Description

Dr. William Bernstein is a physician and neurologist as well as a financial adviser to high net worth individuals. This one's so simple: Allocate 25% in each of four index funds diversified across basic categories.

The no-brainer portfolio comprises the following fund allocation:

25% in Vanguard 500 Index VFINX (NYSEARCA:IVW)

25% in Vanguard Small Cap NAESX or VTMSX (NYSEARCA:VB)

25% in Vanguard Total International VGTSX or VTMGX (EFA, VEA)

25% in Vanguard Total Bond VBMFX or VBISX (NASDAQ:BND)

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.'

Which means for our asset as example:
  • Looking at the total return, or increase in value of 38.1% in the last 5 years of Dr. Bernstein's No Brainer Portfolio, we see it is relatively smaller, thus worse in comparison to the benchmark SPY (74.4%)
  • Looking at total return, or increase in value in of 14.5% in the period of the last 3 years, we see it is relatively lower, thus worse in comparison to SPY (34.2%).

CAGR:

'The compound annual growth rate (CAGR) is a useful measure of growth over multiple time periods. It can be thought of as the growth rate that gets you from the initial investment value to the ending investment value if you assume that the investment has been compounding over the time period.'

Which means for our asset as example:
  • Looking at the annual return (CAGR) of 6.7% in the last 5 years of Dr. Bernstein's No Brainer Portfolio, we see it is relatively lower, thus worse in comparison to the benchmark SPY (11.8%)
  • During the last 3 years, the annual performance (CAGR) is 4.6%, which is lower, thus worse than the value of 10.3% from the benchmark.

Volatility:

'Volatility is a statistical measure of the dispersion of returns for a given security or market index. Volatility can either be measured by using the standard deviation or variance between returns from that same security or market index. Commonly, the higher the volatility, the riskier the security. In the securities markets, volatility is often associated with big swings in either direction. For example, when the stock market rises and falls more than one percent over a sustained period of time, it is called a 'volatile' market.'

Using this definition on our asset we see for example:
  • Looking at the 30 days standard deviation of 13.6% in the last 5 years of Dr. Bernstein's No Brainer Portfolio, we see it is relatively lower, thus better in comparison to the benchmark SPY (18.9%)
  • Looking at volatility in of 15.9% in the period of the last 3 years, we see it is relatively smaller, thus better in comparison to SPY (22.6%).

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.'

Applying this definition to our asset in some examples:
  • Looking at the downside volatility of 10.3% in the last 5 years of Dr. Bernstein's No Brainer Portfolio, we see it is relatively smaller, thus better in comparison to the benchmark SPY (13.8%)
  • During the last 3 years, the downside deviation is 12.2%, which is smaller, thus better than the value of 16.7% 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.'

Using this definition on our asset we see for example:
  • The risk / return profile (Sharpe) over 5 years of Dr. Bernstein's No Brainer Portfolio is 0.31, which is lower, thus worse compared to the benchmark SPY (0.49) in the same period.
  • During the last 3 years, the ratio of return and volatility (Sharpe) is 0.13, which is lower, thus worse than the value of 0.35 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.'

Applying this definition to our asset in some examples:
  • Looking at the ratio of annual return and downside deviation of 0.4 in the last 5 years of Dr. Bernstein's No Brainer Portfolio, we see it is relatively lower, thus worse in comparison to the benchmark SPY (0.67)
  • Compared with SPY (0.47) in the period of the last 3 years, the downside risk / excess return profile of 0.17 is lower, thus worse.

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.'

Which means for our asset as example:
  • The Ulcer Ratio over 5 years of Dr. Bernstein's No Brainer Portfolio is 5.18 , which is lower, thus better compared to the benchmark SPY (5.82 ) in the same period.
  • Looking at Downside risk index in of 6.26 in the period of the last 3 years, we see it is relatively lower, thus better in comparison to SPY (7.13 ).

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.'

Using this definition on our asset we see for example:
  • The maximum reduction from previous high over 5 years of Dr. Bernstein's No Brainer Portfolio is -28.2 days, which is larger, thus better compared to the benchmark SPY (-33.7 days) in the same period.
  • During the last 3 years, the maximum drop from peak to valley is -28.2 days, which is greater, thus better than the value of -33.7 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). Many assume Max DD Duration is the length of time between new highs during which the Max DD (magnitude) occurred. But that isn’t always the case. The Max DD duration is the longest time between peaks, period. So it could be the time when the program also had its biggest peak to valley loss (and usually is, because the program needs a long time to recover from the largest loss), but it doesn’t have to be'

Using this definition on our asset we see for example:
  • Looking at the maximum days below previous high of 160 days in the last 5 years of Dr. Bernstein's No Brainer Portfolio, we see it is relatively greater, thus worse in comparison to the benchmark SPY (139 days)
  • During the last 3 years, the maximum days below previous high is 160 days, which is greater, 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:
  • Compared with the benchmark SPY (37 days) in the period of the last 5 years, the average time in days below previous high water mark of 46 days of Dr. Bernstein's No Brainer Portfolio is larger, thus worse.
  • During the last 3 years, the average time in days below previous high water mark is 53 days, which is greater, thus worse than the value of 45 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 Dr. Bernstein's No Brainer 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.