Faber Composite: Multi-Period Averaging for Robust Sector and Asset Ranking

The Faber composite is a multi-period momentum ranking method that averages trailing total returns across five timeframes: one, three, six, nine, and twelve months. Developed by Meb Faber for his sector rotation and expanded GTAA strategies, this five-period average provides a more granular assessment of trend persistence than the four-period 13612U composite, adding a nine-month horizon that bridges the gap between the six and twelve-month windows.

How It Works

Each month, every asset receives a composite score: Score = (R1 + R3 + R6 + R9 + R12) / 5. The inclusion of a nine-month return period was specific to Faber's sector rotation research, which found that sector leadership cycles operate on business-cycle timeframes of six to eighteen months. The nine-month period provides additional sensitivity to the mid-cycle dynamics that drive sector rotation — new orders, capacity utilization, earnings revisions — that shorter periods miss and longer periods dilute.

Why Five Periods Instead of Four

The standard 13612U composite uses four periods (1/3/6/12 months). Faber's five-period version adds the nine-month horizon, providing finer-grained coverage of the intermediate timeframe where sector and asset class momentum tends to be strongest. Academic research by Moskowitz, Ooi, and Pedersen (2012) documented that time-series momentum is strongest at horizons of six to twelve months — precisely the range where the nine-month addition provides the most incremental information.

The equal weighting across five periods also provides more stability than four-period composites. Each individual return represents only 20% of the score (versus 25% in a four-period composite), meaning a single-period anomaly has less ability to distort the ranking. This additional smoothing reduces turnover without meaningfully sacrificing responsiveness.

Strategies That Use the Faber Composite

• Sector Relative Strength — ranks 10 GICS sectors by 5-period composite, selects top 3
• DGA — uses composite for growth/value rotation within equity allocation

The four-period variant (13612U) is used more broadly across the Keller strategy family including GTAA13, HAA-B, and CAA-OFF.