And, here’s how it has performed when backtested:

Looks pretty good, doesn’t it. There’s just a few problems:

1. This is a backtest and therefore doesn’t really reflect what happens in the real world.

2. Because it is a backtest, we have no clue as to whether or not they data-mined to get these numbers. I’m not saying Barron’s would do such a thing, but you never know.

3. These numbers are for an index, not an actual investment which have investment costs. So, it is almost guaranteed that a mutual fund or exchange-traded fund that followed this methodology would trail these numbers (of course the same can be said for the other indexes in the graphic).

4. Finally, notice how it significantly trailed the other indexes in 2006, which was a good year for stocks. Why?

A couple of things I do like about this particular index:

1. The stocks are equal-weighted, not market cap weighted.

2. Large-Cap, Mid-Cap, Small-Cap, and Micro-Cap stocks are well-represented in this index:

Wow! nearly 40% in Small-Cap stocks! Of course, the skeptic in me wonders if their sizeable inclusion is due to data mining since small-cap stocks have done really well in recent years. Of course, Barron’s does have a methodology for selecting stocks so it’s not like they just loaded up on small companies.

UPDATE: Here’s wherre you can fina a complete list of all 400 companies in the index.

Bottom Line:

I’m going to keep my eye on this one. It looks intriquing and I have a LOT of respect for Barron’s. I wonder how long it will be before this is available as an exchange-traded fund?