- 09/26/2015 at 3:32 am #29702
Discussion board for the Nasdaq 100 Strategy.10/14/2015 at 4:47 pm #30115
I noticed that the “Annual Performance vs. SPY” bar chart at the top of the Nasdaq 100 page does not match the year end returns on the running month-to-month list below. It appears as if the bar chart at the top of the Nasdaq 100 page is actually the performance bar chart for the Top 4 World strategy. I thought I would point that out in case it went unnoticed. Thanks!10/14/2015 at 7:35 pm #30116
Thanks very much – missed that one, we will correct it.10/15/2015 at 1:36 pm #30130
The description says the strategy uses TMF, but in the backtest allocation results it shows TLT.10/15/2015 at 2:02 pm #30131
That is correct.
TMF has a limited history, so we created a simulated TMF by TLT * 3, used for the longer term backtesting. TLT *3 aligns closely to TMF. The actual signals will be in the form of TMF as it takes up less capital allocation. Does that make sense?
Scott10/15/2015 at 5:34 pm #30133
Makes sense Thank you. Are there any other factors to be aware of when making this substitution? What are the long term effects of holding TMF over 3x TLT? Also does TMF have a dividend? I assume the backtest results include the TLT returns with dividends.10/15/2015 at 5:52 pm #30134
I am glad you are thinking it through carefully.
We do use the dividend adjusted data in the calculations, and TMF generally reflects the impact of the dividends indirectly.
TMF is less liquid, and can trade with more slippage vs the targeted price execution. For those that are comfortable paying very careful attention to the trade execution (limit orders, paying close attention), TMF is generally worth it if you are conserving capital. Also, there can be some inefficiency of a 3X ETF capture over time relative to the underlying (you don’t get the full benefits of the 3X).
It is easier and you avoid the risk of unintended execution problems by using TLT instead.
In that case, you would put in extra funds into the treasury bucket. That is, if you were buying $5,000 of TMF, you would buy $15K of TLT to get the same effect.
I hope that helps.
Scott10/16/2015 at 3:23 pm #30154
Thank you Scott, that is helpful.
I do have another question about this strategy if that is okay. In your article detailing this strategy you said subscribers should keep in mind the fact that only the current list of Nasdaq 100 stocks were used. Survivorship bias is not the issue. The real concern is that the strongest candidates for a strategy like this would have been companies in the months and years just prior to inclusion in the index (perhaps this is also called survivorship bias?). It seems logical that companies just about to be included in the top 100 would very likely show the strongest momentum. These companies were growing rapidly, hence the reason they made it to the top 100.
Just one example: ADSK was included in the Nasdaq 100 on 12/20/2004 (according to historical data found on this site: http://www.nasdaq.com/indexshares/historical_data.stm). Your backtests show this strategy was invested in ADSK for 3 months in 2004.
I don’t know a lot about the Nasdaq 100, but I think they made less changes after 2011, so it is possible the most recent years are accurate. However, the strategy statistics (maxDD, CAGR, etc.) need to be thrown out since I’m sure there are at least a few other examples like the one I found.
Would it be so difficult to run your backtest with the current list of Nasdaq 100 stocks at the time of the scan? The data is not hard to find, it can be purchased here: http://marketcapitalizations.com/historical-data/historical-components-nasdaq/
I think this could be a very good strategy, but I would need to see more accurate backtesting to be sure this issue isn’t significantly affecting the results.
Thank you for taking the time to address my questions.10/16/2015 at 4:02 pm #30155
Your observations are approximately valid. The older years backtests will be less accurate and be directionally overstated.
The more recent data – like the latest year, will be more representative of the “edge”. I have worked with variations of these screening/rankings of momentum stocks related to the Nasdaq and S&P 100 for years out of sample in systems, and I have seen it hold up quite well. It is not likely to beat the market by +40% a year, but it will, over a cycle, beat the Nasdaq with a lower risk profile.
It is easy to look up the older lists of stocks. Operationally, managing the switching between the lists in the rebalancing within our engine has proven difficult, but it continues to be on our “to-do” lists. That is the reason we delayed for six months releasing this, to help ensure we did not overfit the structure.
Thanks for all of the digging; you are a good researcher :)
Scott10/24/2015 at 9:46 am #30233
Probably very obvious questions.
1) Right now you list 9/30/15 Entries for 9 positions all with the 10/24 Exit date (SIRI, EXPD, COST, ALTR, TLT @ 20 EACH… THEN PCLN, CHRW, ATVI, AMZN @ 0 EACH). Does this mean then you have sold the group with 0% allocations and still hold those with the 20% allocation in the list despite the 10/24/15 exit date listed? From the strategy signals overview it almost appears as those all the symbols have a sell signal based on the current date in the exit column. I am not sure how to interpret your signal list.
2) How often are we making changes to the positions in this model?
Thank you.10/24/2015 at 4:18 pm #30237
Let me start from the second question:
The model changes/adjusts positions at the beginning of the month, only.
The way we calculate the Nasdaq strategy signals is that first, we run the two sub-models. Each gives us 4 stocks + TLT. Then we run the META layer and allocate between the two sub-strategies. The way our software works, the sub-strategy that is NOT chosen gets zero allocation. Hence, we end up with 4 stock allocations above zero (say 20%) and four stock allocations that equal zero. The “zero allocation stocks”, are the choice stocks of the rejected model and should be ignored. So the way to read this is:
SIRI, EXPD, COST, ALTR, TLT @ 20 each.
I hope this helps.
Vangelis10/26/2015 at 12:05 pm #30264
Thank you. That helped.10/28/2015 at 7:58 pm #30304
When will the NASDAQ100 strategy be added to the Customer Portfolio Builder (Excel version)? I would like to evaluate performance/drawdown with different strategies and asset allocations.
Jeff10/29/2015 at 6:54 am #30306
We should be able to include it starting next month.10/29/2015 at 1:40 pm #30315
Scott, I will be anxious to see the results of your more accurate backtests for this strategy. While you are correct that the most recent months for are accurate I think the most egregious errors in your data are the outsized returns from NFLX and TSLA in first half of 2013 before they were included in the index in June and July 2013. Which just goes to illustrate my point that momentum is often strongest just prior to entering the index. 2013 would not have been 100+% returns without those 2 components.
Also, does this strategy use the most recent list of Nasdaq 100 stocks each month the scan is run? I ask because EA was included in the index Dec. 12, 2014 and a position was taken Dec. 31, 2014. Would this trade have been possible given the way you run the scan?
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