ETF Sector Rotation Strategy Performance for 2024: A Year in Review
The ETF sector rotation strategy, applied throughout 2024, demonstrated a mixed performance, with a slight decline by the end of the year. The strategy revolves around selecting the five strongest exchange-traded funds (ETFs) from a pool of 28, with the goal of optimizing returns by focusing on sectors that show the most promise in a given period. For the 4th quarter of 2024, the chosen ETFs were SPY (S&P 500), QQQ (Nasdaq 100), XLF (Financials), GDX (Gold Miners), and SLV (Silver). Despite the tactical nature of this approach, which involves regularly adjusting allocations to respond to market movements, the overall performance by the end of the year was slightly disappointing.
At the beginning of the 4th quarter on October 1, 2024, the portfolio had a value of $73.9K. As of December 31, 2024, the portfolio’s value had decreased to $72.9K, marking a drop of about 1.4% over the last three months of the year. While this decline is relatively modest, it highlights the challenges that sector rotation strategies can face, particularly in a year characterized by volatility and varying market trends. The selected ETFs for Q4 showed some positive movements in certain sectors, but these were offset by declines in other areas, particularly in precious metals like gold and silver.
SPY and QQQ, which are generally seen as proxies for broader market performance, saw some mixed returns throughout the quarter. The S&P 500 (SPY) was volatile, reflecting both the economic uncertainty and the shifting dynamics in the financial markets. The tech-heavy Nasdaq 100 (QQQ) performed similarly, with notable fluctuations that impacted overall returns. Meanwhile, XLF, which tracks financials, was exposed to broader economic trends and interest rate considerations, impacting its performance as well.
On the other hand, both GDX and SLV, representing gold and silver miners, were affected by movements in commodity prices, with these assets often responding inversely to traditional market shifts. The precious metals sector had a difficult period as the dollar strengthened and global demand for safe-haven assets, like gold, moderated. The portfolio’s exposure to these ETFs contributed to its overall downturn, despite occasional positive price movements in the underlying commodities.
Looking ahead to the first quarter of 2025, the ETF sector rotation strategy will reassess its allocations. The new ETFs for the upcoming quarter will be determined tomorrow, with the goal of adjusting the strategy based on recent market data and trends. The experience of 2024 serves as a reminder of the complexities involved in sector rotation strategies, as markets can shift unpredictably, impacting even the most carefully curated ETF portfolios.
In conclusion, the ETF sector rotation strategy had a somewhat challenging year in 2024, with a modest decline in portfolio value. While the strategy seeks to capture opportunities by rotating into the strongest sectors, it faced headwinds from the underperformance of key sectors like precious metals and fluctuations in broader market indices. With a fresh set of ETF selections for the first quarter of 2025, the strategy will aim to adapt to current market conditions, potentially reversing the downward trend seen in the past quarter.