We developed the Dow 30 Top 4 Strategy some years ago together with the Nasdaq 100 strategy. We waited to published it because the Nasdaq 100 Top 4 Strategy was outperforming the Dow Strategy in the technology driven bull market we've had in recent years. Going forward however, the Dow 30 Top 4 Strategy could be very beneficial, as stock picking becomes much more important in volatile, sideways moving markets.

The performance of the Dow 30 strategy is quite similar to the simpler US Market Strategy, however in volatile markets like this year, the stock picking Dow 30 outperformed. Notably, the February drawdown was only half of the US Market Strategy as the Dow Strategy excludes high volatility stocks.

'Total return, when measuring performance, is the actual rate of return of an investment or a pool of investments over a given evaluation period. Total return includes interest, capital gains, dividends and distributions realized over a given period of time. Total return accounts for two categories of return: income including interest paid by fixed-income investments, distributions or dividends and capital appreciation, representing the change in the market price of an asset.'

Using this definition on our asset we see for example:- The total return, or performance over 5 years of Dow 30 Strategy is 88.6%, which is greater, thus better compared to the benchmark DIA (73.9%) in the same period.
- Looking at total return, or increase in value in of 37.3% in the period of the last 3 years, we see it is relatively smaller, thus worse in comparison to DIA (48.3%).

'Compound annual growth rate (CAGR) is a business and investing specific term for the geometric progression ratio that provides a constant rate of return over the time period. CAGR is not an accounting term, but it is often used to describe some element of the business, for example revenue, units delivered, registered users, etc. CAGR dampens the effect of volatility of periodic returns that can render arithmetic means irrelevant. It is particularly useful to compare growth rates from various data sets of common domain such as revenue growth of companies in the same industry.'

Applying this definition to our asset in some examples:- Looking at the compounded annual growth rate (CAGR) of 13.5% in the last 5 years of Dow 30 Strategy, we see it is relatively greater, thus better in comparison to the benchmark DIA (11.7%)
- During the last 3 years, the annual return (CAGR) is 11.1%, which is lower, thus worse than the value of 14% from the benchmark.

'Volatility is a rate at which the price of a security increases or decreases for a given set of returns. Volatility is measured by calculating the standard deviation of the annualized returns over a given period of time. It shows the range to which the price of a security may increase or decrease. Volatility measures the risk of a security. It is used in option pricing formula to gauge the fluctuations in the returns of the underlying assets. Volatility indicates the pricing behavior of the security and helps estimate the fluctuations that may happen in a short period of time.'

Which means for our asset as example:- Compared with the benchmark DIA (13.6%) in the period of the last 5 years, the volatility of 8.6% of Dow 30 Strategy is smaller, thus better.
- Compared with DIA (13%) in the period of the last 3 years, the 30 days standard deviation of 8.5% is lower, thus better.

'Downside risk is the financial risk associated with losses. That is, it is the risk of the actual return being below the expected return, or the uncertainty about the magnitude of that difference. Risk measures typically quantify the downside risk, whereas the standard deviation (an example of a deviation risk measure) measures both the upside and downside risk. Specifically, downside risk in our definition is the semi-deviation, that is the standard deviation of all negative returns.'

Which means for our asset as example:- Looking at the downside volatility of 9.5% in the last 5 years of Dow 30 Strategy, we see it is relatively lower, thus better in comparison to the benchmark DIA (15%)
- Compared with DIA (14.7%) in the period of the last 3 years, the downside risk of 9.5% is lower, thus better.

'The Sharpe ratio was developed by Nobel laureate William F. Sharpe, and is used to help investors understand the return of an investment compared to its risk. The ratio is the average return earned in excess of the risk-free rate per unit of volatility or total risk. Subtracting the risk-free rate from the mean return allows an investor to better isolate the profits associated with risk-taking activities. One intuition of this calculation is that a portfolio engaging in 'zero risk' investments, such as the purchase of U.S. Treasury bills (for which the expected return is the risk-free rate), has a Sharpe ratio of exactly zero. Generally, the greater the value of the Sharpe ratio, the more attractive the risk-adjusted return.'

Which means for our asset as example:- The risk / return profile (Sharpe) over 5 years of Dow 30 Strategy is 1.28, which is larger, thus better compared to the benchmark DIA (0.68) in the same period.
- Looking at ratio of return and volatility (Sharpe) in of 1.02 in the period of the last 3 years, we see it is relatively greater, thus better in comparison to DIA (0.89).

'The Sortino ratio improves upon the Sharpe ratio by isolating downside volatility from total volatility by dividing excess return by the downside deviation. The Sortino ratio is a variation of the Sharpe ratio that differentiates harmful volatility from total overall volatility by using the asset's standard deviation of negative asset returns, called downside deviation. The Sortino ratio takes the asset's return and subtracts the risk-free rate, and then divides that amount by the asset's downside deviation. The ratio was named after Frank A. Sortino.'

Using this definition on our asset we see for example:- Compared with the benchmark DIA (0.61) in the period of the last 5 years, the downside risk / excess return profile of 1.16 of Dow 30 Strategy is greater, thus better.
- Compared with DIA (0.79) in the period of the last 3 years, the excess return divided by the downside deviation of 0.91 is larger, thus better.

'The ulcer index is a stock market risk measure or technical analysis indicator devised by Peter Martin in 1987, and published by him and Byron McCann in their 1989 book The Investors Guide to Fidelity Funds. It's designed as a measure of volatility, but only volatility in the downward direction, i.e. the amount of drawdown or retracement occurring over a period. Other volatility measures like standard deviation treat up and down movement equally, but a trader doesn't mind upward movement, it's the downside that causes stress and stomach ulcers that the index's name suggests.'

Which means for our asset as example:- The Ulcer Ratio over 5 years of Dow 30 Strategy is 2.79 , which is lower, thus better compared to the benchmark DIA (4.26 ) in the same period.
- During the last 3 years, the Ulcer Index is 2.92 , which is lower, thus better than the value of 4.21 from the benchmark.

'Maximum drawdown measures the loss in any losing period during a fund’s investment record. It is defined as the percent retrenchment from a fund’s peak value to the fund’s valley value. The drawdown is in effect from the time the fund’s retrenchment begins until a new fund high is reached. The maximum drawdown encompasses both the period from the fund’s peak to the fund’s valley (length), and the time from the fund’s valley to a new fund high (recovery). It measures the largest percentage drawdown that has occurred in any fund’s data record.'

Applying this definition to our asset in some examples:- The maximum DrawDown over 5 years of Dow 30 Strategy is -9.8 days, which is higher, thus better compared to the benchmark DIA (-18.1 days) in the same period.
- During the last 3 years, the maximum reduction from previous high is -9.8 days, which is greater, thus better than the value of -18.1 days from the benchmark.

'The Drawdown Duration is the length of any peak to peak period, or the time between new equity highs. The Max Drawdown Duration is the worst (the maximum/longest) amount of time an investment has seen between peaks (equity highs). Many assume Max DD Duration is the length of time between new highs during which the Max DD (magnitude) occurred. But that isn’t always the case. The Max DD duration is the longest time between peaks, period. So it could be the time when the program also had its biggest peak to valley loss (and usually is, because the program needs a long time to recover from the largest loss), but it doesn’t have to be'

Which means for our asset as example:- The maximum days below previous high over 5 years of Dow 30 Strategy is 133 days, which is lower, thus better compared to the benchmark DIA (227 days) in the same period.
- Looking at maximum time in days below previous high water mark in of 125 days in the period of the last 3 years, we see it is relatively lower, thus better in comparison to DIA (161 days).

'The Average Drawdown Duration is an extension of the Maximum Drawdown. However, this metric does not explain the drawdown in dollars or percentages, rather in days, weeks, or months. The Avg Drawdown Duration is the average amount of time an investment has seen between peaks (equity highs), or in other terms the average of time under water of all drawdowns. So in contrast to the Maximum duration it does not measure only one drawdown event but calculates the average of all.'

Using this definition on our asset we see for example:- Compared with the benchmark DIA (53 days) in the period of the last 5 years, the average days below previous high of 31 days of Dow 30 Strategy is smaller, thus better.
- During the last 3 years, the average days below previous high is 30 days, which is lower, thus better than the value of 43 days from the benchmark.

Historical returns have been extended using synthetic data.
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- "Year" returns in the table above are not equal to the sum of monthly returns due to compounding.
- Performance results of Dow 30 Strategy are hypothetical, do not account for slippage, fees or taxes, and are based on backtesting, which has many inherent limitations, some of which are described in our Terms of Use.