ETF rotation strategies work because they aim to take advantage of the performance of different sectors or asset classes at different times. By rotating between different ETFs, investors can potentially earn higher returns by investing in sectors or asset classes that are performing well and avoiding those that are underperforming.

One reason why ETF rotation strategies can be effective is that they allow investors to take advantage of the cyclical nature of the stock market. Different sectors of the economy tend to perform well at different times, depending on a variety of factors such as economic conditions and investor sentiment. By rotating between different ETFs, investors can potentially capitalize on the performance of different sectors as they move in and out of favor.

Another reason why ETF rotation strategies can be effective is that they can help investors to diversify their portfolios and manage risk. By holding a mix of different ETFs, investors can reduce the impact of any one sector or asset class on their overall portfolio performance. This can help to smooth out the ups and downs of the stock market, and potentially earn higher returns over the long term.

Types of rotation investment strategies

Momentum rotation strategies. They are based on the idea of investing in assets or sectors that are currently experiencing strong performance and avoiding those that are underperforming. This is because the momentum of a stock’s price can sometimes continue for an extended period of time, and investors can potentially benefit by buying into this momentum and riding it out.

Mean reverting rotation strategies. These strategies are based on the idea that asset prices will eventually revert to their long-term average or “mean” value. This means that investors can potentially benefit by buying assets or sectors that are currently undervalued, and avoiding those that are overvalued. By doing this, investors can potentially profit from the eventual reversion of asset prices to their mean value.

Other type of rotational strategies

Sector rotation strategy: This is a strategy that involves rotating between different sectors of the economy, such as technology, healthcare, or financials. Here is an example: https://logical-invest.com/app/strategy/ussect/us-sector-rotation-strategy

Asset class rotation strategy: This is a strategy that involves rotating between different asset classes, such as stocks, bonds, and commodities. Example: https://logical-invest.com/app/strategy/uis/universal-investment-strategy

Value rotation strategy: This is a strategy that involves investing in assets or sectors that are currently trading at a lower price relative to their intrinsic value, and avoiding those that are overvalued.

Diversified rotation strategy: This is a strategy that involves investing in a diverse range of assets or sectors in order to reduce risk and potentially earn higher returns. Example :https://logical-invest.com/app/strategy/mst3/top-3-strategies

You can find many ETF based rotational strategies and see the latest performances.