A professional financial marketing graphic for a multi-asset allocation framework, featuring the title "Rotation Strategy SPY/EEM/EFA/TLT/GLD" in crisp white and cyan typography. The background displays dark market candlesticks overlaid with arrows, while a circular inset highlights multiple digital screens and mobile devices running analytical charts and real-time portfolio dashboards, emphasizing quantitative asset rotation and cross-market diversification.

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

ByOddmund Groette Trading strategies

Today, we look at a rotation strategy for SPY, EEM, EFA, TLT, and GLD.

The basic idea is that assets showing positive relative momentum have a tendency to continue outperforming over intermediate time horizons, while assets with poor momentum may continue to lag. This has been the case for periods of 1 to 12 months. Long and shorter periods are not working.

In this strategy, we focus on five widely traded exchange-traded funds: SPY, representing U.S. equities; EFA, representing developed international equities; EEM, representing emerging market equities; GLD, representing gold; and TLT, representing long-term U.S. Treasury bonds.

Together, these ETFs provide exposure to several major asset classes and regions, allowing the strategy to rotate between growth-oriented, defensive, and diversifying assets depending on market conditions.

The goal of the strategy is to build a rules-based framework that periodically ranks these ETFs by momentum and invests in the strongest candidates. By doing so, the strategy attempts to participate in sustained market trends while reducing exposure to assets that are losing strength. This makes momentum rotation a simple but powerful tool for tactical asset allocation, risk management, and diversification.

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

We backtest, of course, and we got the following results:

A long-term backtest equity curve titled "Portfolio Equity = 1134722," displaying the compounded capital growth of a tactical multi-asset rotation strategy using SPY, EEM, EFA, TLT, and GLD. The chart tracks performance from 2006 to 2026, showing a consistent upward trajectory from an initial 100,000 to a final value exceeding 1.13 million, with a faint QuantifiedStrategies.com watermark overlay.
Multi-decade historical equity curve demonstrating the cumulative portfolio growth and volatility smoothing achieved through an objective asset Rotation Strategy for SPY, EEM, EFA, TLT, and GLD.

Strategy type: Rotation strategy.

Market: SPY, EEM, EFA, TLT, and GLD.

Performance

  • No. of trades: 118
  • Average gain per trade: 2.3%
  • Win ratio: 62%
  • Profit factor: 2.3
  • Annual returns (CAGR): 12%
  • Exposure/time in the market: 100%
  • Risk-adjusted return: 12% (CAGR divided by time spent in the market (1))
  • Max drawdown: 28%

Trading Rules

You find the trading rules at the bottom of the article

The strategy uses monthly bars.

Below are the results for lookback periods of 1 to 12 months:

A quantitative optimization table titled "Lookback period," displaying performance metrics—including trade count, compound annual return (CAR), average percentage profit/loss, and profit factor—for an asset rotation strategy (SPY, EEM, EFA, TLT, GLD) across various lookback durations ranging from 1 to 12.
Optimization matrix analyzing the impact of different lookback periods on asset rotation strategy metrics, helping quantitative traders identify the most stable and robust parameter settings.

Trading Rules

🔒 These trading rules are for members only.

Get access here

I’ve got an Msc from Heriot-Watt University, Edinburgh (1996), in addition a to a business administration degree the Norwegian School of Management (BI – 1994). Did my mandatory military service in between.

After university, I worked two years as an auditor (1996-1998).

I co-founded Aksjeforum.com in 1998/99 - one of the first websites about trading and investing in Norway. It was later acquired by Digi.no in 2001.

I have written 4 books about trading (in Norwegian). One of them has sold 30,000 copies, a record for a financial book in Norway.

From 2001 until 2018 full-time independent prop trader (Series 7 in 2001) and investor.

2018-today: Investor, writer, analyst.

Similar Posts