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:- Compared with the benchmark DIA (76.8%) in the period of the last 5 years, the total return of 98.6% of Dow 30 Strategy is larger, thus better.
- Looking at total return, or increase in value in of 43.7% in the period of the last 3 years, we see it is relatively lower, thus worse in comparison to DIA (60.3%).

'The compound annual growth rate (CAGR) is a useful measure of growth over multiple time periods. It can be thought of as the growth rate that gets you from the initial investment value to the ending investment value if you assume that the investment has been compounding over the time period.'

Which means for our asset as example:- Compared with the benchmark DIA (12.1%) in the period of the last 5 years, the annual performance (CAGR) of 14.7% of Dow 30 Strategy is higher, thus better.
- During the last 3 years, the annual performance (CAGR) is 12.9%, which is lower, thus worse than the value of 17.1% 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:- The historical 30 days volatility over 5 years of Dow 30 Strategy is 8.6%, which is lower, thus better compared to the benchmark DIA (13.4%) in the same period.
- Compared with DIA (12.9%) in the period of the last 3 years, the volatility of 8.5% is smaller, thus better.

'The downside volatility is similar to the volatility, or standard deviation, but only takes losing/negative periods into account.'

Using this definition on our asset we see for 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 (14.8%)
- Looking at downside volatility in of 9.5% in the period of the last 3 years, we see it is relatively smaller, thus better in comparison to DIA (14.7%).

'The Sharpe ratio (also known as the Sharpe index, the Sharpe measure, and the reward-to-variability ratio) is a way to examine the performance of an investment by adjusting for its risk. The ratio measures the excess return (or risk premium) per unit of deviation in an investment asset or a trading strategy, typically referred to as risk, named after William F. Sharpe.'

Applying this definition to our asset in some examples:- Looking at the ratio of return and volatility (Sharpe) of 1.42 in the last 5 years of Dow 30 Strategy, we see it is relatively larger, thus better in comparison to the benchmark DIA (0.71)
- Compared with DIA (1.13) in the period of the last 3 years, the ratio of return and volatility (Sharpe) of 1.23 is higher, thus better.

'The Sortino ratio, a variation of the Sharpe ratio only factors in the downside, or negative volatility, rather than the total volatility used in calculating the Sharpe ratio. The theory behind the Sortino variation is that upside volatility is a plus for the investment, and it, therefore, should not be included in the risk calculation. Therefore, the Sortino ratio takes upside volatility out of the equation and uses only the downside standard deviation in its calculation instead of the total standard deviation that is used in calculating the Sharpe ratio.'

Using this definition on our asset we see for example:- The ratio of annual return and downside deviation over 5 years of Dow 30 Strategy is 1.28, which is higher, thus better compared to the benchmark DIA (0.65) in the same period.
- Looking at downside risk / excess return profile in of 1.1 in the period of the last 3 years, we see it is relatively higher, thus better in comparison to DIA (0.99).

'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:- Compared with the benchmark DIA (4.25 ) in the period of the last 5 years, the Downside risk index of 2.35 of Dow 30 Strategy is smaller, thus better.
- During the last 3 years, the Downside risk index is 2.22 , which is smaller, thus better than the value of 4.18 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:- Looking at the maximum drop from peak to valley of -9.7 days in the last 5 years of Dow 30 Strategy, we see it is relatively larger, thus better in comparison to the benchmark DIA (-18.1 days)
- During the last 3 years, the maximum drop from peak to valley is -9.3 days, which is higher, 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'

Applying this definition to our asset in some examples:- The maximum time in days below previous high water mark over 5 years of Dow 30 Strategy is 133 days, which is smaller, thus better compared to the benchmark DIA (227 days) in the same period.
- Compared with DIA (161 days) in the period of the last 3 years, the maximum days under water of 103 days is lower, thus better.

'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 under water of 28 days of Dow 30 Strategy is lower, thus better.
- During the last 3 years, the average time in days below previous high water mark is 28 days, which is lower, thus better than the value of 44 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.