Description

This portfolio has been optimized to provide the highest Sharpe Ratio, which is a metric that compares the amount of return versus the amount of risk, based on historical data. Return is based on CAGR and risk is based on volatility. The portfolio is well suited for risk adverse investors with moderate growth expectations.

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 Sharpe ratio.

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 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.'

Applying this definition to our asset in some examples:
  • Compared with the benchmark SPY (123.6%) in the period of the last 5 years, the total return, or performance of 57.4% of Max Sharpe Portfolio is lower, thus worse.
  • Compared with SPY (89.9%) in the period of the last 3 years, the total return, or performance of 34% is lower, thus worse.

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.'

Using this definition on our asset we see for example:
  • The compounded annual growth rate (CAGR) over 5 years of Max Sharpe Portfolio is 9.5%, which is lower, thus worse compared to the benchmark SPY (17.5%) in the same period.
  • Looking at compounded annual growth rate (CAGR) in of 10.2% in the period of the last 3 years, we see it is relatively lower, thus worse in comparison to SPY (23.8%).

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:
  • The historical 30 days volatility over 5 years of Max Sharpe Portfolio is 7.6%, which is lower, thus better compared to the benchmark SPY (18.9%) in the same period.
  • Compared with SPY (21.8%) in the period of the last 3 years, the 30 days standard deviation of 8.7% is lower, thus better.

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 (13.7%) in the period of the last 5 years, the downside volatility of 5.5% of Max Sharpe Portfolio is lower, thus better.
  • During the last 3 years, the downside deviation is 6.5%, which is smaller, thus better than the value of 15.8% from the benchmark.

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 ratio of return and volatility (Sharpe) of 0.92 in the last 5 years of Max Sharpe Portfolio, we see it is relatively higher, thus better in comparison to the benchmark SPY (0.79)
  • During the last 3 years, the risk / return profile (Sharpe) is 0.89, which is lower, thus worse than the value of 0.98 from the benchmark.

Sortino:

'The Sortino ratio, a variation of the Sharpe ratio only factors in the downside, or negative volatility, rather than the total volatility used in calculating the Sharpe ratio. The theory behind the Sortino variation is that upside volatility is a plus for the investment, and it, therefore, should not be included in the risk calculation. Therefore, the Sortino ratio takes upside volatility out of the equation and uses only the downside standard deviation in its calculation instead of the total standard deviation that is used in calculating the Sharpe ratio.'

Which means for our asset as example:
  • The ratio of annual return and downside deviation over 5 years of Max Sharpe Portfolio is 1.26, which is larger, thus better compared to the benchmark SPY (1.09) in the same period.
  • Looking at ratio of annual return and downside deviation in of 1.19 in the period of the last 3 years, we see it is relatively lower, thus worse in comparison to SPY (1.35).

Ulcer:

'Ulcer Index is a method for measuring investment risk that addresses the real concerns of investors, unlike the widely used standard deviation of return. UI is a measure of the depth and duration of drawdowns in prices from earlier highs. Using Ulcer Index instead of standard deviation can lead to very different conclusions about investment risk and risk-adjusted return, especially when evaluating strategies that seek to avoid major declines in portfolio value (market timing, dynamic asset allocation, hedge funds, etc.). The Ulcer Index was originally developed in 1987. Since then, it has been widely recognized and adopted by the investment community. According to Nelson Freeburg, editor of Formula Research, Ulcer Index is “perhaps the most fully realized statistical portrait of risk there is.'

Using this definition on our asset we see for example:
  • The Ulcer Index over 5 years of Max Sharpe Portfolio is 3.3 , which is smaller, thus better compared to the benchmark SPY (5.59 ) in the same period.
  • During the last 3 years, the Downside risk index is 3.68 , which is smaller, thus better than the value of 6.04 from the benchmark.

MaxDD:

'A maximum drawdown is the maximum loss from a peak to a trough of a portfolio, before a new peak is attained. Maximum Drawdown is an indicator of downside risk over a specified time period. It can be used both as a stand-alone measure or as an input into other metrics such as 'Return over Maximum Drawdown' and the Calmar Ratio. Maximum Drawdown is expressed in percentage terms.'

Using this definition on our asset we see for example:
  • Looking at the maximum drop from peak to valley of -16 days in the last 5 years of Max Sharpe Portfolio, we see it is relatively higher, thus better in comparison to the benchmark SPY (-33.7 days)
  • During the last 3 years, the maximum drop from peak to valley is -16 days, which is greater, thus better than the value of -33.7 days from the benchmark.

MaxDuration:

'The Maximum 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. It is the length of time the account was in the Max Drawdown. A Max Drawdown measures a retrenchment from when an equity curve reaches a new high. It’s the maximum an account lost during that retrenchment. This method is applied because a valley can’t be measured until a new high occurs. Once the new high is reached, the percentage change from the old high to the bottom of the largest trough is recorded.'

Which means for our asset as example:
  • Looking at the maximum days below previous high of 322 days in the last 5 years of Max Sharpe Portfolio, we see it is relatively larger, thus worse in comparison to the benchmark SPY (139 days)
  • Looking at maximum days below previous high in of 322 days in the period of the last 3 years, we see it is relatively greater, thus worse in comparison to SPY (119 days).

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:
  • Looking at the average days under water of 84 days in the last 5 years of Max Sharpe Portfolio, we see it is relatively larger, thus worse in comparison to the benchmark SPY (32 days)
  • During the last 3 years, the average days under water is 91 days, which is higher, thus worse than the value of 22 days from the benchmark.

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 Sharpe 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.