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.'

Using this definition on our asset we see for example:
  • Compared with the benchmark SPY (68.7%) in the period of the last 5 years, the total return of 26.9% of Margaritaville Portfolio is lower, thus worse.
  • During the last 3 years, the total return, or increase in value is 26%, which is lower, thus worse than the value of 47.9% from the benchmark.

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.'

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 (11%)
  • Looking at compounded annual growth rate (CAGR) in of 8% in the period of the last 3 years, we see it is relatively smaller, thus worse in comparison to SPY (14%).

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.'

Which means for our asset as example:
  • The historical 30 days volatility over 5 years of Margaritaville Portfolio is 8.4%, which is smaller, thus better compared to the benchmark SPY (13.3%) in the same period.
  • Looking at 30 days standard deviation in of 7.9% in the period of the last 3 years, we see it is relatively lower, thus better in comparison to SPY (12.5%).

DownVol:

'Downside risk is the financial risk associated with losses. That is, it is the risk of the actual return being below the expected return, or the uncertainty about the magnitude of that difference. 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:
  • The downside risk over 5 years of Margaritaville Portfolio is 9.2%, which is smaller, thus better compared to the benchmark SPY (14.6%) in the same period.
  • During the last 3 years, the downside risk is 9.1%, which is lower, thus better than the value of 14.2% from the benchmark.

Sharpe:

'The Sharpe ratio is the measure of risk-adjusted return of a financial portfolio. Sharpe ratio is a measure of excess portfolio return over the risk-free rate relative to its standard deviation. Normally, the 90-day Treasury bill rate is taken as the proxy for risk-free rate. A portfolio with a higher Sharpe ratio is considered superior relative to its peers. The measure was named after William F Sharpe, a Nobel laureate and professor of finance, emeritus at Stanford University.'

Applying this definition to our asset in some examples:
  • The ratio of return and volatility (Sharpe) over 5 years of Margaritaville Portfolio is 0.28, which is smaller, thus worse compared to the benchmark SPY (0.64) in the same period.
  • Compared with SPY (0.91) in the period of the last 3 years, the Sharpe Ratio of 0.7 is smaller, 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.'

Applying this definition to our asset in some examples:
  • Compared with the benchmark SPY (0.58) in the period of the last 5 years, the excess return divided by the downside deviation of 0.26 of Margaritaville Portfolio is lower, thus worse.
  • Looking at ratio of annual return and downside deviation in of 0.61 in the period of the last 3 years, we see it is relatively lower, thus worse in comparison to SPY (0.81).

Ulcer:

'The Ulcer Index is a technical indicator that measures downside risk, in terms of both the depth and duration of price declines. The index increases in value as the price moves farther away from a recent high and falls as the price rises to new highs. The indicator is usually calculated over a 14-day period, with the Ulcer Index showing the percentage drawdown a trader can expect from the high over that period. The greater the value of the Ulcer Index, the longer it takes for a stock to get back to the former high.'

Which means for our asset as example:
  • Compared with the benchmark SPY (3.96 ) in the period of the last 5 years, the Downside risk index of 4.39 of Margaritaville Portfolio is higher, thus better.
  • Looking at Ulcer Index in of 3.64 in the period of the last 3 years, we see it is relatively lower, thus worse in comparison to SPY (4.01 ).

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:
  • The maximum drop from peak to valley over 5 years of Margaritaville Portfolio is -14 days, which is higher, thus better compared to the benchmark SPY (-19.3 days) in the same period.
  • During the last 3 years, the maximum drop from peak to valley is -14 days, which is greater, thus better than the value of -19.3 days from the benchmark.

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 343 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 330 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.'

Which means for our asset as example:
  • Looking at the average time in days below previous high water mark of 110 days in the last 5 years of Margaritaville Portfolio, we see it is relatively higher, thus worse in comparison to the benchmark SPY (41 days)
  • Compared with SPY (36 days) in the period of the last 3 years, the average time in days below previous high water mark of 92 days is larger, thus worse.

Performance of Margaritaville Portfolio (YTD)

Historical returns have been extended using synthetic data.

Allocations of Margaritaville Portfolio
()

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.