Description

IMPORTANT

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.

Methodology & Assets
  • 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

Statistics (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:
  • The total return over 5 years of Universal Investment Strategy 3x Leverage is 204.7%, which is higher, thus better compared to the benchmark SPY (110.8%) in the same period.
  • During the last 3 years, the total return, or performance is 76.4%, which is larger, thus better than the value of 50.8% from the benchmark.

CAGR:

'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.'

Applying this definition to our asset in some examples:
  • Looking at the annual return (CAGR) of 25% in the last 5 years of Universal Investment Strategy 3x Leverage, we see it is relatively higher, thus better in comparison to the benchmark SPY (16.1%)
  • During the last 3 years, the annual return (CAGR) is 20.8%, which is greater, thus better than the value of 14.7% from the benchmark.

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:
  • Compared with the benchmark SPY (18.7%) in the period of the last 5 years, the historical 30 days volatility of 25.9% of Universal Investment Strategy 3x Leverage is greater, thus worse.
  • Looking at volatility in of 29.7% in the period of the last 3 years, we see it is relatively higher, thus worse in comparison to SPY (22.7%).

DownVol:

'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:
  • The downside risk over 5 years of Universal Investment Strategy 3x Leverage is 18.7%, which is greater, thus worse compared to the benchmark SPY (13.6%) in the same period.
  • Compared with SPY (16.5%) in the period of the last 3 years, the downside deviation of 21.7% is larger, thus worse.

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.'

Using this definition on our asset we see for example:
  • Compared with the benchmark SPY (0.73) in the period of the last 5 years, the ratio of return and volatility (Sharpe) of 0.87 of Universal Investment Strategy 3x Leverage is greater, thus better.
  • Looking at risk / return profile (Sharpe) in of 0.62 in the period of the last 3 years, we see it is relatively larger, thus better in comparison to SPY (0.54).

Sortino:

'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:
  • Looking at the downside risk / excess return profile of 1.2 in the last 5 years of Universal Investment Strategy 3x Leverage, we see it is relatively higher, thus better in comparison to the benchmark SPY (1)
  • Compared with SPY (0.74) in the period of the last 3 years, the ratio of annual return and downside deviation of 0.84 is larger, thus better.

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.'

Using this definition on our asset we see for example:
  • Looking at the Downside risk index of 9.55 in the last 5 years of Universal Investment Strategy 3x Leverage, we see it is relatively greater, thus worse in comparison to the benchmark SPY (5.58 )
  • During the last 3 years, the Ulcer Index is 9.8 , which is higher, thus worse than the value of 6.91 from the benchmark.

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 SPY (-33.7 days) in the period of the last 5 years, the maximum reduction from previous high of -40.7 days of Universal Investment Strategy 3x Leverage is lower, thus worse.
  • Looking at maximum reduction from previous high in of -40.7 days in the period of the last 3 years, we see it is relatively lower, thus worse in comparison to SPY (-33.7 days).

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 time in days below previous high water mark over 5 years of Universal Investment Strategy 3x Leverage is 265 days, which is larger, thus worse compared to the benchmark SPY (139 days) in the same period.
  • 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 greater, thus worse in comparison to SPY (139 days).

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 SPY (33 days) in the period of the last 5 years, the average days under water of 54 days of Universal Investment Strategy 3x Leverage is higher, thus worse.
  • Looking at average days below previous high in of 51 days in the period of the last 3 years, we see it is relatively greater, thus worse in comparison to SPY (36 days).

Performance (YTD)

Historical returns have been extended using synthetic data.

Allocations
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Allocations

Returns (%)

  • 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.