In our first article, we listed low cost exchange traded funds that could be utilized by the Market Map models during equity allocation periods, one of those ETF's being the Powershares QQQ Trust ETF (NASDAQ:QQQ). As we continue our search for alpha, in this article, we input data for a smaller cap stock universe into the Market Map model by utilizing the Nasdaq 100 index (NDX); the underlying proxy for the QQQ. Additionally, in order to achieve more robust testing, we also employ the Nasdaq Composite index from 1962 through 1987 (as the NDX historical price history starts in 1985).
Going forward, in order to avoid redundancy in presenting historical entry and exit data output from the Market Map models #1 and #2, we will only present the applicable statistics tables. Readers can reference the data for MMap models' historical entry and exit tables in the previous articles here and here*.
1962 - 2013 Statistics:
* Market Map model 2 uses allocation towards Long Bond ETF
2000 - 2013 Statistics:
So far, predictably, smaller cap growth stocks provide the best compound returns using our model with Sharpe ratios equal to those using the S&P500, albeit with more volatility and slightly higher max drawdown.
In our next article, we will implement a Fama and French value portfolio into the Market Map model.
Disclosure: I am long QQQ. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.