Mar 23, 2010
ETFreplay.com is a platform built in part for finding market leadership ideas to consider. We believe that there is a lot of 'market generated information' to be interpreted by the relative price performance of well-defined trading baskets (indexed ETFs). Global asset flows into and out of regions and sectors are important --- and these flows can be understood by seeing how market segments are performing relative to each other.
A quantitative process can help give ideas as to what is going on in the marketplace. This can be achieved with relatively simple models. Simple is better than complex. The more filters you build into your backtesting, the more UNLIKELY it is to work in the future.
I ran the ETFreplay screener ( http://www.etfreplay.com/screener.aspx
) for 1 year ago today. You can do this by setting the calendar control in the top right corner to the final date for which you would like to capture. I set the screener parameters to pick-up short term relative strength. The idea would be that the strongest ETF's out of the bear market might very well be the new market leadership. Using ETFreplays backtesting tab -- I entered the top 5 ETF's into the text boxes at equal 20% weights (make sure it sums to 100%). I then ran the subsequent 12-month performance.
Investing is not a purely quantitative process. Thought and insights and forecasts are crucial. But a quantitative process can help guide you in the right direction and looking in the right places for ideas. Even if you don't invest or trade ETFs, it will certainly be helpful for any investor to understand global asset flows into and out of certain market segments (int'l stocks vs us stocks vs commodities vs fixed-income etc)...
Below are the results of the above idea: