Dr. William Bernstein is a physician and neurologist as well as a financial adviser to high net worth individuals. His smart money portfolio comprises the following fund allocation:

40% Vanguard Short Term Investment Grade VFSTX (SCJ, SHY)

15% Vanguard Total Stock Market VTSMX (NYSEARCA:VTI)

10% Vanguard Small Cap Value VISVX (NYSEARCA:VBR)

10% Vanguard Value Index VIVAX (NYSEARCA:VTV)

5% Vanguard Emerging Markets Stock VEIEX (NYSEARCA:VWO)

5% Vanguard European Stock VEURX (NYSEARCA:VEU)

5% Vanguard Pacific Stock VPACX (NYSEARCA:VPL)

5% Vanguard REIT Index VGSIX (RWX, VNQ)

5% Vanguard Small Cap Value NAESX or VTMSX (VB)

To summarize:

40% in U.S. equities

10% in international equities

5% in emerging market equities

5% in REITs

40% in fixed income

'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:- Looking at the total return, or increase in value of 52% in the last 5 years of Dr. Bernstein's Smart Money Portfolio, we see it is relatively smaller, thus worse in comparison to the benchmark SPY (121.6%)
- Looking at total return, or performance in of 30.2% in the period of the last 3 years, we see it is relatively lower, thus worse in comparison to SPY (64.5%).

'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:- The compounded annual growth rate (CAGR) over 5 years of Dr. Bernstein's Smart Money Portfolio is 8.7%, which is lower, thus worse compared to the benchmark SPY (17.3%) in the same period.
- Compared with SPY (18.1%) in the period of the last 3 years, the annual performance (CAGR) of 9.2% is lower, thus worse.

'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 (18.7%) in the period of the last 5 years, the volatility of 10.6% of Dr. Bernstein's Smart Money Portfolio is lower, thus better.
- Looking at 30 days standard deviation in of 12.8% in the period of the last 3 years, we see it is relatively smaller, thus better in comparison to SPY (22.5%).

'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:- Looking at the downside risk of 7.9% in the last 5 years of Dr. Bernstein's Smart Money Portfolio, we see it is relatively lower, thus better in comparison to the benchmark SPY (13.5%)
- During the last 3 years, the downside risk is 9.6%, which is lower, thus better than the value of 16.4% from the benchmark.

'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 ratio of return and volatility (Sharpe) over 5 years of Dr. Bernstein's Smart Money Portfolio is 0.59, which is smaller, thus worse compared to the benchmark SPY (0.79) in the same period.
- Looking at Sharpe Ratio in of 0.53 in the period of the last 3 years, we see it is relatively smaller, thus worse in comparison to SPY (0.69).

'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.'

Applying this definition to our asset in some examples:- Compared with the benchmark SPY (1.09) in the period of the last 5 years, the downside risk / excess return profile of 0.79 of Dr. Bernstein's Smart Money Portfolio is smaller, thus worse.
- Compared with SPY (0.95) in the period of the last 3 years, the downside risk / excess return profile of 0.7 is lower, thus worse.

'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.'

Using this definition on our asset we see for example:- Compared with the benchmark SPY (5.58 ) in the period of the last 5 years, the Ulcer Index of 4.03 of Dr. Bernstein's Smart Money Portfolio is lower, thus better.
- Looking at Downside risk index in of 4.99 in the period of the last 3 years, we see it is relatively smaller, thus better in comparison to SPY (6.83 ).

'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.'

Using this definition on our asset we see for example:- The maximum drop from peak to valley over 5 years of Dr. Bernstein's Smart Money Portfolio is -24.3 days, which is larger, thus better compared to the benchmark SPY (-33.7 days) in the same period.
- Compared with SPY (-33.7 days) in the period of the last 3 years, the maximum DrawDown of -24.3 days is greater, thus better.

'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:- The maximum time in days below previous high water mark over 5 years of Dr. Bernstein's Smart Money Portfolio is 187 days, which is greater, thus worse compared to the benchmark SPY (139 days) in the same period.
- During the last 3 years, the maximum days below previous high is 187 days, which is higher, thus worse than the value of 139 days from the benchmark.

'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.'

Using this definition on our asset we see for example:- Looking at the average days below previous high of 43 days in the last 5 years of Dr. Bernstein's Smart Money Portfolio, we see it is relatively greater, thus worse in comparison to the benchmark SPY (33 days)
- Looking at average time in days below previous high water mark in of 48 days in the period of the last 3 years, we see it is relatively larger, thus worse in comparison to SPY (35 days).

Historical returns have been extended using synthetic data.
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- Note that yearly returns do not equal the sum of monthly returns due to compounding.
- Performance results of Dr. Bernstein's Smart Money 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.