The investment universe consists of ETFs from 10 different sectors. Every month, the three ETFs with the highest one-year returns form an equally weighted portfolio.
Data-quality notes. Unavailable one-year return observations were omitted until sufficient history was available. This uses a fixed ETF universe, not a point-in-time universe.
Performance and strategy calculations use adjusted close, including split and dividend adjustments. Quantities are adjusted simulation units.
Why does it work?
Selecting sectors using a trend following strategy allows investors to take advantage of specific sectors that have strong momentum.
The original 2020 article described avoiding energy stocks during the oil-price decline and holding health care stocks that were trending. This illustrates how sector selection responds to changing trends. It does not describe current holdings. In the backtest period reported below, the strategy had lower volatility and a smaller maximum drawdown than SPY, but lower annualized returns and a lower Sharpe ratio.
What is the performance?
The Performance and Statistics tabs show the current verified adjusted-price simulation in USD, with SPY as the S&P 500 ETF benchmark. Annualized returns, volatility, Sharpe ratio and maximum drawdown are calculated from the same published result. Use the chart dates to identify the period being compared. The Positions tab samples historical simulated allocations; its last displayed date can differ from the final performance date.
What are the simulated positions?
The discussion of consumer staples, health care and technology in the original article was a historical example from the 2020 COVID-19 period. See the dated, sampled allocations in the Positions tab for historical simulated holdings.
Research paper
Mebane Faber: Relative Strength Strategies for Investing
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1585517
