Due to announced delisting of UGLD as of July 12, 2020, with last trading day July 2, 2020, we're replacing UGLD by a leveraged GLD position. Therefore the total allocation of the strategy can exceed 100%. See more information in this article.

The 3X Universal Investment Strategy (UISx3) is a leveraged version of our core Universal Investment Strategy (UIS), an evolved, intelligent version of the classic 60/40 equity/bond portfolio that can adapt to current conditions, shifting portfolio weight away from stocks in difficult markets and adding weight to equity in bull runs.

The 3x leveraged version of the strategy employs SPXL, TMF and UGLD, which are the leveraged versions of the S&P 500 ETF, the Treasury 20+ year ETF and the Gold ETF. Unlike the base UIS, the leveraged version only uses TMF and UGLD to hedge SPXL exposure.

The UISx3 is appropriate for investors who are comfortable taking on higher risks in exchange for the potential for of higher returns. Because leveraged ETFs are used, we recommend allocating no more than 15% of your total portfolio to this strategy.

- SPXL - Direxion Daily S&P 500 Bull 3X Shares ETF
- TMF - Direxion Daily 30-Year Treasury Bull 3x Shares ETF
- UGLD - VelocityShares 3x Long Gold ETN

'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.'

Which means for our asset as example:- The total return, or increase in value over 5 years of Universal Investment Strategy 3x Leverage is 185.1%, which is larger, thus better compared to the benchmark SPY (124.9%) in the same period.
- Looking at total return, or increase in value in of 99.2% in the period of the last 3 years, we see it is relatively larger, thus better in comparison to SPY (60.5%).

'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:- The annual performance (CAGR) over 5 years of Universal Investment Strategy 3x Leverage is 23.4%, which is higher, thus better compared to the benchmark SPY (17.6%) in the same period.
- Looking at compounded annual growth rate (CAGR) in of 25.9% in the period of the last 3 years, we see it is relatively larger, thus better in comparison to SPY (17.1%).

'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.'

Which means for our asset as example:- Compared with the benchmark SPY (18.7%) in the period of the last 5 years, the volatility of 26.4% of Universal Investment Strategy 3x Leverage is larger, thus worse.
- Compared with SPY (22.6%) in the period of the last 3 years, the historical 30 days volatility of 30.8% is larger, thus worse.

'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:- Looking at the downside volatility of 19.1% in the last 5 years of Universal Investment Strategy 3x Leverage, we see it is relatively larger, thus worse in comparison to the benchmark SPY (13.5%)
- During the last 3 years, the downside risk is 22.3%, which is larger, thus worse than the value of 16.4% 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.'

Applying this definition to our asset in some examples:- The Sharpe Ratio over 5 years of Universal Investment Strategy 3x Leverage is 0.79, which is lower, thus worse compared to the benchmark SPY (0.81) in the same period.
- During the last 3 years, the ratio of return and volatility (Sharpe) is 0.76, which is greater, thus better than the value of 0.65 from the benchmark.

'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:- Compared with the benchmark SPY (1.12) in the period of the last 5 years, the downside risk / excess return profile of 1.09 of Universal Investment Strategy 3x Leverage is lower, thus worse.
- Looking at downside risk / excess return profile in of 1.05 in the period of the last 3 years, we see it is relatively larger, thus better in comparison to SPY (0.89).

'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.'

Using this definition on our asset we see for example:- Compared with the benchmark SPY (5.58 ) in the period of the last 5 years, the Ulcer Index of 13 of Universal Investment Strategy 3x Leverage is larger, thus worse.
- Looking at Ulcer Ratio in of 15 in the period of the last 3 years, we see it is relatively higher, thus worse in comparison to SPY (6.82 ).

'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 -40.7 days in the last 5 years of Universal Investment Strategy 3x Leverage, we see it is relatively lower, thus worse 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 reduction from previous high of -40.7 days is lower, thus worse.

'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.'

Which means for our asset as example:- Looking at the maximum days below previous high of 268 days in the last 5 years of Universal Investment Strategy 3x Leverage, we see it is relatively larger, thus worse in comparison to the benchmark SPY (139 days)
- Compared with SPY (128 days) in the period of the last 3 years, the maximum days under water of 268 days is greater, 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.'

Applying this definition to our asset in some examples:- Looking at the average days under water of 75 days in the last 5 years of Universal Investment Strategy 3x Leverage, we see it is relatively higher, thus worse in comparison to the benchmark SPY (32 days)
- During the last 3 years, the average time in days below previous high water mark is 67 days, which is greater, thus worse than the value of 33 days from the benchmark.

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 Universal Investment Strategy 3x Leverage 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.