerging markets), EFA (developed ex-US), TLT (long Treasuries) and GLD (gold) — by recent momentum and rotates into the strongest. The premise is that a simple momentum ordering across asset classes should add value beyond just holding the basket.

What we found

The rotation rule showed no rank-skill beyond the ETF basket itself. When we compared it against random baskets drawn from the same five ETFs, it landed at the 49th percentile — essentially the middle of the random distribution, which is where a coin-flip would land. In other words, the momentum ordering added nothing the underlying assets did not already provide: the result is diversified beta, not alpha. The headline risk-adjusted RF of 4.83 reflects the diversification of holding those assets, not a repeatable timing signal.

How we tested it
2005–2026 test windowmodelled liquidity-aware costssurvivorship immune
  • Tested on a set of liquid ETFs (SPY, EEM, EFA, TLT, GLD). Realistic modelled costs.
  • Placebo / robustness test: real result vs random baskets or shuffled signals (real vs the 95th percentile of random)
Source: Faber-style GTAA 5-ETF momentum rotation (QuantConnect)
Read the paper ↗
← The Academic Audit — all 54 studies

Research, not investment advice. “Validated” factor-legs are market-neutral diversifying building blocks with a losing worst year — none is a standalone tradeable strategy. Metrics are cost-aware and modelled (not live fills); the 2005–2026 test window is out-of-sample versus the source paper. Dollar figures are not returns and are omitted by design.