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:- Compared with the benchmark SPY (66%) in the period of the last 5 years, the total return of 29.2% of Dr. Bernstein's Smart Money Portfolio is smaller, thus worse.
- Looking at total return, or performance in of 21.9% in the period of the last 3 years, we see it is relatively lower, thus worse in comparison to SPY (45.6%).

'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.'

Applying this definition to our asset in some examples:- Looking at the annual return (CAGR) of 5.3% in the last 5 years of Dr. Bernstein's Smart Money Portfolio, we see it is relatively lower, thus worse in comparison to the benchmark SPY (10.7%)
- During the last 3 years, the annual return (CAGR) is 6.8%, which is lower, thus worse than the value of 13.3% from the benchmark.

'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:- Looking at the 30 days standard deviation of 7.5% 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 (13.4%)
- Compared with SPY (12.3%) in the period of the last 3 years, the 30 days standard deviation of 6.7% is smaller, thus better.

'The downside volatility is similar to the volatility, or standard deviation, but only takes losing/negative periods into account.'

Which means for our asset as example:- The downside volatility over 5 years of Dr. Bernstein's Smart Money Portfolio is 8.2%, which is lower, thus better compared to the benchmark SPY (14.6%) in the same period.
- Compared with SPY (13.8%) in the period of the last 3 years, the downside risk of 7.5% is lower, thus better.

'The Sharpe ratio was developed by Nobel laureate William F. Sharpe, and is used to help investors understand the return of an investment compared to its risk. The ratio is the average return earned in excess of the risk-free rate per unit of volatility or total risk. Subtracting the risk-free rate from the mean return allows an investor to better isolate the profits associated with risk-taking activities. One intuition of this calculation is that a portfolio engaging in 'zero risk' investments, such as the purchase of U.S. Treasury bills (for which the expected return is the risk-free rate), has a Sharpe ratio of exactly zero. Generally, the greater the value of the Sharpe ratio, the more attractive the risk-adjusted return.'

Which means for our asset as example:- Compared with the benchmark SPY (0.61) in the period of the last 5 years, the ratio of return and volatility (Sharpe) of 0.37 of Dr. Bernstein's Smart Money Portfolio is lower, thus worse.
- Compared with SPY (0.88) in the period of the last 3 years, the Sharpe Ratio of 0.65 is smaller, thus worse.

'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 (0.56) in the period of the last 5 years, the excess return divided by the downside deviation of 0.34 of Dr. Bernstein's Smart Money Portfolio is lower, thus worse.
- Compared with SPY (0.78) in the period of the last 3 years, the excess return divided by the downside deviation of 0.58 is lower, thus worse.

'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 Smart Money Portfolio is 3.01 , which is lower, thus better compared to the benchmark SPY (3.99 ) in the same period.
- During the last 3 years, the Downside risk index is 2.44 , which is smaller, thus better than the value of 4.04 from the benchmark.

'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.'

Which means for our asset as example:- Compared with the benchmark SPY (-19.3 days) in the period of the last 5 years, the maximum drop from peak to valley of -11.1 days of Dr. Bernstein's Smart Money Portfolio is greater, thus better.
- During the last 3 years, the maximum reduction from previous high is -11.1 days, which is higher, thus better than the value of -19.3 days from the benchmark.

'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.'

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 288 days, which is greater, thus worse compared to the benchmark SPY (187 days) in the same period.
- Compared with SPY (139 days) in the period of the last 3 years, the maximum time in days below previous high water mark of 148 days is higher, thus worse.

'The Average 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. 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 63 days in the last 5 years of Dr. Bernstein's Smart Money Portfolio, we see it is relatively higher, thus worse in comparison to the benchmark SPY (41 days)
- Looking at average days below previous high in of 40 days in the period of the last 3 years, we see it is relatively higher, thus worse in comparison to SPY (36 days).

Historical returns have been extended using synthetic data.
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- "Year" returns in the table above are not equal to 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.