WaveRider

A Major Sector ETF Rotation Strategy

N

Individual Sector Forecasts

N

Mean Variance Optimization

N

Utilizes Major Sector ETFs

What is WaveRider?

WaveRider is a sector rotation strategy that utilizes mean variance optimization to identify the best performing sectors and optimize them for the following month WaveRider assumes that there is a clear seasonality in the flow of funds between the major US industry sectors.

waverider Image

The above backtest represents quantitative research and should not be considered as investment advice, or solicitation to buy or sell securities.

Lucena Research is a technology company and everything presented here is derived from quantitative research. The information above is intended for certified investment professionals who understand the inherit risk of investing. It should not be assumed that the above backtest results will be repeatable in the future. Detailed list of securities and the factors used for their selection criteria is available upon request.

WaveRider Goals:

  • Market outperformance
  • Low Beta

Our Edge:

  • Utilizes a layered portfolio construction process: Optimization based on Forecast Price and Forecast Volatility.
  • Frequent Rebalance

How do we pick constituents?

  • The 9 major sector ETFs: Note that the telecommunications sector is not covered due to the lack of a reasonably liquid ETF representative
  • 30% maximum allocation toward any one sector

Execution

  • Positions are held for one month (twenty trading days) or until exit conditions are met.
  • Entry and exits are executed through market, Volume-weighted-average-price (VWAP) and Market-on-close (MOC) orders.
  • All open positions are controlled by order-cancels-order (OCO) exit conditions, trailing stop loss and target gains.

Strengths

  • Highly liquid constituents
  • Active and agile, with timely responses to changes in market sentiment
  • Machine learning optimized for maximum return/minimum volatility
  • Quantitatively-driven

Risks:

  • Exogenous risk or black swan event affecting equity markets
  • Stock-specific liquidity risk causing gaps beyond stop loss
  • Protracted interruption in traditional seasonal flow of funds relationships

Risk Mitigation:

  • Enforce maximum position size per equity
  • Entry via VWAP during active trading hours to provide acceptable depth for trades
  • Exit at close (MOC) reduces slippage and adds liquidity
  • Deep discount brokerage mitigates drag of high-turnover

Disclaimer: This information has been prepared by Lucena Research Inc. and is intended for informational purposes only. This information should not be construed as investment, legal and/or tax advice. Additionally, this content is not intended as an offer to sell or a solicitation of any investment product or service. Do not take the opinions expressed explicitly or implicitly in this communication as investment advice. The opinions expressed are based on statistical forecasting which is based on historical data analysis. Past performance does not guarantee future success. In addition, the assumptions and the historical data based on which an opinion is made could be faulty. All results and analyses expressed are hypothetical and are NOT guaranteed. All Trading involves substantial risk. Leverage Trading has large potential reward but also large potential risk. Never trade with money you cannot afford to lose. If you are neither a registered nor a certified investment professional this information is not intended for you. Please consult a registered or a certified investment advisor before risking any capital.