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

'The total return on a portfolio of investments takes into account not only the capital appreciation on the portfolio, but also the income received on the portfolio. The income typically consists of interest, dividends, and securities lending fees. This contrasts with the price return, which takes into account only the capital gain on an investment.'

Applying this definition to our asset in some examples:- Looking at the total return, or performance of 31.9% 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 (78.4%)
- Looking at total return, or increase in value in of 19.2% in the period of the last 3 years, we see it is relatively lower, thus worse in comparison to SPY (44.1%).

'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.'

Using this definition on our asset we see for example:- Compared with the benchmark SPY (12.3%) in the period of the last 5 years, the compounded annual growth rate (CAGR) of 5.7% of Dr. Bernstein's Smart Money Portfolio is lower, thus worse.
- Looking at annual performance (CAGR) in of 6% in the period of the last 3 years, we see it is relatively lower, thus worse in comparison to SPY (12.9%).

'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.'

Which means for our asset as example:- Compared with the benchmark SPY (19.9%) in the period of the last 5 years, the historical 30 days volatility of 11.2% of Dr. Bernstein's Smart Money Portfolio is lower, thus better.
- During the last 3 years, the volatility is 13.2%, which is lower, thus better than the value of 23.1% 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.'

Applying this definition to our asset in some examples:- Looking at the downside volatility of 8.4% 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 (14.6%)
- Compared with SPY (16.9%) in the period of the last 3 years, the downside risk of 9.9% 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.'

Applying this definition to our asset in some examples:- Compared with the benchmark SPY (0.49) in the period of the last 5 years, the ratio of return and volatility (Sharpe) of 0.29 of Dr. Bernstein's Smart Money Portfolio is smaller, thus worse.
- Compared with SPY (0.45) in the period of the last 3 years, the risk / return profile (Sharpe) of 0.27 is lower, thus worse.

'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.'

Using this definition on our asset we see for example:- Compared with the benchmark SPY (0.67) in the period of the last 5 years, the ratio of annual return and downside deviation of 0.38 of Dr. Bernstein's Smart Money Portfolio is lower, thus worse.
- Compared with SPY (0.62) in the period of the last 3 years, the downside risk / excess return profile of 0.35 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:- Looking at the Ulcer Index of 4.37 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 (6.16 )
- Compared with SPY (6.87 ) in the period of the last 3 years, the Ulcer Ratio of 5.11 is lower, thus better.

'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:- 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)
- Compared with SPY (-33.7 days) in the period of the last 3 years, the maximum drop from peak to valley of -24.3 days is higher, thus better.

'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:- Compared with the benchmark SPY (139 days) in the period of the last 5 years, the maximum time in days below previous high water mark of 187 days of Dr. Bernstein's Smart Money Portfolio is greater, thus worse.
- Looking at maximum days under water in of 187 days in the period of the last 3 years, we see it is relatively higher, thus worse in comparison to SPY (119 days).

'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:- Looking at the average time in days below previous high water mark of 49 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 (35 days)
- Compared with SPY (27 days) in the period of the last 3 years, the average days below previous high of 46 days is larger, thus worse.

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.