Small-Cap Stock Rotation with a Moving-Average Trend Filter

Summary

The strategy ranks stocks by market capitalization, excludes designated special-treatment shares, and buys the ten smallest names, subject to a filter that rejects stocks whose short and long moving averages indicate a clear downtrend. It limits each position to 10% of the portfolio and holds ten stocks. Holdings are reviewed daily; a stock is sold when it falls outside the smallest thirteen by market value, leaving some room for a holding to appreciate before replacement.

The author reports a five-year return of 28 times, but gives no detailed performance series, benchmark, transaction-cost assumptions, or drawdown statistics. The approach has no market-timing rule, and the author notes that drawdowns can be substantial. The stated test uses daily data and closing prices, with a start in July 2012 because the referenced stock-selection data is unavailable earlier. The claim that closing-price execution is representative depends on the strategy’s intended near-close trading and is not independently validated here.

Key ideas

• The portfolio selects the ten smallest eligible stocks by market capitalization and excludes special-treatment names.
• A moving-average ordering filter avoids stocks in a clear downtrend.
• Positions are capped at 10% each, and a holding is replaced after it leaves the smallest thirteen stocks.
• The strategy has no timing overlay, and the author acknowledges potentially large drawdowns.
• The reported five-year return lacks details about costs, benchmark comparison, and drawdown measurement.

Tags

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