BTS Strength Zones — U.S. Sector ETFs Backtest Results
Backtested Strategies has published BTS Strength Zones — U.S. Sector ETFs Backtest, a new report on a long-only tactical allocation model using 14 published BTS Strength Zones across nine sector ETFs. Over the 2005–2025 whole-calendar-year report window, the complete modeled BTS Strength Zones portfolio produced 18.7% CAGR versus 10.6% for buy-and-hold SPY. Over that 21-year period, a $10,000 starting value grew to $367,986 for the strategy and $82,376 for SPY. Maximum drawdown was -42.4% versus -55.2% for SPY, while volatility was nearly identical at 19.0% versus 19.1%.
BTS Strength Zones — U.S. Sector ETFs Backtest applies the same governing BTS Strength Zone formulas and rules used across BTS Heatmaps, with a portfolio-level VIX 50/35 regime controlling admission. That common design supports direct comparison with other BTS Zones backtests without changing the governing strategy rules or heatmap formulas.
Results
The chart shows sustained long-term separation from SPY despite a severe 2020 decline and a 529-day underwater period during 2008–2009. The strategy finished far ahead of the benchmark with similar full-window volatility, but the path remained equity-like rather than defensive.
Time in Market was 98.8%, indicating near-continuous exposure rather than an extended defensive cash posture. Full-window volatility was effectively the same as SPY’s, so the result reflects stronger compounding and a smaller worst loss rather than consistently lower day-to-day risk.
Maximum drawdown reached -42.4%, versus -55.2% for SPY. The strategy’s worst decline ran from January 22, 2020, through March 23, 2020, and recovered by February 8, 2021. Its longest underwater period lasted 529 calendar days during 2008–2009, compared with 1,773 days for SPY. The reduction in loss depth was meaningful, but a drawdown greater than 40% remained severe.
The return advantage appeared in both SPY up years and the selected SPY down years. In SPY up years, BTS Strength Zones produced 23.0% filtered CAGR versus 16.9% for SPY, although volatility and worst within-year drawdown were higher. Across the three SPY down years—2008, 2018, and 2022—the strategy produced -3.8% filtered CAGR versus -21.0% for SPY, while volatility was 26.8% versus 29.4% and worst within-year drawdown was -33.2% versus -47.6%. The result supports downside containment, not loss avoidance.
The full-period result was supported across most, but not all, rolling windows. BTS Strength Zones beat SPY on CAGR in 82.5% of rolling three-year windows and 91.7% of rolling five-year windows, while producing a higher Sharpe ratio in 77.9% and 87.6%, respectively. Lower volatility appeared in only 31.8% and 26.9% of those windows, and smaller maximum drawdowns appeared in 50.2% and 46.6%. The strategy’s worst rolling CAGR remained positive at 3.4% over three years and 7.1% over five years.
Methodology
The model uses exactly 14 published BTS Strength Zones across VOX, XLY, XLP, XLE, XLV, XLI, XLB, XLK, and XLU. A portfolio-level VIX 50/35 regime determines whether an ETF associated with an active BTS Strength Zone may enter the portfolio. Once admitted, the ETF remains held through the scheduled end of its BTS Strength Zone.
At target-decision events, the portfolio allocates equally across entered BTS Strength Zone ETFs. When no BTS Strength Zone is entered, the portfolio holds SPY while the regime is ON and SHY while it is OFF.
Reported performance reflects the full modeled portfolio, including entered ETFs and SPY/SHY fallback holdings.
Backtest results follow the BTS Methodology, which sets common conventions for data and calendar alignment, execution pricing, missing-data and end-of-range handling, trading costs and spread-aware slippage, portfolio accounting, cash and dividend treatment, benchmark conventions, reporting windows, performance metric calculations, and, where reported, market-capacity screening. Strategy-specific rules, universes, eligibility, timing, sizing, and constraints are defined in each report.
Caveats
The published BTS Strength Zones are derived from historical data and should be understood as in-sample findings, not as forecasts or independent out-of-sample validation.
The 2021–2025 preview produced 34.7% CAGR, well above the 18.7% full-window result. The recent period was unusually strong and should not be treated as representative of the entire 2005–2025 record.
Near-continuous exposure remained high at 98.8%, and the strategy still experienced a -42.4% maximum drawdown. The result is not a cash-like or crash-avoidance profile.
Implementation remained active at 49.5 modeled executions per year. Relative lags also occurred, including a 21.1-percentage-point calendar-year lag in 2020 and annualized lags of 5.4 points and 2.1 points in the weakest rolling three- and five-year comparisons with SPY.
The regime figures are filtered-year diagnostics, not continuous-window backtest results. Return and Sharpe leadership were broad, but volatility and drawdown advantages were inconsistent across rolling windows.
Market capacity
The market-capacity screen produced an overall GREEN status at the modeled account scale. All 1,039 requested execution events were assessable, giving 100.00% event-count and gross-notional coverage. Every usable event was classified as market capacity likely; no event reached the questionable or unlikely categories.
The most constrained event involved VOX on April 25, 2005, when modeled gross shares equaled 1.51% of the highest daily volume observed during the prior 21 trading sessions. The tested trades were therefore small relative to the recent peak-volume record across the sector ETF universe.
The GREEN status does not mean the strategy can be scaled without limit. The screen compares modeled shares with recent peak volume; it does not estimate typical daily liquidity, distinguish continuous-session volume from auction volume, or model bid-ask spreads, order-book depth, market impact, intraday liquidity, or realized slippage. It should be read as evidence that the tested account scale was compatible with the available volume record, not as a universal statement about deployable capital.
Read the report
The full BTS Strength Zones — U.S. Sector ETFs Backtest report includes preview and full-period metrics, complete strategy rules and mechanics, equity-curve and drawdown-profile charts, caution flags, failure-mode analysis, market-capacity results, calendar-year returns, SPY up-year and down-year diagnostics, rolling-window results, pseudocode, and implementation guardrails.
About Backtested Strategies
Backtested Strategies (BTS), operated by Marquantex LLC, is a financial research publisher built around the BTS Methodology, a standardized framework for testing trading strategies with stated rules, consistent assumptions, benchmark discipline, cost and slippage treatment, portfolio accounting, and clear interpretation so readers can evaluate market ideas through evidence rather than hype or unsupported claims.