The investment universe consists of ETFs from different asset classes such as equities, fixed income, forex, REITs and commodities. This universe is screened to include only ETFs that are above their long term moving average. Finally, the top 7 ETFs with the highest returns are selected to form an equally weighted portfolio.
Performance and strategy calculations use adjusted close, including split and dividend adjustments. Quantities are adjusted simulation units.
Why does it work?
This trend-following strategy aims to participate in equity uptrends and reduce exposure during downtrends by rotating across asset classes or into cash.
The strategy changes its asset allocation as market trends change. In the backtest period reported below, it had lower volatility and a smaller maximum drawdown than SPY, but lower annualized returns and a lower Sharpe ratio.
What is the performance?
From 1 July 2005 to 8 September 2026, this adjusted-price backtest in USD returned 6.0% annualized, compared with 11.2% for SPY, the S&P 500 ETF benchmark. Annualized volatility was 12.2% versus 19.1%, and maximum drawdown was 35.7% versus 55.2%. The Sharpe ratio was 0.54 versus 0.65.
Research paper
Mebane Faber: A Quantitative Approach to Tactical Asset Allocation
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=962461
