The investment universe consists of ETFs from 9 different sectors. Every week, select the top 3 ETFs with the highest 1 year returns and 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?
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?
From 1 July 2005 to 8 September 2026, this adjusted-price backtest in USD returned 9.6% annualized, compared with 11.2% for SPY, the S&P 500 ETF benchmark. Annualized volatility was 18.3% versus 19.1%, and maximum drawdown was 45.4% versus 55.2%. The Sharpe ratio was 0.59 versus 0.65.
What are the current 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 Positions tab in the current backtest results for holdings as of the latest backtest date.
Research paper
Mebane Faber: Relative Strength Strategies for Investing
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1585517
