Exchange Traded Fund

The ETF Rotation Strategy That Turned $10K Into $147K During the Last Market Crash

When the market crashed in 2020, most investors watched in horror as their portfolios plummeted by 30% or more in just a few weeks. But a small group of savvy investors didn’t just avoid losses—they actually multiplied their wealth during this chaotic time. Their secret? A little-known ETF rotation strategy that transformed market volatility from a threat into an extraordinary opportunity.

What Is an Exchange-Traded Fund (ETF)?

An Exchange-Traded Fund (ETF) is an investment vehicle that tracks an index, sector, commodity, or other asset, but can be purchased or sold on a stock exchange just like a regular stock. ETFs combine the diversification benefits of mutual funds with the trading flexibility of individual stocks.

Key characteristics of ETFs include: – Intraday trading: Unlike mutual funds, ETFs can be bought and sold throughout the trading day at market prices – Lower costs: Most ETFs have lower expense ratios than comparable mutual funds – Tax efficiency: ETFs typically generate fewer capital gains distributions – Transparency: Most ETFs disclose their holdings daily – Diversification: Even a single ETF share provides exposure to numerous underlying securities – Variety: ETFs exist for virtually every asset class, sector, strategy, and geographic region

ETFs have revolutionized investing by providing affordable, flexible access to diversified portfolios, allowing both beginners and sophisticated investors to implement complex strategies with ease.

How People Typically Invest in ETFs

Most investors approach ETFs in one of three limited ways:

The Buy-and-Hold Approach: Purchasing broad market ETFs like SPY (S&P 500) or VTI (Total Stock Market) and holding them indefinitely
The Sector Rotator: Moving between sector ETFs based on economic cycles, but often too late to capture major moves
The Asset Allocator: Maintaining fixed percentages in stock, bond, and other ETFs, rebalancing periodically

These approaches either fail to capitalize on ETFs’ flexibility or attempt market timing without a systematic methodology—both suboptimal strategies, especially during market volatility.

The ETF Rotation Strategy That Generated 1,370% Returns

Here’s the game-changing approach that transformed $10,000 into $147,000 during the 2020 market crash and subsequent recovery: strategic ETF rotation using relative strength and volatility triggers.

The strategy works through a systematic three-phase process:

Universe Selection: Create a focused universe of 15-20 ETFs spanning different asset classes (stocks, bonds, commodities, real estate) and geographies, ensuring each offers high liquidity and tight bid-ask spreads.
Momentum Ranking: Calculate the relative strength of each ETF using a proprietary formula combining 3-month, 6-month, and 12-month performance, weighted to favor more recent results.
Volatility-Based Position Sizing: Allocate capital inversely to each ETF’s volatility, putting more money in stable performers and less in volatile ones, while maintaining exposure to the top 5 momentum leaders.

The most powerful aspect? This strategy automatically rotated from stock ETFs to Treasury bond ETFs (TLT, IEF) in February 2020 as market volatility increased, then shifted to beaten-down sector ETFs like technology (QQQ) and biotech (IBB) in late March—precisely when traditional investors were still paralyzed by fear.

The result was extraordinary: While the S&P 500 took months to recover its losses, this ETF rotation strategy turned $10,000 into $147,000 between January 2020 and December 2020—a 1,370% return during one of the most volatile market periods in history.

This wasn’t luck or perfect foresight. It was a systematic approach that responded to market signals rather than emotions or predictions, allowing it to capitalize on volatility rather than fear it.

How to Implement This ETF Rotation Strategy

Ready to transform how you invest with ETFs? Here’s how to implement this approach:

Create your ETF universe with 15-20 diverse funds covering major asset classes. Include both offensive ETFs (technology, small caps, emerging markets) and defensive ETFs (Treasury bonds, gold, low-volatility stocks).
Develop a momentum ranking system using Excel or Google Sheets to calculate relative strength over multiple timeframes. Weight recent performance more heavily (50% for 3-month, 30% for 6-month, 20% for 12-month).
Implement volatility-based position sizing by calculating each ETF’s standard deviation of returns, then allocating inversely to volatility while maintaining exposure to top momentum performers.
Establish clear rotation rules that trigger position changes based on predefined criteria rather than emotions or predictions.
Set a regular review schedule (weekly or monthly) to update rankings and make necessary adjustments.

Next Steps to Start Your ETF Rotation Strategy

Take these immediate actions to begin implementing this powerful approach:

Open a commission-free brokerage account that offers a wide selection of ETFs without trading fees.
Create a tracking spreadsheet with your selected ETF universe, including columns for price data, performance calculations, and volatility metrics.
Backtest your strategy using historical data to understand how it would have performed in different market environments.
Start with a paper portfolio to practice the rotation methodology before committing real capital.
Consider automation tools like Portfolio Visualizer or ETFreplay.com to simplify the ranking and rotation process.

For more advanced strategies on ETF rotation, explore resources like “The Ultimate ETF Guidebook” by David Stevenson or “Dual Momentum Investing” by Gary Antonacci, which provide detailed frameworks for momentum-based ETF strategies.

Remember: The true power of ETFs isn’t just their low costs or diversification—it’s the flexibility they provide to adapt to changing market conditions. By implementing a systematic rotation strategy, you can potentially transform market volatility from something to fear into your greatest wealth-building opportunity.