The Nasdaq 100 Strategy is a good way to ride the extraordinary momentum of the Nasdaq 100 Index while keeping some protection from market downturns. It is also a great alternative for stock-pickers looking for a rules-based stock selection strategy.

The strategy uses a risk-adjusted momentum algorithm to choose the top four Nasdaq 100 stocks with a variable allocation to treasuries or gold to smooth the equity curve and provide crash protection in bear markets. The strategy combines well with our more conservative strategies, such as the Bond Rotation Strategy or BUG, or with one of our non-U.S. equity strategies such as World Top 4, to form a well balanced portfolio.

The existence of price momentum has been heavily studied and well documented over the years. It reveals itself in assets that have strong absolute performance or performance relative to their peers. Logical Invest has exploited asset class and sector momentum in many of our strategies for years. We have found individual stock momentum tends to be an even stronger force, particularly in the top NASDAQ stocks. When properly identified, it can be capitalized on to provide an investment edge.

During bull markets, and especially "risk off" periods, the strongest NASDAQ stocks typically beat the market handily. However, they can also get ahead of themselves which makes them more vulnerable during "risk on" periods. To manage those challenges, the strategy incorporates several advanced methodologies:

- Mean Reversion - Momentum is based on the principle of buying high and selling higher, however, as most investors have experienced, stocks that rise too quickly can also have short-term corrections. The strategy uses a mean reversion component to penalize stocks that rise too much or too fast.
- Protection - The strategy allocates a portion to treasuries to balance out the supercharged Nasdaq momentum stocks. This improves risk adjusted returns and moderates strategy drawdowns. The model also allocates more to treasuries if the overall Nasdaq 100 index exhibits momentum weakness.
- Intelligent Ranking - Our algorithms ensures we get the right blend of stocks that work well together and have an allocation to each individual stock that reflects its volatility in relation to other stocks.

The model chooses four individual stocks from the NASDAQ 100 stock index. So depending on what stocks are in the NASDAQ 100, the stock rotation formula might include the new ones.

Additionally, the model may allocate some funds to TMF (Direxion 3x leveraged 20-yr Treasury) or to UGLD (VelocityShares 3x Long Gold ETN). This helps mitigate risk during certain market environments.

You may also use one of the alternative versions:

NASDAQ 100 Balanced unhedged Strategy

NASDAQ 100 Leaders Strategy

NASDAQ 100 Low volatility Strategy

'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.'

Which means for our asset as example:- Compared with the benchmark SPY (81.9%) in the period of the last 5 years, the total return, or performance of 99.6% of NASDAQ 100 Strategy is larger, thus better.
- During the last 3 years, the total return is 48.7%, which is higher, thus better than the value of 46.1% from the benchmark.

'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:- Compared with the benchmark SPY (12.7%) in the period of the last 5 years, the compounded annual growth rate (CAGR) of 14.8% of NASDAQ 100 Strategy is higher, thus better.
- During the last 3 years, the annual return (CAGR) is 14.1%, which is larger, thus better than the value of 13.5% from the benchmark.

'In finance, volatility (symbol σ) is the degree of variation of a trading price series over time as measured by the standard deviation of logarithmic returns. Historic volatility measures a time series of past market prices. Implied volatility looks forward in time, being derived from the market price of a market-traded derivative (in particular, an option). Commonly, the higher the volatility, the riskier the security.'

Applying this definition to our asset in some examples:- The volatility over 5 years of NASDAQ 100 Strategy is 14.3%, which is smaller, thus better compared to the benchmark SPY (19.8%) in the same period.
- Looking at historical 30 days volatility in of 17.3% in the period of the last 3 years, we see it is relatively smaller, thus better in comparison to SPY (23%).

'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 risk of 10.1% in the last 5 years of NASDAQ 100 Strategy, we see it is relatively smaller, thus better in comparison to the benchmark SPY (14.5%)
- Looking at downside deviation in of 12.2% in the period of the last 3 years, we see it is relatively lower, thus better in comparison to SPY (16.8%).

'The Sharpe ratio is the measure of risk-adjusted return of a financial portfolio. Sharpe ratio is a measure of excess portfolio return over the risk-free rate relative to its standard deviation. Normally, the 90-day Treasury bill rate is taken as the proxy for risk-free rate. A portfolio with a higher Sharpe ratio is considered superior relative to its peers. The measure was named after William F Sharpe, a Nobel laureate and professor of finance, emeritus at Stanford University.'

Which means for our asset as example:- Compared with the benchmark SPY (0.52) in the period of the last 5 years, the ratio of return and volatility (Sharpe) of 0.86 of NASDAQ 100 Strategy is greater, thus better.
- Compared with SPY (0.48) in the period of the last 3 years, the risk / return profile (Sharpe) of 0.67 is larger, thus better.

'The Sortino ratio measures the risk-adjusted return of an investment asset, portfolio, or strategy. It is a modification of the Sharpe ratio but penalizes only those returns falling below a user-specified target or required rate of return, while the Sharpe ratio penalizes both upside and downside volatility equally. Though both ratios measure an investment's risk-adjusted return, they do so in significantly different ways that will frequently lead to differing conclusions as to the true nature of the investment's return-generating efficiency. The Sortino ratio is used as a way to compare the risk-adjusted performance of programs with differing risk and return profiles. In general, risk-adjusted returns seek to normalize the risk across programs and then see which has the higher return unit per risk.'

Which means for our asset as example:- Compared with the benchmark SPY (0.7) in the period of the last 5 years, the excess return divided by the downside deviation of 1.23 of NASDAQ 100 Strategy is higher, thus better.
- Looking at downside risk / excess return profile in of 0.95 in the period of the last 3 years, we see it is relatively higher, thus better in comparison to SPY (0.65).

'Ulcer Index is a method for measuring investment risk that addresses the real concerns of investors, unlike the widely used standard deviation of return. UI is a measure of the depth and duration of drawdowns in prices from earlier highs. Using Ulcer Index instead of standard deviation can lead to very different conclusions about investment risk and risk-adjusted return, especially when evaluating strategies that seek to avoid major declines in portfolio value (market timing, dynamic asset allocation, hedge funds, etc.). The Ulcer Index was originally developed in 1987. Since then, it has been widely recognized and adopted by the investment community. According to Nelson Freeburg, editor of Formula Research, Ulcer Index is “perhaps the most fully realized statistical portrait of risk there is.'

Using this definition on our asset we see for example:- Compared with the benchmark SPY (6.08 ) in the period of the last 5 years, the Ulcer Index of 4.55 of NASDAQ 100 Strategy is lower, thus better.
- During the last 3 years, the Ulcer Ratio is 5.7 , which is lower, thus better than the value of 6.77 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.'

Which means for our asset as example:- Looking at the maximum DrawDown of -21.1 days in the last 5 years of NASDAQ 100 Strategy, we see it is relatively larger, thus better in comparison to the benchmark SPY (-33.7 days)
- Compared with SPY (-33.7 days) in the period of the last 3 years, the maximum DrawDown of -21.1 days is larger, thus better.

'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:- Looking at the maximum days under water of 134 days in the last 5 years of NASDAQ 100 Strategy, we see it is relatively lower, thus better in comparison to the benchmark SPY (139 days)
- During the last 3 years, the maximum time in days below previous high water mark is 134 days, which is larger, thus worse than the value of 119 days from the benchmark.

'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.'

Applying this definition to our asset in some examples:- The average days under water over 5 years of NASDAQ 100 Strategy is 31 days, which is lower, thus better compared to the benchmark SPY (35 days) in the same period.
- Looking at average days below previous high in of 33 days in the period of the last 3 years, we see it is relatively greater, thus worse in comparison to SPY (27 days).

Historical returns have been extended using synthetic data.
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- Note that yearly returns do not equal the sum of monthly returns due to compounding.
- Performance results of NASDAQ 100 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.