Description

This portfolio has been optimized for achieving the highest possible return while limiting the maximum Drawdown, that is the highest drop from peak to valley over the analyzed period, to 15%. As a reference, the maximum experienced drawdown of the iShares 20+ Year Treasury Bond ETF (TLT) over the same period has been 27%, while the SPDR S&P 500 (SPY) experienced a drop of 55%.

As such it is a aggressive Portfolio suited for investors with a higher risk tolerance and aggressive growth expectations.

Please note that the Maximum DrawDown refers to a single event, for analyzing the risk of losses you should also consider other related metrics like the maximum and average duration and the Ulcer Ratio. A more reliable measure for the downside risk of an asset over a period of time is the Downside Deviation or Volatility.

Please note that this portfolio might use leveraged ETF and single stocks. Should these not be allowed in your retirement account please see our 401k and IRS compatible Conservative, Moderate, and Aggressive Risk Portfolios. Contact us for special requirements.

Methodology & Assets
This portfolio is constructed by our proprietary optimization algorithm based on Modern Portfolio Theory pioneered by Nobel Laureate Harry Markowitz. Using historical returns, the algorithm finds the asset allocation that produced the highest return with maximum drawdown less than 15%.

While this portfolio provides an optimized asset allocation based on historical returns, your investment objectives, risk profile and personal experience are important factors when deciding on the best investment vehicle for yourself. You can also use the Portfolio Builder or Portfolio Optimizer to construct your own personalized portfolio.

Assets and weight constraints used in the optimizer process:
  • Bond ETF Rotation Strategy (BRS) (0% to 100%)
  • BUG Permanent Portfolio Strategy (BUG) (0% to 100%)
  • Leveraged Gold-Currency Strategy (GLD-USD) (0% to 100%)
  • Global Market Rotation Strategy (GMRS) (0% to 100%)
  • Global Sector Rotation Strategy (GSRS) (0% to 100%)
  • Maximum Yield Strategy (MYRS) (0% to 100%)
  • Universal Investment Strategy (UIS) (0% to 100%)
  • Universal Investment Strategy 2x Leverage (UISx2) (0% to 100%)
  • US Market Strategy (USMarket) (0% to 100%)
  • US Market Strategy 2x Leverage (USMx2) (0% to 100%)
  • US Sector Rotation Strategy (USSECT) (0% to 100%)
  • World Top 4 Strategy (WTOP4) (0% to 100%)

Statistics (YTD)

What do these metrics mean? [Read More] [Hide]

TotalReturn:

'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.'

Applying this definition to our asset in some examples:
  • Compared with the benchmark SPY (122.1%) in the period of the last 5 years, the total return of 116.6% of Max Drawdown less than 15% is lower, thus worse.
  • Compared with SPY (43.5%) in the period of the last 3 years, the total return, or increase in value of 37.8% is lower, thus worse.

CAGR:

'The compound annual growth rate isn't a true return rate, but rather a representational figure. It is essentially a number that describes the rate at which an investment would have grown if it had grown the same rate every year and the profits were reinvested at the end of each year. In reality, this sort of performance is unlikely. However, CAGR can be used to smooth returns so that they may be more easily understood when compared to alternative investments.'

Using this definition on our asset we see for example:
  • Compared with the benchmark SPY (17.3%) in the period of the last 5 years, the annual performance (CAGR) of 16.7% of Max Drawdown less than 15% is lower, thus worse.
  • During the last 3 years, the annual return (CAGR) is 11.3%, which is lower, thus worse than the value of 12.8% from the benchmark.

Volatility:

'Volatility is a rate at which the price of a security increases or decreases for a given set of returns. Volatility is measured by calculating the standard deviation of the annualized returns over a given period of time. It shows the range to which the price of a security may increase or decrease. Volatility measures the risk of a security. It is used in option pricing formula to gauge the fluctuations in the returns of the underlying assets. Volatility indicates the pricing behavior of the security and helps estimate the fluctuations that may happen in a short period of time.'

Using this definition on our asset we see for example:
  • Compared with the benchmark SPY (18.8%) in the period of the last 5 years, the historical 30 days volatility of 10.2% of Max Drawdown less than 15% is lower, thus better.
  • Compared with SPY (22.9%) in the period of the last 3 years, the historical 30 days volatility of 10.9% is smaller, thus better.

DownVol:

'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.'

Which means for our asset as example:
  • Compared with the benchmark SPY (13.6%) in the period of the last 5 years, the downside volatility of 7.1% of Max Drawdown less than 15% is lower, thus better.
  • Looking at downside risk in of 8% in the period of the last 3 years, we see it is relatively smaller, thus better in comparison to SPY (16.8%).

Sharpe:

'The Sharpe ratio was developed by Nobel laureate William F. Sharpe, and is used to help investors understand the return of an investment compared to its risk. The ratio is the average return earned in excess of the risk-free rate per unit of volatility or total risk. Subtracting the risk-free rate from the mean return allows an investor to better isolate the profits associated with risk-taking activities. One intuition of this calculation is that a portfolio engaging in 'zero risk' investments, such as the purchase of U.S. Treasury bills (for which the expected return is the risk-free rate), has a Sharpe ratio of exactly zero. Generally, the greater the value of the Sharpe ratio, the more attractive the risk-adjusted return.'

Applying this definition to our asset in some examples:
  • Compared with the benchmark SPY (0.79) in the period of the last 5 years, the ratio of return and volatility (Sharpe) of 1.39 of Max Drawdown less than 15% is higher, thus better.
  • During the last 3 years, the ratio of return and volatility (Sharpe) is 0.81, which is greater, thus better than the value of 0.45 from the benchmark.

Sortino:

'The Sortino ratio improves upon the Sharpe ratio by isolating downside volatility from total volatility by dividing excess return by the downside deviation. The Sortino ratio is a variation of the Sharpe ratio that differentiates harmful volatility from total overall volatility by using the asset's standard deviation of negative asset returns, called downside deviation. The Sortino ratio takes the asset's return and subtracts the risk-free rate, and then divides that amount by the asset's downside deviation. The ratio was named after Frank A. Sortino.'

Using this definition on our asset we see for example:
  • Compared with the benchmark SPY (1.09) in the period of the last 5 years, the ratio of annual return and downside deviation of 2 of Max Drawdown less than 15% is greater, thus better.
  • During the last 3 years, the downside risk / excess return profile is 1.1, which is larger, thus better than the value of 0.61 from the benchmark.

Ulcer:

'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:
  • Compared with the benchmark SPY (5.59 ) in the period of the last 5 years, the Downside risk index of 3.54 of Max Drawdown less than 15% is lower, thus better.
  • Looking at Downside risk index in of 4.1 in the period of the last 3 years, we see it is relatively smaller, thus better in comparison to SPY (7.15 ).

MaxDD:

'Maximum drawdown measures the loss in any losing period during a fund’s investment record. It is defined as the percent retrenchment from a fund’s peak value to the fund’s valley value. The drawdown is in effect from the time the fund’s retrenchment begins until a new fund high is reached. The maximum drawdown encompasses both the period from the fund’s peak to the fund’s valley (length), and the time from the fund’s valley to a new fund high (recovery). It measures the largest percentage drawdown that has occurred in any fund’s data record.'

Which means for our asset as example:
  • Looking at the maximum DrawDown of -14.4 days in the last 5 years of Max Drawdown less than 15%, we see it is relatively higher, thus better in comparison to the benchmark SPY (-33.7 days)
  • Looking at maximum DrawDown in of -14.4 days in the period of the last 3 years, we see it is relatively larger, thus better in comparison to SPY (-33.7 days).

MaxDuration:

'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.'

Using this definition on our asset we see for example:
  • Compared with the benchmark SPY (139 days) in the period of the last 5 years, the maximum days below previous high of 253 days of Max Drawdown less than 15% is higher, thus worse.
  • Compared with SPY (139 days) in the period of the last 3 years, the maximum time in days below previous high water mark of 253 days is larger, thus worse.

AveDuration:

'The Average Drawdown Duration is an extension of the Maximum Drawdown. However, this metric does not explain the drawdown in dollars or percentages, rather in days, weeks, or months. 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:
  • Compared with the benchmark SPY (33 days) in the period of the last 5 years, the average days under water of 50 days of Max Drawdown less than 15% is greater, thus worse.
  • Looking at average days below previous high in of 66 days in the period of the last 3 years, we see it is relatively greater, thus worse in comparison to SPY (45 days).

Performance (YTD)

Historical returns have been extended using synthetic data.

Allocations
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Allocations

Returns (%)

  • Note that yearly returns do not equal the sum of monthly returns due to compounding.
  • Performance results of Max Drawdown less than 15% 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.