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.'

Which means for our asset as example:- The total return over 5 years of Dr. Bernstein's Smart Money Portfolio is 23.8%, which is smaller, thus worse compared to the benchmark SPY (68.1%) in the same period.
- Looking at total return, or increase in value in of 21.4% in the period of the last 3 years, we see it is relatively smaller, thus worse in comparison to SPY (47%).

'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:- Compared with the benchmark SPY (11%) in the period of the last 5 years, the compounded annual growth rate (CAGR) of 4.4% of Dr. Bernstein's Smart Money Portfolio is smaller, thus worse.
- During the last 3 years, the compounded annual growth rate (CAGR) is 6.7%, which is smaller, thus worse than the value of 13.7% from the benchmark.

'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.'

Which means for our asset as example:- Compared with the benchmark SPY (21.4%) in the period of the last 5 years, the 30 days standard deviation of 12% of Dr. Bernstein's Smart Money Portfolio is lower, thus better.
- During the last 3 years, the historical 30 days volatility is 10.7%, which is lower, thus better than the value of 18.7% from the benchmark.

'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.'

Using this definition on our asset we see for example:- The downside deviation over 5 years of Dr. Bernstein's Smart Money Portfolio is 8.9%, which is lower, thus better compared to the benchmark SPY (15.4%) in the same period.
- During the last 3 years, the downside volatility is 7.6%, which is lower, thus better than the value of 13.3% 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.'

Which means for our asset as example:- Compared with the benchmark SPY (0.4) in the period of the last 5 years, the Sharpe Ratio of 0.16 of Dr. Bernstein's Smart Money Portfolio is lower, thus worse.
- Looking at ratio of return and volatility (Sharpe) in of 0.39 in the period of the last 3 years, we see it is relatively lower, thus worse in comparison to SPY (0.6).

'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:- The downside risk / excess return profile over 5 years of Dr. Bernstein's Smart Money Portfolio is 0.21, which is lower, thus worse compared to the benchmark SPY (0.55) in the same period.
- During the last 3 years, the excess return divided by the downside deviation is 0.55, which is lower, thus worse than the value of 0.84 from the benchmark.

'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:- The Downside risk index over 5 years of Dr. Bernstein's Smart Money Portfolio is 6.55 , which is lower, thus better compared to the benchmark SPY (9.45 ) in the same period.
- Looking at Ulcer Ratio in of 6.87 in the period of the last 3 years, we see it is relatively lower, thus better in comparison to SPY (10 ).

'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.'

Applying this definition to our asset in some examples:- Looking at the maximum DrawDown of -24.3 days in the last 5 years of Dr. Bernstein's Smart Money Portfolio, we see it is relatively greater, thus better in comparison to the benchmark SPY (-33.7 days)
- During the last 3 years, the maximum drop from peak to valley is -17.2 days, which is higher, thus better than the value of -24.5 days from the benchmark.

'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 389 days in the last 5 years of Dr. Bernstein's Smart Money Portfolio, we see it is relatively larger, thus worse in comparison to the benchmark SPY (351 days)
- Compared with SPY (351 days) in the period of the last 3 years, the maximum time in days below previous high water mark of 389 days is higher, thus worse.

'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 (78 days) in the period of the last 5 years, the average time in days below previous high water mark of 96 days of Dr. Bernstein's Smart Money Portfolio is larger, thus worse.
- Looking at average days under water in of 119 days in the period of the last 3 years, we see it is relatively larger, thus worse in comparison to SPY (101 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.