Dynamic Technology Strategy
This aggressive global momentum investment strategy is designed to invest funds in U.S. based investments including the S&P 500 index, and NASDAQ 100 index (QQQ) heavily weighted in U.S. based technology companies, or internationally in developed foreign markets and emerging markets. This is a particularly aggressive strategy in that it invests all of the funds each month in the top performing index fund.
The strategy will switch to the safety of government bonds when performance of equity markets slows down.
The chart below is the back-tested performance of the Dynamic Technology Strategy since 1994 (over 25 years) compared to the Vanguard Balanced Fund (VBINX) which holds 60% stocks and 40% bonds.
How does the strategy work?
The Dynamic Technology Strategy invests all of its holdings in one of the indexes below that have the strongest recent performance. The strategy will recommend 100% of funds be held in the strongest performing index when price momentum is strong.
- S&P 500 index.
- NASDAQ 100 index heavily weighted in technology sector.
- MCSI EAFE (Europe, Australasia and Far East) Developed Markets index.
- Emerging Markets index.
As momentum slows down, it will switch from holding 100% of the portfolio in equity funds, to holding 50% equities, 50% bonds. When momentum turns negative, it will switch to 100% bond funds.
Like all of our strategies, this strategy is designed to move from risky assets (stock indexes) to safety assets (bond indexes) when the broader indexes show weakness in recent performance. The intermediate-term government bond index (IEF) is used as a source of safety funds.
| Asset class | Holding | Description |
|---|---|---|
| U.S. Large Cap | SPY | SPDR S&P 500 ETF Trust |
| Developed Foreign Markets | EFA | iShares MSCI EAFE Index Fund |
| Emerging Markets | EEM | SPDR S&P 500 ETF Trust |
| U.S. Technology | QQQ | PowerShares QQQ Trust |
| Government Bonds | IEF | iShares Barclays 7-10 Year Treasury Bond Fund |
Strategy Metrics
| Metric | Strategy | Balanced portfolio |
|---|---|---|
| Annual Return (20 years) | 12.3% | 6.7% |
| Sharpe Ratio (20 years) | 0.84 | 0.68 |
| Max Drawdown | -13.3% | -32.6% |
| Drawdown Start / End dates | August 2021 to March 2023 | October 2007 to December 2010 |
| Max Drawdown length | 19 months | 38 months |