• ETFs with solid momentum are currently focused on tech, health care and small-cap.
  • Only 18 of 2051 ETFs passed our momentum screening filter rules.
  • We further subjectively evaluated quantitative and qualitative data for the 18 and selected medical equipment ETF XHE as an addition to our tactical sleeve.

    • The filter we use to select ETFs for tactical momentum rotation requires at minimum these things:

  • Upward sloping 1-year regression trend line
  • 200-day average higher than 1 month ago and price above 200-day average
  • Price return 10% or more in excess of both T-Bills total return and S&P 500 total return over 12 months ending 1 month ago
  • Maximum drawdown over last 3 months not more than 10%
  • 3-month average Dollar trading volume per minute at least $15,000
  • Total Dollar trading volume over 3 months greater than the 3-mo total volume ending 3 months ago.

    • From the current 18 survivors of that filter out of 2051 ETFs, we subjectively evaluated other quantitative and qualitative factors, to select XHE for addition to tactical momentum rotation sleeves.

    To remain in the portfolio a tactical position must continue to satisfy the minimum conditions on a weekly review basis, except that the total return, if greater than that of T-Bills, need only exceed that of the S&P 500 by 2%; and trading volume growth is not required. A position might be replaced with a more attractive tactical selection if the total amount allocated to the tactical sleeve is fully invested.

    The following presents some, but not all, of the information we used in addition to our rules-based filter to make our selection.

    The next two charts effectively demonstrate the recent historical momentum and superior performance that suggests the likelihood (but not certainty) of short-term inertial continuation of momentum for XHE.

    (click images to enlarge)

    1-Year

    This shows the 1-year total return of S&P 500 (SPY in blue), S&P 500 Health Care Sector (XLV in orange), and S&P Total Market Medical Equipment (XHE in red).

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