Description

The Dow 30 strategy is a good way to invest in the best of the Dow 30 blue chips while avoiding the old fashioned underperforming members of the Dow 30 index.

The strategy uses a risk-adjusted momentum algorithm to choose the top four Dow 30 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 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. 

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Statistics (YTD)

What do these metrics mean? [Read More] [Hide]

TotalReturn:

'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.'

Using this definition on our asset we see for example:
  • Looking at the total return, or increase in value of 98.2% in the last 5 years of Dow 30 Strategy, we see it is relatively higher, thus better in comparison to the benchmark DIA (82.4%)
  • Compared with DIA (52%) in the period of the last 3 years, the total return of 55.5% is greater, thus better.

CAGR:

'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.'

Applying this definition to our asset in some examples:
  • The annual return (CAGR) over 5 years of Dow 30 Strategy is 14.7%, which is larger, thus better compared to the benchmark DIA (12.8%) in the same period.
  • During the last 3 years, the compounded annual growth rate (CAGR) is 15.9%, which is higher, thus better than the value of 15% from the benchmark.

Volatility:

'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 (13.4%) in the period of the last 5 years, the volatility of 6.3% of Dow 30 Strategy is lower, thus better.
  • Compared with DIA (13.4%) in the period of the last 3 years, the historical 30 days volatility of 6.2% is smaller, thus better.

DownVol:

'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.'

Using this definition on our asset we see for example:
  • The downside volatility over 5 years of Dow 30 Strategy is 4.2%, which is lower, thus better compared to the benchmark DIA (9.7%) in the same period.
  • During the last 3 years, the downside deviation is 4.3%, which is lower, thus better than the value of 9.7% from the benchmark.

Sharpe:

'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.'

Using this definition on our asset we see for example:
  • Looking at the ratio of return and volatility (Sharpe) of 1.94 in the last 5 years of Dow 30 Strategy, we see it is relatively higher, thus better in comparison to the benchmark DIA (0.77)
  • Looking at ratio of return and volatility (Sharpe) in of 2.15 in the period of the last 3 years, we see it is relatively higher, thus better in comparison to DIA (0.94).

Sortino:

'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.'

Using this definition on our asset we see for example:
  • Compared with the benchmark DIA (1.07) in the period of the last 5 years, the ratio of annual return and downside deviation of 2.88 of Dow 30 Strategy is larger, thus better.
  • During the last 3 years, the excess return divided by the downside deviation is 3.11, which is larger, thus better than the value of 1.29 from the benchmark.

Ulcer:

'The Ulcer Index is a technical indicator that measures downside risk, in terms of both the depth and duration of price declines. The index increases in value as the price moves farther away from a recent high and falls as the price rises to new highs. The indicator is usually calculated over a 14-day period, with the Ulcer Index showing the percentage drawdown a trader can expect from the high over that period. The greater the value of the Ulcer Index, the longer it takes for a stock to get back to the former high.'

Applying this definition to our asset in some examples:
  • Looking at the Ulcer Ratio of 1.49 in the last 5 years of Dow 30 Strategy, we see it is relatively lower, thus better in comparison to the benchmark DIA (4.24 )
  • Looking at Downside risk index in of 1.31 in the period of the last 3 years, we see it is relatively lower, thus better in comparison to DIA (4.24 ).

MaxDD:

'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 reduction from previous high of -6.7 days in the last 5 years of Dow 30 Strategy, we see it is relatively higher, thus better in comparison to the benchmark DIA (-18.1 days)
  • During the last 3 years, the maximum drop from peak to valley is -6.7 days, which is larger, thus better than the value of -18.1 days from the benchmark.

MaxDuration:

'The Maximum 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. It is the length of time the account was in the Max Drawdown. A Max Drawdown measures a retrenchment from when an equity curve reaches a new high. It’s the maximum an account lost during that retrenchment. This method is applied because a valley can’t be measured until a new high occurs. Once the new high is reached, the percentage change from the old high to the bottom of the largest trough is recorded.'

Which means for our asset as example:
  • The maximum days below previous high over 5 years of Dow 30 Strategy is 149 days, which is lower, thus better compared to the benchmark DIA (227 days) in the same period.
  • Looking at maximum days under water 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).

AveDuration:

'The Drawdown Duration is the length of any peak to peak period, or the time between new equity highs. 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.'

Which means for our asset as example:
  • The average days under water over 5 years of Dow 30 Strategy is 27 days, which is lower, thus better compared to the benchmark DIA (54 days) in the same period.
  • Compared with DIA (45 days) in the period of the last 3 years, the average days below previous high of 20 days is lower, thus better.

Performance (YTD)

Historical returns have been extended using synthetic data.

Allocations
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Allocations

Returns (%)

  • Note that yearly returns do not equal 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.