How the THOR SDQ Rotation Index Works

Most index construction answers the question of what to own. The THOR SDQ Rotation Index spends most of its effort on a different question, which is how much to own at all.

The universe is three instruments. The rules are arithmetic. What makes it worth explaining is the order the rules fire in, because that order is where the design lives.

The universe is deliberately small

Three U.S. equity indexes, held through the largest and most liquid funds that track them.

- The S&P 500, through SPY

- The Dow Jones Industrial Average, through DIA

- The Nasdaq 100, through QQQ

That is the whole opportunity set. There is no single stock risk anywhere in the construction, no sector tilt, no factor overlay, and nothing that needs a view on an individual company. When all three signals are on, the index holds a third in each. Equal thirds, with no opinion about which one deserves more.

The small universe is a deliberate constraint rather than a limitation. Three positions in three of the most liquid instruments in the world means the index can change its shape without the change itself becoming a cost.

One signal on each

Each of the three carries its own risk signal, produced by the process described in Signal Processing, Applied to Markets.

The signal has two states. On, meaning conditions support owning that index. Off, meaning they do not. It is a reading of the character of that one series as it is now, not a forecast about the next quarter, and it changes only when a turn in the signal persists rather than on a single observation.

Three series, three independent readings. Nothing sits above them holding a view about the year.

The exchange built into a rule like this is worth stating plainly, because it cuts both ways. The construction accepts a set of small false turns in a choppy uptrend in return for holding no equity index exposure through a sustained decline. A system that never sells into a recovery is a system that never sells, and that system has a different problem. The honest question for an allocator is not which of the two is correct, it is which mistake you would rather own, and the answer differs by portfolio.

The cascade

Here is the mechanism, in the order it fires.

The step that surprises people is the first one. When the first index turns off, the index raises no cash at all. It sells that one and concentrates into the two that are still working, and it remains fully invested in equities.

The reasoning is that a single index going quiet while the other two hold up is very often rotation inside the market rather than a broad decline. Large capitalisation leadership rotates between the Dow, the S&P and the Nasdaq constantly, and a rule that moves to cash every time leadership changes hands gives up return for nothing. Cash only enters the picture when a second index confirms the first.

The last step is the one that separates this from most index construction. There is no floor under the equity allocation. If all three signals are off, the index holds no equity index exposure at all.

A worked example: 2025

Rules are easy to state and harder to picture, so here is the same cascade running through a real stretch.

Three steps, six weeks, and at no point did anybody decide the market was going to fall. Each step was one series turning, and the weights followed.

The way back is the same ladder in reverse.

Five months to unwind and rebuild, done in six steps, with no forecast at any point in it. That is the whole design working as specified: a mechanical response to what the signals did, not a sequence of calls.

What to check if you are doing diligence

This is a published index with written rules, calculated by an independent index provider, which matters for three practical reasons rather than as a compliance detail.

First, the rules can be read. A discretionary risk overlay has to be taken on trust and can only be evaluated after the fact. A rules based index states in advance what it does when a signal changes, and the arithmetic is checkable.

Second, the universe is three instruments. There is no ambiguity about what is inside, no sampling, and no drift into holdings nobody expected.

Third, the decisions are mechanical. The state of each signal decides the weights. Nothing in the process asks a human what they think about the Federal Reserve, which means the output does not change because somebody read a headline on the way to work.

THOR Index Rotation is the fund that tracks the index.

The part worth carrying away

An index that can hold nothing is a different object from an index that ranks and holds. The first one has to be judged on when it steps aside and what that costs when it is wrong, and both of those are visible in the rules before you own a share of anything.

The next piece in this series covers the other published index, which starts from ten sectors rather than three indexes and reaches the same place by different arithmetic.

Educational content only. This is not investment advice and it is not a recommendation regarding any security. Index construction is described here in general terms and simplified for explanation. Signal dates reflect historical signal states of the strategy the index is built on. They are not the holdings of any fund and not a measure of performance. Investing involves risk, including possible loss of principal.

Past performance does not guarantee future results.