Description of Margaritaville Portfolio

The Margaritaville portfolio was proposed by Scott Burns, a popular Dallas Morning News financial columnist. It consists of one part total stock index, one part international stock index, and one part inflation-protected Treasury securities.

Statistics of Margaritaville Portfolio (YTD)

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

TotalReturn:

'Total return is the amount of value an investor earns from a security over a specific period, typically one year, when all distributions are reinvested. Total return is expressed as a percentage of the amount invested. For example, a total return of 20% means the security increased by 20% of its original value due to a price increase, distribution of dividends (if a stock), coupons (if a bond) or capital gains (if a fund). Total return is a strong measure of an investment’s overall performance.'

Which means for our asset as example:
  • The total return over 5 years of Margaritaville Portfolio is 26.9%, which is lower, thus worse compared to the benchmark SPY (66.1%) in the same period.
  • During the last 3 years, the total return, or increase in value is 25.6%, which is lower, thus worse than the value of 46.2% from the benchmark.

CAGR:

'Compound annual growth rate (CAGR) is a business and investing specific term for the geometric progression ratio that provides a constant rate of return over the time period. CAGR is not an accounting term, but it is often used to describe some element of the business, for example revenue, units delivered, registered users, etc. CAGR dampens the effect of volatility of periodic returns that can render arithmetic means irrelevant. It is particularly useful to compare growth rates from various data sets of common domain such as revenue growth of companies in the same industry.'

Which means for our asset as example:
  • Looking at the compounded annual growth rate (CAGR) of 4.9% in the last 5 years of Margaritaville Portfolio, we see it is relatively smaller, thus worse in comparison to the benchmark SPY (10.7%)
  • Compared with SPY (13.5%) in the period of the last 3 years, the compounded annual growth rate (CAGR) of 7.9% is smaller, thus worse.

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.'

Applying this definition to our asset in some examples:
  • Compared with the benchmark SPY (13.4%) in the period of the last 5 years, the 30 days standard deviation of 8.4% of Margaritaville Portfolio is smaller, thus better.
  • Looking at historical 30 days volatility in of 7.5% in the period of the last 3 years, we see it is relatively lower, thus better in comparison to SPY (12.3%).

DownVol:

'The downside volatility is similar to the volatility, or standard deviation, but only takes losing/negative periods into account.'

Applying this definition to our asset in some examples:
  • Compared with the benchmark SPY (14.6%) in the period of the last 5 years, the downside volatility of 9.2% of Margaritaville Portfolio is smaller, thus better.
  • Compared with SPY (13.9%) in the period of the last 3 years, the downside deviation of 8.4% is lower, thus better.

Sharpe:

'The Sharpe ratio (also known as the Sharpe index, the Sharpe measure, and the reward-to-variability ratio) is a way to examine the performance of an investment by adjusting for its risk. The ratio measures the excess return (or risk premium) per unit of deviation in an investment asset or a trading strategy, typically referred to as risk, named after William F. Sharpe.'

Applying this definition to our asset in some examples:
  • Looking at the Sharpe Ratio of 0.28 in the last 5 years of Margaritaville Portfolio, we see it is relatively smaller, thus worse in comparison to the benchmark SPY (0.61)
  • Compared with SPY (0.9) in the period of the last 3 years, the Sharpe Ratio of 0.72 is lower, thus worse.

Sortino:

'The Sortino ratio measures the risk-adjusted return of an investment asset, portfolio, or strategy. It is a modification of the Sharpe ratio but penalizes only those returns falling below a user-specified target or required rate of return, while the Sharpe ratio penalizes both upside and downside volatility equally. Though both ratios measure an investment's risk-adjusted return, they do so in significantly different ways that will frequently lead to differing conclusions as to the true nature of the investment's return-generating efficiency. The Sortino ratio is used as a way to compare the risk-adjusted performance of programs with differing risk and return profiles. In general, risk-adjusted returns seek to normalize the risk across programs and then see which has the higher return unit per risk.'

Using this definition on our asset we see for example:
  • The downside risk / excess return profile over 5 years of Margaritaville Portfolio is 0.26, which is lower, thus worse compared to the benchmark SPY (0.56) in the same period.
  • During the last 3 years, the ratio of annual return and downside deviation is 0.65, which is lower, thus worse than the value of 0.8 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.'

Which means for our asset as example:
  • Looking at the Ulcer Index of 4.4 in the last 5 years of Margaritaville Portfolio, we see it is relatively greater, thus worse in comparison to the benchmark SPY (3.99 )
  • Compared with SPY (4.04 ) in the period of the last 3 years, the Ulcer Ratio of 3.65 is lower, thus better.

MaxDD:

'Maximum drawdown is defined as the peak-to-trough decline of an investment during a specific period. It is usually quoted as a percentage of the peak value. The maximum drawdown can be calculated based on absolute returns, in order to identify strategies that suffer less during market downturns, such as low-volatility strategies. However, the maximum drawdown can also be calculated based on returns relative to a benchmark index, for identifying strategies that show steady outperformance over time.'

Which means for our asset as example:
  • Looking at the maximum DrawDown of -14 days in the last 5 years of Margaritaville Portfolio, we see it is relatively larger, thus better in comparison to the benchmark SPY (-19.3 days)
  • Looking at maximum drop from peak to valley in of -14 days in the period of the last 3 years, we see it is relatively larger, thus better in comparison to SPY (-19.3 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:
  • The maximum days below previous high over 5 years of Margaritaville Portfolio is 350 days, which is larger, thus worse compared to the benchmark SPY (187 days) in the same period.
  • During the last 3 years, the maximum days under water is 350 days, which is larger, thus worse than the value of 139 days from the benchmark.

AveDuration:

'The Drawdown Duration is the length of any peak to peak period, or the time between new equity highs. 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:
  • The average days under water over 5 years of Margaritaville Portfolio is 115 days, which is higher, thus worse compared to the benchmark SPY (41 days) in the same period.
  • Looking at average time in days below previous high water mark in of 101 days in the period of the last 3 years, we see it is relatively greater, thus worse in comparison to SPY (36 days).

Performance of Margaritaville Portfolio (YTD)

Historical returns have been extended using synthetic data.

Allocations of Margaritaville Portfolio
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Allocations

Returns of Margaritaville Portfolio (%)

  • "Year" returns in the table above are not equal to the sum of monthly returns due to compounding.
  • Performance results of Margaritaville Portfolio 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.