Description of BUG Permanent Portfolio Strategy

The BUG strategy is one of our more conservative strategies. The strategy does not attempt to predict prices or the future state of the economy. It holds a broad diversified number of assets that complement each other, each performing well in a different economic environment such as inflation, deflation, growth and stagnation. It is meant for long term, steady growth and low risk.

It inherits part of its logic from Harry Browne's tried-and-true Permanent Portfolio and the publicized workings of the All-Weather portfolio.

Methodology & Assets
  • US Market (SPY: S&P 500 SPDRs)
  • Long Duration Treasuries (TLT: iShares 20+ Year Treasury Bond)
  • Gold (GLD: Gold Shares SPDR)
  • Cash or equivalent (SHY: 1-3 Year Treasury Bonds)
  • Convertible Bonds (CWB: SPDR Barclays Convertible Securities)
  • Inflation Protected Treasuries (TIP: iShares TIPS Bond Fund)
  • Foreign Bonds (PCY: PowerShares Emerging Markets Sovereign Bond)

Statistics of BUG Permanent Portfolio Strategy (YTD)

What do these metrics mean? [Read More] [Hide]

TotalReturn:

'Total return is the amount of value an investor earns from a security over a specific period, typically one year, when all distributions are reinvested. Total return is expressed as a percentage of the amount invested. For example, a total return of 20% means the security increased by 20% of its original value due to a price increase, distribution of dividends (if a stock), coupons (if a bond) or capital gains (if a fund). Total return is a strong measure of an investment’s overall performance.'

Which means for our asset as example:
  • Looking at the total return, or increase in value of 52.8% in the last 5 years of BUG Permanent Portfolio Strategy, we see it is relatively higher, thus better in comparison to the benchmark AGG (15.1%)
  • Looking at total return, or performance in of 36% in the period of the last 3 years, we see it is relatively larger, thus better in comparison to AGG (13.4%).

CAGR:

'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:
  • The compounded annual growth rate (CAGR) over 5 years of BUG Permanent Portfolio Strategy is 8.9%, which is greater, thus better compared to the benchmark AGG (2.9%) in the same period.
  • Looking at annual return (CAGR) in of 10.8% in the period of the last 3 years, we see it is relatively higher, thus better in comparison to AGG (4.3%).

Volatility:

'In finance, volatility (symbol σ) is the degree of variation of a trading price series over time as measured by the standard deviation of logarithmic returns. Historic volatility measures a time series of past market prices. Implied volatility looks forward in time, being derived from the market price of a market-traded derivative (in particular, an option). Commonly, the higher the volatility, the riskier the security.'

Applying this definition to our asset in some examples:
  • Looking at the historical 30 days volatility of 5.5% in the last 5 years of BUG Permanent Portfolio Strategy, we see it is relatively higher, thus worse in comparison to the benchmark AGG (3.1%)
  • During the last 3 years, the volatility is 4.7%, which is greater, thus worse than the value of 2.8% from the benchmark.

DownVol:

'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:
  • Looking at the downside volatility of 6.1% in the last 5 years of BUG Permanent Portfolio Strategy, we see it is relatively higher, thus worse in comparison to the benchmark AGG (3.4%)
  • Looking at downside volatility in of 5.2% in the period of the last 3 years, we see it is relatively greater, thus worse in comparison to AGG (3%).

Sharpe:

'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.'

Applying this definition to our asset in some examples:
  • Compared with the benchmark AGG (0.11) in the period of the last 5 years, the risk / return profile (Sharpe) of 1.16 of BUG Permanent Portfolio Strategy is higher, thus better.
  • During the last 3 years, the Sharpe Ratio is 1.78, which is higher, thus better than the value of 0.63 from the benchmark.

Sortino:

'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:
  • The excess return divided by the downside deviation over 5 years of BUG Permanent Portfolio Strategy is 1.05, which is higher, thus better compared to the benchmark AGG (0.11) in the same period.
  • Looking at excess return divided by the downside deviation in of 1.59 in the period of the last 3 years, we see it is relatively higher, thus better in comparison to AGG (0.6).

Ulcer:

'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:
  • Compared with the benchmark AGG (1.64 ) in the period of the last 5 years, the Ulcer Index of 2.91 of BUG Permanent Portfolio Strategy is higher, thus worse.
  • Compared with AGG (1.4 ) in the period of the last 3 years, the Downside risk index of 3.09 is higher, thus worse.

MaxDD:

'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.'

Using this definition on our asset we see for example:
  • Compared with the benchmark AGG (-4.5 days) in the period of the last 5 years, the maximum drop from peak to valley of -8.7 days of BUG Permanent Portfolio Strategy is lower, thus worse.
  • Compared with AGG (-3.5 days) in the period of the last 3 years, the maximum drop from peak to valley of -8.7 days is lower, thus worse.

MaxDuration:

'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'

Applying this definition to our asset in some examples:
  • The maximum days below previous high over 5 years of BUG Permanent Portfolio Strategy is 331 days, which is greater, thus worse compared to the benchmark AGG (331 days) in the same period.
  • Compared with AGG (331 days) in the period of the last 3 years, the maximum days below previous high of 331 days is greater, thus worse.

AveDuration:

'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 AGG (115 days) in the period of the last 5 years, the average days under water of 82 days of BUG Permanent Portfolio Strategy is smaller, thus better.
  • Looking at average days under water in of 94 days in the period of the last 3 years, we see it is relatively higher, thus worse in comparison to AGG (90 days).

Performance of BUG Permanent Portfolio Strategy (YTD)

Historical returns have been extended using synthetic data.

Allocations of BUG Permanent Portfolio Strategy
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Allocations

Returns of BUG Permanent Portfolio Strategy (%)

  • Note that yearly returns do not equal the sum of monthly returns due to compounding.
  • Performance results of BUG Permanent Portfolio 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.