The Bond Rotation Strategy is one of our core investment strategies. It is appropriate for investors looking to collect bond dividends while pursuing growth by rotating between bond sectors. The strategy evaluates and allocates to the best performing bond ETFs including treasuries, TIPS, foreign, high-yield and convertible bonds. This is a good strategy if you are looking for a long-term bond investment with medium risk.

The strategy has been updated (as of May 1st, 2020) to allocate 40%-60% to our HEDGE sub-strategy. The statistics below reflect the updated model.

'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 Bond ETF Rotation Strategy is 41.5%, which is larger, thus better compared to the benchmark AGG (23.2%) in the same period.
- Looking at total return, or increase in value in of 13.3% in the period of the last 3 years, we see it is relatively lower, thus worse in comparison to AGG (16.5%).

'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 performance (CAGR) of 7.2% in the last 5 years of Bond ETF Rotation Strategy, we see it is relatively greater, thus better in comparison to the benchmark AGG (4.3%)
- During the last 3 years, the annual return (CAGR) is 4.2%, which is lower, thus worse than the value of 5.2% 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.'

Which means for our asset as example:- Compared with the benchmark AGG (4.6%) in the period of the last 5 years, the 30 days standard deviation of 5.6% of Bond ETF Rotation Strategy is larger, thus worse.
- Looking at 30 days standard deviation in of 6.2% in the period of the last 3 years, we see it is relatively greater, thus worse in comparison to AGG (5.4%).

'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:- Compared with the benchmark AGG (3.5%) in the period of the last 5 years, the downside volatility of 4% of Bond ETF Rotation Strategy is larger, thus worse.
- Looking at downside risk in of 4.6% in the period of the last 3 years, we see it is relatively higher, thus worse in comparison to AGG (4.1%).

'The Sharpe ratio is the measure of risk-adjusted return of a financial portfolio. Sharpe ratio is a measure of excess portfolio return over the risk-free rate relative to its standard deviation. Normally, the 90-day Treasury bill rate is taken as the proxy for risk-free rate. A portfolio with a higher Sharpe ratio is considered superior relative to its peers. The measure was named after William F Sharpe, a Nobel laureate and professor of finance, emeritus at Stanford University.'

Which means for our asset as example:- The risk / return profile (Sharpe) over 5 years of Bond ETF Rotation Strategy is 0.84, which is larger, thus better compared to the benchmark AGG (0.39) in the same period.
- Looking at risk / return profile (Sharpe) in of 0.28 in the period of the last 3 years, we see it is relatively lower, thus worse in comparison to AGG (0.5).

'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.'

Which means for our asset as example:- The downside risk / excess return profile over 5 years of Bond ETF Rotation Strategy is 1.16, which is larger, thus better compared to the benchmark AGG (0.51) in the same period.
- Looking at ratio of annual return and downside deviation in of 0.38 in the period of the last 3 years, we see it is relatively smaller, thus worse in comparison to AGG (0.66).

'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.'

Applying this definition to our asset in some examples:- Looking at the Downside risk index of 2.12 in the last 5 years of Bond ETF Rotation Strategy, we see it is relatively greater, thus worse in comparison to the benchmark AGG (1.63 )
- Looking at Ulcer Ratio in of 2.64 in the period of the last 3 years, we see it is relatively higher, thus worse in comparison to AGG (1.43 ).

'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:- The maximum reduction from previous high over 5 years of Bond ETF Rotation Strategy is -12.8 days, which is lower, thus worse compared to the benchmark AGG (-9.6 days) in the same period.
- During the last 3 years, the maximum drop from peak to valley is -12.8 days, which is lower, thus worse than the value of -9.6 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 196 days in the last 5 years of Bond ETF Rotation Strategy, we see it is relatively smaller, thus better in comparison to the benchmark AGG (331 days)
- Looking at maximum time in days below previous high water mark in of 196 days in the period of the last 3 years, we see it is relatively smaller, thus better in comparison to AGG (259 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 days below previous high of 43 days in the last 5 years of Bond ETF Rotation Strategy, we see it is relatively smaller, thus better in comparison to the benchmark AGG (95 days)
- Compared with AGG (65 days) in the period of the last 3 years, the average time in days below previous high water mark of 58 days is lower, thus better.

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 Bond ETF Rotation Strategy 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.