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

'The total return on a portfolio of investments takes into account not only the capital appreciation on the portfolio, but also the income received on the portfolio. The income typically consists of interest, dividends, and securities lending fees. This contrasts with the price return, which takes into account only the capital gain on an investment.'

Applying this definition to our asset in some examples:- The total return, or performance over 5 years of NASDAQ 100 Strategy is 342.1%, which is greater, thus better compared to the benchmark SPY (57.1%) in the same period.
- During the last 3 years, the total return, or performance is 86.9%, which is higher, thus better than the value of 32% 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.'

Using this definition on our asset we see for example:- Compared with the benchmark SPY (9.5%) in the period of the last 5 years, the annual return (CAGR) of 34.7% of NASDAQ 100 Strategy is higher, thus better.
- Looking at annual performance (CAGR) in of 23.3% in the period of the last 3 years, we see it is relatively larger, thus better in comparison to SPY (9.7%).

'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:- Looking at the 30 days standard deviation of 18.4% in the last 5 years of NASDAQ 100 Strategy, we see it is relatively smaller, thus better in comparison to the benchmark SPY (21.5%)
- Looking at historical 30 days volatility in of 15.9% in the period of the last 3 years, we see it is relatively lower, thus better in comparison to SPY (17.9%).

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

Which means for our asset as example:- The downside deviation over 5 years of NASDAQ 100 Strategy is 12%, which is smaller, thus better compared to the benchmark SPY (15.5%) in the same period.
- Looking at downside volatility in of 10.1% in the period of the last 3 years, we see it is relatively smaller, thus better in comparison to SPY (12.5%).

'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.'

Using this definition on our asset we see for example:- The risk / return profile (Sharpe) over 5 years of NASDAQ 100 Strategy is 1.75, which is greater, thus better compared to the benchmark SPY (0.32) in the same period.
- During the last 3 years, the ratio of return and volatility (Sharpe) is 1.3, which is larger, thus better than the value of 0.41 from the benchmark.

'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.'

Applying this definition to our asset in some examples:- Compared with the benchmark SPY (0.45) in the period of the last 5 years, the ratio of annual return and downside deviation of 2.69 of NASDAQ 100 Strategy is higher, thus better.
- Looking at ratio of annual return and downside deviation in of 2.05 in the period of the last 3 years, we see it is relatively larger, thus better in comparison to SPY (0.58).

'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.'

Applying this definition to our asset in some examples:- Looking at the Ulcer Ratio of 4.67 in the last 5 years of NASDAQ 100 Strategy, we see it is relatively lower, thus better in comparison to the benchmark SPY (9.57 )
- Compared with SPY (10 ) in the period of the last 3 years, the Ulcer Ratio of 4.51 is lower, thus better.

'Maximum drawdown is defined as the peak-to-trough decline of an investment during a specific period. It is usually quoted as a percentage of the peak value. The maximum drawdown can be calculated based on absolute returns, in order to identify strategies that suffer less during market downturns, such as low-volatility strategies. However, the maximum drawdown can also be calculated based on returns relative to a benchmark index, for identifying strategies that show steady outperformance over time.'

Using this definition on our asset we see for example:- Looking at the maximum reduction from previous high of -19.7 days in the last 5 years of NASDAQ 100 Strategy, we see it is relatively higher, thus better in comparison to the benchmark SPY (-33.7 days)
- Compared with SPY (-24.5 days) in the period of the last 3 years, the maximum DrawDown of -11.2 days is higher, 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) in days.'

Using this definition on our asset we see for example:- Looking at the maximum time in days below previous high water mark of 300 days in the last 5 years of NASDAQ 100 Strategy, we see it is relatively lower, thus better in comparison to the benchmark SPY (439 days)
- Compared with SPY (439 days) in the period of the last 3 years, the maximum days under water of 300 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.'

Applying this definition to our asset in some examples:- Looking at the average days below previous high of 57 days in the last 5 years of NASDAQ 100 Strategy, we see it is relatively lower, thus better in comparison to the benchmark SPY (106 days)
- Looking at average days below previous high in of 76 days in the period of the last 3 years, we see it is relatively smaller, thus better in comparison to SPY (149 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.