We investigate the profitability of systematic sector rotation strategies in the Canadian equity market using TSX 60 constituents (2000–2025). Testing 72 distinct strategies across three theoretical frameworks—momentum, mean-reversion, and balanced approaches—with varying rebalancing frequencies, we identify that median-performer selection combined with quarterly rebalancing generates statistically significant risk-adjusted returns (Sharpe ratio 0.922 versus 0.624 for equal-weighted buy-and-hold). Our primary contributions include rigorous out-of-sample validation, demonstrating performance persistence from 2020 to 2025, machine learning regime classification with 72.7% accuracy, and a comprehensive transaction cost analysis. Results support intermediate-horizon mean reversion in sector returns and challenge strict efficient market hypothesis interpretations in concentrated markets. Findings inform tactical asset allocation practices and contribute to the momentum-reversal literature by documenting conditions under which rotation strategies generate economically meaningful alpha.
Salotra et al. (Thu,) studied this question.
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