Jul 08, 2010
The Investors Business Daily (IBD) 100 is at its core a Relative Strength backtest of the IBD stock universe. Note that IBD's method is to also use its larger market BUY and SELL signals and these do not show up in the chart below.
If you use fixed-income ETFs in your ETFreplay.com screening/backtesting lists -- you effectively automate the 'Buy-Sell' signals by naturally rotating into the higher relative strength bond ETFs as stocks breakdown and bonds rally. We suggest using intermediate or short-term bond ETFs in your lists. Long-dated treasury ETFs can suffer from very high volatility -- and a key concept is to avoid highly volatile securities UNLESS they offer high expected returns. This is unlikely the case for most bond ETFs -- bond ETFs best attribute is their stability in times of turbulence.
Note also that while the IBD 100 is compared to the S&P 500 below, it does often own foreign stocks that trade on U.S. exchanges. While we cannot calculate the volatility of the IBD-100 since we don't have the data series, we suspect its volatility is far greater than the S&P 500. Remember that when volatility is HIGHER, you would EXPECT larger relative drawdowns.
This image captures the cumulative return of the IBD 100 index up through June 18, 2010 (note the massive drawdown in 2008).