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 is the amount of value an investor earns from a security over a specific period, typically one year, when all distributions are reinvested. Total return is expressed as a percentage of the amount invested. For example, a total return of 20% means the security increased by 20% of its original value due to a price increase, distribution of dividends (if a stock), coupons (if a bond) or capital gains (if a fund). Total return is a strong measure of an investment’s overall performance.'

Using this definition on our asset we see for example:- Looking at the total return of 445.1% in the last 5 years of NASDAQ 100 Strategy, we see it is relatively higher, thus better in comparison to the benchmark SPY (101.5%)
- Compared with SPY (29.7%) in the period of the last 3 years, the total return, or performance of 62.5% is greater, thus better.

'The compound annual growth rate isn't a true return rate, but rather a representational figure. It is essentially a number that describes the rate at which an investment would have grown if it had grown the same rate every year and the profits were reinvested at the end of each year. In reality, this sort of performance is unlikely. However, CAGR can be used to smooth returns so that they may be more easily understood when compared to alternative investments.'

Which means for our asset as example:- The annual return (CAGR) over 5 years of NASDAQ 100 Strategy is 40.5%, which is greater, thus better compared to the benchmark SPY (15.1%) in the same period.
- Looking at annual performance (CAGR) in of 17.6% in the period of the last 3 years, we see it is relatively greater, thus better in comparison to SPY (9.1%).

'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.'

Applying this definition to our asset in some examples:- The historical 30 days volatility over 5 years of NASDAQ 100 Strategy is 19.2%, which is lower, thus better compared to the benchmark SPY (20.9%) in the same period.
- Looking at historical 30 days volatility in of 15.6% in the period of the last 3 years, we see it is relatively lower, thus better in comparison to SPY (17.6%).

'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.'

Using this definition on our asset we see for example:- Compared with the benchmark SPY (14.9%) in the period of the last 5 years, the downside volatility of 12.1% of NASDAQ 100 Strategy is lower, thus better.
- Compared with SPY (12.3%) in the period of the last 3 years, the downside deviation of 9.8% is lower, thus better.

'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.'

Using this definition on our asset we see for example:- Compared with the benchmark SPY (0.6) in the period of the last 5 years, the Sharpe Ratio of 1.98 of NASDAQ 100 Strategy is higher, thus better.
- During the last 3 years, the risk / return profile (Sharpe) is 0.97, which is greater, thus better than the value of 0.37 from the benchmark.

'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:- The downside risk / excess return profile over 5 years of NASDAQ 100 Strategy is 3.14, which is greater, thus better compared to the benchmark SPY (0.84) in the same period.
- Looking at ratio of annual return and downside deviation in of 1.55 in the period of the last 3 years, we see it is relatively greater, thus better in comparison to SPY (0.53).

'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.'

Using this definition on our asset we see for example:- Compared with the benchmark SPY (9.32 ) in the period of the last 5 years, the Ulcer Ratio of 4.28 of NASDAQ 100 Strategy is smaller, thus better.
- Compared with SPY (10 ) in the period of the last 3 years, the Ulcer Index of 4.1 is lower, thus better.

'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 drop from peak to valley over 5 years of NASDAQ 100 Strategy is -19.7 days, which is greater, thus better compared to the benchmark SPY (-33.7 days) in the same period.
- During the last 3 years, the maximum DrawDown is -11.2 days, which is larger, thus better than the value of -24.5 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) in days.'

Applying this definition to our asset in some examples:- Looking at the maximum days below previous high of 197 days in the last 5 years of NASDAQ 100 Strategy, we see it is relatively lower, thus better in comparison to the benchmark SPY (488 days)
- Compared with SPY (488 days) in the period of the last 3 years, the maximum time in days below previous high water mark of 197 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:- Compared with the benchmark SPY (123 days) in the period of the last 5 years, the average days below previous high of 37 days of NASDAQ 100 Strategy is lower, thus better.
- During the last 3 years, the average days under water is 49 days, which is lower, thus better than the value of 177 days from the benchmark.

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 and do not account for slippage, fees or taxes.
- Results may be based on backtesting, which has many inherent limitations, some of which are described in our Terms of Use.