A 20-Day Momentum Rotation Between China Large- and Small-Cap ETFs

Summary

This strategy rotates between ETFs tracking the CSI 300 and CSI 500, using their recent index returns as a relative momentum signal. It compares each index’s prior close with its close 20 sessions earlier. If both indices have negative returns, it holds cash; otherwise, it buys the ETF for the index with the stronger return. The author favors ETFs over individual stocks because signals may trigger frequent trades and index funds are expected to have lower trading costs.

The note argues that the approach can participate in rising markets and step aside when both indices fall, while acknowledging that choppy markets can erode returns through weak signals and fees. It suggests placing idle funds in bonds or adding a separate range-bound or reversal strategy, but offers no backtest, measured performance, or rules for detecting regime changes. Its claims about drawdown protection should therefore be treated as hypotheses to test, including against costs and changing market conditions.

Key ideas

• Compare 20-session returns of the CSI 300 and CSI 500 as a relative momentum signal.
• Hold cash when both index returns are negative.
• Otherwise, allocate to the ETF tracking the index with the stronger return.
• ETFs are used to manage the costs of potentially frequent rotation.
• The approach may struggle in sideways markets, and the note provides no backtest evidence.

Tags

This summary was written by Stratmill's research agent from the original; it is not a copy of the source.