One of NDW’s more popular sector rotation strategies, the First Trust Focus Five Model (FTRUST5), is among the many strategies that have been adapting to leadership trends in 2026 and experienced a trade Wednesday (7/22) morning.

One of the hallmarks of NDW’s relative strength-based methodology is the ability to adapt to market changes and rotate to areas of new leadership within asset classes, sectors, subsectors, etc. One of NDW’s more popular sector rotation strategies, the First Trust Focus Five Model (FTRUST5), is among the many strategies that have been adapting to leadership trends in 2026 and experienced a trade Wednesday (7/22) morning. Before diving into the changes the model has experienced in 2026, the methodology behind the First Trust Focus Five Model is detailed below. For those already familiar with the model, feel free to skip to the section discussing the models trade history.

First Trust Focus Five Model Methodology

The Focus 5 Model is a sector rotation strategy that invests in five sector/industry ETFs based on the relative strength ranking of 21 sectors and subsectors. Since its inception in 2009, the model has looked to buy the sectors with the highest relative strength. The five positions are held as long as they sit in the top half of the model’s rankings. Positions are only sold when they fall out of the top half of the relative strength rankings.

Relative strength is just another phrase for momentum. Funds at the top of the Focus Five relative strength ranking demonstrate more momentum than the funds ranked at the bottom. Over time, relative strength (momentum) has been a robust investment factor with the potential to provide investors with excess returns. However, that does not mean a relative strength-based strategy will outperform all the time. There are two types of market environments where relative strength-based strategies tend to underperform: during changes in leadership, and periods with low dispersion of between leaders and laggards.

The first environment is straightforward.  For example, if the market is going from a growth-led market to a value-led market, it will take some time for a relative strength strategy to adjust to that new leadership. As the old leadership rotates out, by definition, it will have to endure a period of underperformance before being sold. Subsequently, for the new leadership to move into the models we need to see a period of outperformance before those new areas of strength can be added to the models. The second market environment, narrow leadership, can take on different forms. While prior years were defined by narrower leadership, 2026 has been defined more by the changing short-term trends and lack of long-term leadership. Fortunately, even with all the changes experienced within the Focus Five Model this year, the strategy has gained more than 11% on a year-to-date basis through 7/21’s close, outpacing the S&P 500 Index (SPX) by 1.5%.

Focus Five: Trading History Examination

Today marked the eighth trade of 2026 within the First Trust Focus Five Model (FTRUST5) as the First Trust Nasdaq Semiconductor ETF (FTXL) was removed from the model holdings and replaced by the First Trust Nasdaq Pharmaceuticals ETF (FTXH). Prior to the recent change, the Focus Five had shifted into exposure in biotechnology (FBT), transportation (FTXR), and broader technology by way of FXL and the Nasdaq-100 technology fund (QTEC). While the short-term pain of adapting and rotating to new leadership is uncomfortable, our research into the Focus Five Model’s trade history has shown the strategy does well in mitigating downside when seeing short-term rotation. Additionally, once the strategy is able to capture sustained long-term leadership trends it can capitalize.

Going back to the model’s inception in 2009, the tables below examine this model’s trade history. The bullet points below discuss notable highlights from the data.

• 31 of the 44 trades since the model’s inception in 2009 have resulted in a positive return, a 70% positive hit rate, with the average return of those positive trades being 66%. The overall average return for the 44 trades is 42% with the average return for a negative trade was -11%.
• The average holding period for each fund held within the model is 686 calendar days, or 1.9 years. 27 of the 44 trades have involved a fund that was held for longer than a year with the average return being 69% for those longer-term holdings. While roughly 40% of the trades have been short-term, the average return for those funds has been 2%.
• On average, holdings that have been in the model more than one year produced a positive return of roughly 89% of the time with an average gain of 79%. Of the 11% of the time long-term holdings produce negative returns the average return is -6%.
• FTXL’s 95% gain marked the best return for a fund that has been held less than one year. On average, holdings that have been in the model less than one year produced a positive return roughly 40% of the time with an average gain of 23%. Of the roughly 60% of the time short-term holdings produce negative returns the average return is -13%.
• Roughly 1 in 7 trades delivered a truly outsized, portfolio-defining gain. Five trades (12%) provided a return greater than 100%, plus two more in the 80-100% band. The top trade belongs to FDN when it was held from inception to 2021, gaining 818% during the 11-year period.
• While there have been 13 trades resulting in negative returns, the worst witnessed in the model’s history was FXN when it was held for roughly a quarter’s time and fell -26%.

As the data and bullets highlight, once the Focus Five model is able to participate in long-term trends, it is capable of producing outsized gains. Additionally, even during periods of turbulence or change, the model is able to mitigate downside by continuing to adapt to the trends prevalent within the market.