top of page

Nasdaq IFED-L Easily Clears the 3-Year Performance Hurdle While Handily Beating the Competition

Updated: Jun 30

Posted: June 26, 2023

June 9th, 2023 marks the three-year anniversary since the launch of the Nasdaq IFED US Large-Cap™️ Index (Nasdaq IFED-L). During its initial three years, the index produced a total return of 58.54% versus the S&P 500 return of 39.31%. In addition, over this period, the index outperformed the major factor and multifactor indexes as set out in Exhibit 1.

Exhibit 1: Nasdaq IFED-L Relative Performance Since Launch

Nasdaq IFED-L Description

Nasdaq IFED-L applies the IFED strategy, which gauges Federal Reserve monetary policy signals to classify the market environment via EIA’s proprietary IFED Market Indicator.[1] The IFED Indicator classifies market conditions into one of three environments: expansive, restrictive, or mixed. Due to the forward-looking nature of Fed policy moves, the identified classification reflects both prevailing and expected future market conditions.

The environment classification is then combined with 12 diverse firm-specific financial metrics to select a portfolio that is best positioned to prosper in the identified market environment. For Nasdaq IFED-L, the investment set is limited to U.S. large-cap equities. The IFED strategy transitions portfolio holdings to maintain an optimal alignment between portfolio composition and market environment, so that the strategy avoids going out-of-favor.

The three years from June 9, 2020 through June 8, 2023 represented a great proving ground for establishing the validity and effectiveness of the IFED strategy. This time-period included a diverse set of economic and monetary conditions that challenged the abilities of even the most skilled investment managers. During this period, major economic events included: the lingering effects of a global pandemic; the initiation of a major conflict between Russia and Ukraine; major global supply chain disruptions; a heightened inflationary environment; periods of widespread civil unrest; and the failure of several large regional banks, which spawned fears of a banking crisis. Furthermore, Fed policy ran the gamut, ranging from extremely accommodative during the early months of the period and shifting to very restrictive later in the period. The variety of market conditions during the period is supported by the variation in the CBOE Volatility Index (VIX), which ranged from a low of 14.10 to a high of 44.44. VIX represents a gauge of the level of investor uncertainty or fear.

Performance Since Launch

Despite the challenging conditions presented during Nasdaq IFED-L’s initial three years, the IFED strategy navigated the market turmoil with remarkable efficiency. Exhibit 2 plots the performance of Nasdaq IFED-L relative to the S&P 500 (its benchmark) during the period, with the market environments identified.

Exhibit 2: Nasdaq IFED-L Performance Since Launch

Exhibit 2 clearly demonstrates the superior performance produced by Nasdaq IFED-L during the period. As illustrated, the strategy produced exceptional cumulative outperformance ending with a cumulative index value of 158.54 versus 139.31 for the benchmark. In addition, the strategy consistently beat its benchmark except for a couple of short intervals.

The IFED strategy is a long-term investment approach that selects “quality” stocks that are optimally positioned to prosper in the prevailing market environment. Shifts in the market environment average about two per year, and with an environment shift, portfolio holdings adjust from stocks positioned for the prior environment to those matching the new environment. When normal patterns prevail, the IFED strategy excels; however, when unusual forces drive returns, the strategy limits underperformance.

During the period from June 9, 2020 through June 8, 2023, there were five changes in the market environment. The IFED Indicator classified approximately 11 months during the period as “expansive,” 15 months as “restrictive,” and 10 months as “mixed.” Exhibit 2 illustrates performance across each of the market environments over the three-year period.

Exhibit 2 demonstrates that the IFED strategy produced especially strong positive alpha during certain periods of time, which correspond with the normal return patterns that we observed in our research. When unusual factors disrupted normal return relationships, however, the strategy maintained its gains due to the quality stock holdings in the portfolio. Note that there was only one restrictive environment during the three-year period and that environment is ongoing. Two observations from our long-term research findings are relevant here: 1) historically, significant positive alphas were produced during all three market environments; and, 2) outperformance was distributed across market environments, occurring early, mid or late in an environment’s existence depending on the incidence of obscuring forces.

Performance Consistency Over Time

Exhibit 3 breaks down Nasdaq IFED-L’s performance into three consecutive 12-month subperiods i.e., the index’s first, second and third twelve-month periods after launch. To highlight the IFED strategy’s ability to avoid the out-of-favor trap that plagues static factor indexes, the table reports Nasdaq IFED-L’s performance relative to the S&P 500 and several S&P 500 factor indexes. Factor indexes and smart beta funds tend to perform well during some market conditions but poorly during others. In contrast, Nasdaq IFED-L is designed to avoid a boom-and-bust performance cycle by adjusting portfolio holdings as market conditions change.

Exhibit 3: Nasdaq IFED-L Performance Consistency Relative to Factor Indexes

The returns in Exhibit 3 support the general robustness of the IFED strategy as Nasdaq IFED-L was the second-best performer in the first two subperiods and only slightly underperformed the best performing indexes in the final 12-month subperiod. This pattern of outperformance is consistent with the strategy’s design as the model selects “quality” stocks that are deemed to be best positioned to prosper in the prevailing market environment. Therefore, when unexpected events, such as a pandemic or banking crisis, arise, the strategy minimizes underperformance since it is not over-weighted to speculative stocks that are most sensitive to shifting market conditions. Supporting this contention, over the three years, the beta for Nasdaq IFED-L was only 0.88.

In contrast to Nasdaq IFED-L’s consistent performance, the High Beta index is by far the best performer in the first subperiod and by far the worst performer in the second. Also, noteworthy is that the Multi-Factor index is the best performer in the second subperiod but is the worst performer in the other two. These wide performance fluctuations are indicative of static strategies that highlight specific return drivers, whereas the IFED strategy rebalances to promote particular return drivers at opportune times.

Long-Term Performance

The prior exhibits demonstrate that Nasdaq IFED-L has performed admirably since its launch. Likewise, our research indicates that the three-year performance is not atypical of the index’s long-term performance. The Nasdaq IFED-L, and other IFED indexes, have outperformed their benchmarks consistently over the long term. Exhibit 4 reports performance of Nasdaq IFED-L relative to its benchmark over the period since 1999.

Exhibit 4: Nasdaq IFED-L Long-Term Performance Relative to Live Performance

The table and graph contained in Exhibit 4 confirm the consistency of Nasdaq IFED-L’s performance over its long-term backtested history as well as its live period. Nasdaq IFED-L produced solid returns of similar size in both the full and post-launch periods (14.42% and 16.60% annualized), whereas the market return was somewhat higher than its average during the post-launch period (7.18% vs. 11.68% annualized). Thus, relative to the S&P 500, Nasdaq IFED-L’s returns were more consistent across the two timeframes and the index produced sizable, positive alphas in each (7.24% and 4.92% annualized).

Nasdaq IFED-L Risk Characteristics

The data reported above strongly supports the superiority of the IFED strategy relative to alternative approaches in producing a significant level of outperformance. Investors, however, are also very concerned about risk. In particular, the prospects of significantly underperforming the broad market sits at the top of most investors’ concerns. Exhibit 5 and 6 address these concerns by highlighting statistics regarding the IFED strategy’s susceptibility to underperformance.

Exhibit 5: Nasdaq IFED-L Upside and Downside Capture Ratios, Full and Post-Launch Periods

*The upside and downside capture ratios are derived based on quarterly returns through March 2023.

Nasdaq IFED-L reports admirable values for the upside and downside capture in both the full and post-launch periods. Unlike value preservation strategies that require investors to sacrifice alpha to avoid underperforming, the ratios suggest that the IFED strategy can capture significant market upside, while limiting downside risk exposure. This observation corresponds with the strategy’s design, which adjusts portfolio composition to avoid stock holdings that have become out-of-favor.

Exhibit 6: Percentage of Time Nasdaq IFED-L Outperformed the S&P 500

* The rolling returns are derived based on the period ending March 31, 2023.

Exhibit 6 promotes EIA’s assertion that the IFED strategy is a long-term investment approach. Specifically, as investor holding period increases, the strategy has shown more consistency in outperformance. In other words, the rolling data supports the claim that for investors in the IFED strategy, the probability of underperforming diminishes as investor holding period increases.

Wrapping It Up

The IFED strategy is underpinned by 30+ years of peer-reviewed research[2] as referenced on EIA’s website. The June 9, 2020 through June 8, 2023 live period provides further evidence supporting the efficacy of the IFED investment strategy - a dynamic approach that selects portfolios positioned to prosper in the market environment signaled by Federal Reserve actions. Now that Nasdaq IFED-L has logged 36 months of superior average performance data, investors can be more confident regarding the strategy’s ability to produce positive alpha.

Clearing the three-year performance hurdle represents a major step in establishing the credibility of the IFED strategy. Since the launch of Nasdaq IFED-L, EIA launched the Nasdaq IFED-LV ™️ index (Nasdaq IFED US Large-Cap Low Volatility Index) on July 19, 2022. As with Nasdaq IFED-L, the new index handily beat its benchmark since launch as set out in Exhibit 7. We look forward to working with Nasdaq to offer several more indexes that apply the IFED strategy in the near future.

Exhibit 7: Nasdaq IFED-LV Performance Since Launch


Nasdaq® is a registered trademark of Nasdaq, Inc. The information contained above is provided for informational and educational purposes only, and nothing contained herein should be construed as investment advice, either on behalf of a particular security or an overall investment strategy. Neither Nasdaq, Inc. nor any of its affiliates makes any recommendation to buy or sell any security or any representation about the financial condition of any company. Statements regarding Nasdaq-listed companies or Nasdaq proprietary indexes are not guarantees of future performance. Actual results may differ materially from those expressed or implied. Past performance is not indicative of future results. Investors should undertake their own due diligence and carefully evaluate companies before investing. ADVICE FROM A SECURITIES PROFESSIONAL IS STRONGLY ADVISED.

© 2023. Nasdaq, Inc. All Rights Reserved.


[1] Nasdaq IFED-L represents EIA’s first index that was customized for licensees. EIA also maintains several non-customized IFED indexes. The performance and characteristics of these IFED indexes can be viewed on EIA’s website.

[2] EIA’s proprietary monetary indicator has been applied by EIA’s founders and others in academic research since the 1990’s. The coefficients on the 12 metrics used in the IFED Model were devised using the research findings of EIA’s founders and have been consistently applied to all IFED Indexes since EIA’s inaugural White Paper was published in June 2018. EIA’s White Paper used monthly data from 1979 to 2017.

bottom of page