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, or increase in value of 130.6% in the last 5 years of NASDAQ 100 Strategy, we see it is relatively higher, thus better in comparison to the benchmark SPY (122%)
- During the last 3 years, the total return is 65.1%, which is larger, thus better than the value of 61% from the benchmark.

'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:- Looking at the annual return (CAGR) of 18.2% in the last 5 years of NASDAQ 100 Strategy, we see it is relatively greater, thus better in comparison to the benchmark SPY (17.3%)
- Compared with SPY (17.2%) in the period of the last 3 years, the annual return (CAGR) of 18.2% is greater, thus better.

'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.'

Using this definition on our asset we see for example:- The 30 days standard deviation over 5 years of NASDAQ 100 Strategy is 12.9%, which is smaller, thus better compared to the benchmark SPY (18.8%) in the same period.
- Compared with SPY (22.5%) in the period of the last 3 years, the volatility of 15.2% is smaller, thus better.

'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.'

Applying this definition to our asset in some examples:- Compared with the benchmark SPY (13.6%) in the period of the last 5 years, the downside volatility of 9% of NASDAQ 100 Strategy is lower, thus better.
- Compared with SPY (16.3%) in the period of the last 3 years, the downside risk of 10.8% is lower, thus better.

'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:- Looking at the Sharpe Ratio of 1.22 in the last 5 years of NASDAQ 100 Strategy, we see it is relatively higher, thus better in comparison to the benchmark SPY (0.79)
- During the last 3 years, the ratio of return and volatility (Sharpe) is 1.03, which is greater, thus better than the value of 0.65 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 (1.09) in the period of the last 5 years, the downside risk / excess return profile of 1.74 of NASDAQ 100 Strategy is greater, thus better.
- Looking at ratio of annual return and downside deviation in of 1.46 in the period of the last 3 years, we see it is relatively higher, thus better in comparison to SPY (0.9).

'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:- The Downside risk index over 5 years of NASDAQ 100 Strategy is 2.96 , which is lower, thus better compared to the benchmark SPY (5.58 ) in the same period.
- Compared with SPY (6.83 ) in the period of the last 3 years, the Ulcer Index of 3.62 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.'

Applying this definition to our asset in some examples:- Compared with the benchmark SPY (-33.7 days) in the period of the last 5 years, the maximum DrawDown of -21.1 days of NASDAQ 100 Strategy is larger, thus better.
- Compared with SPY (-33.7 days) in the period of the last 3 years, the maximum DrawDown of -21.1 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:- The maximum days below previous high over 5 years of NASDAQ 100 Strategy is 106 days, which is lower, thus better compared to the benchmark SPY (139 days) in the same period.
- During the last 3 years, the maximum days below previous high is 94 days, which is smaller, thus better than the value of 139 days from the benchmark.

'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.'

Applying this definition to our asset in some examples:- Looking at the average days below previous high of 26 days in the last 5 years of NASDAQ 100 Strategy, we see it is relatively lower, thus better in comparison to the benchmark SPY (33 days)
- Compared with SPY (34 days) in the period of the last 3 years, the average days below previous high of 26 days is lower, thus better.

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.