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 (36.8%) in the period of the last 5 years, the total return, or increase in value of 111.3% of NASDAQ 100 Strategy is greater, thus better.
- Looking at total return, or increase in value in of 64% in the period of the last 3 years, we see it is relatively higher, thus better in comparison to SPY (15.6%).

'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 performance (CAGR) over 5 years of NASDAQ 100 Strategy is 16.1%, which is larger, thus better compared to the benchmark SPY (6.5%) in the same period.
- Compared with SPY (5%) in the period of the last 3 years, the annual return (CAGR) of 17.9% is higher, thus better.

'Volatility is a statistical measure of the dispersion of returns for a given security or market index. Volatility can either be measured by using the standard deviation or variance between returns from that same security or market index. Commonly, the higher the volatility, the riskier the security. In the securities markets, volatility is often associated with big swings in either direction. For example, when the stock market rises and falls more than one percent over a sustained period of time, it is called a 'volatile' market.'

Using this definition on our asset we see for example:- Looking at the historical 30 days volatility of 10.9% in the last 5 years of NASDAQ 100 Strategy, we see it is relatively lower, thus better in comparison to the benchmark SPY (17.8%)
- Looking at 30 days standard deviation in of 12.4% in the period of the last 3 years, we see it is relatively lower, thus better in comparison to SPY (20.1%).

'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:- Looking at the downside volatility of 7.6% in the last 5 years of NASDAQ 100 Strategy, we see it is relatively lower, thus better in comparison to the benchmark SPY (13.2%)
- Compared with SPY (15.1%) in the period of the last 3 years, the downside volatility of 8.8% 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.'

Applying this definition to our asset in some examples:- Compared with the benchmark SPY (0.22) in the period of the last 5 years, the risk / return profile (Sharpe) of 1.25 of NASDAQ 100 Strategy is higher, thus better.
- During the last 3 years, the Sharpe Ratio is 1.25, which is larger, thus better than the value of 0.12 from the benchmark.

'The Sortino ratio, a variation of the Sharpe ratio only factors in the downside, or negative volatility, rather than the total volatility used in calculating the Sharpe ratio. The theory behind the Sortino variation is that upside volatility is a plus for the investment, and it, therefore, should not be included in the risk calculation. Therefore, the Sortino ratio takes upside volatility out of the equation and uses only the downside standard deviation in its calculation instead of the total standard deviation that is used in calculating the Sharpe ratio.'

Which means for our asset as example:- Compared with the benchmark SPY (0.3) in the period of the last 5 years, the excess return divided by the downside deviation of 1.79 of NASDAQ 100 Strategy is higher, thus better.
- Looking at excess return divided by the downside deviation in of 1.75 in the period of the last 3 years, we see it is relatively greater, thus better in comparison to SPY (0.16).

'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.'

Applying this definition to our asset in some examples:- The Ulcer Ratio over 5 years of NASDAQ 100 Strategy is 2.53 , which is lower, thus better compared to the benchmark SPY (5.02 ) in the same period.
- During the last 3 years, the Ulcer Ratio is 2.73 , which is lower, thus better than the value of 5.71 from the benchmark.

'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:- Looking at the maximum drop from peak to valley of -20.8 days in the last 5 years of NASDAQ 100 Strategy, we see it is relatively greater, thus better in comparison to the benchmark SPY (-33.7 days)
- Looking at maximum reduction from previous high in of -20.8 days in the period of the last 3 years, we see it is relatively higher, thus better in comparison to SPY (-33.7 days).

'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.'

Which means for our asset as example:- Compared with the benchmark SPY (187 days) in the period of the last 5 years, the maximum days under water of 93 days of NASDAQ 100 Strategy is smaller, thus better.
- Compared with SPY (139 days) in the period of the last 3 years, the maximum days under water of 93 days is lower, thus better.

'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:- The average days below previous high over 5 years of NASDAQ 100 Strategy is 24 days, which is lower, thus better compared to the benchmark SPY (41 days) in the same period.
- Compared with SPY (36 days) in the period of the last 3 years, the average days under water of 21 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.