Description

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.

Statistics (YTD)

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

TotalReturn:

'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.'

Using this definition on our asset we see for example:
  • The total return over 5 years of Bond ETF Rotation Strategy is 38.9%, which is greater, thus better compared to the benchmark AGG (-4.1%) in the same period.
  • Compared with AGG (6.7%) in the period of the last 3 years, the total return, or performance of 12.4% is greater, thus better.

CAGR:

'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.'

Which means for our asset as example:
  • Looking at the annual performance (CAGR) of 6.8% in the last 5 years of Bond ETF Rotation Strategy, we see it is relatively greater, thus better in comparison to the benchmark AGG (-0.8%)
  • Looking at annual return (CAGR) in of 4% in the period of the last 3 years, we see it is relatively greater, thus better in comparison to AGG (2.2%).

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.'

Which means for our asset as example:
  • Looking at the volatility of 6.1% in the last 5 years of Bond ETF Rotation Strategy, we see it is relatively larger, thus worse in comparison to the benchmark AGG (6%)
  • Looking at volatility in of 5.7% in the period of the last 3 years, we see it is relatively lower, thus better in comparison to AGG (6.7%).

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.'

Which means for our asset as example:
  • Compared with the benchmark AGG (4.3%) in the period of the last 5 years, the downside deviation of 4.1% of Bond ETF Rotation Strategy is lower, thus better.
  • Looking at downside volatility in of 3.9% in the period of the last 3 years, we see it is relatively lower, thus better in comparison to AGG (4.6%).

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.'

Which means for our asset as example:
  • The risk / return profile (Sharpe) over 5 years of Bond ETF Rotation Strategy is 0.71, which is greater, thus better compared to the benchmark AGG (-0.56) in the same period.
  • Compared with AGG (-0.04) in the period of the last 3 years, the ratio of return and volatility (Sharpe) of 0.26 is larger, thus better.

Sortino:

'The Sortino ratio, a variation of the Sharpe ratio only factors in the downside, or negative volatility, rather than the total volatility used in calculating the Sharpe ratio. The theory behind the Sortino variation is that upside volatility is a plus for the investment, and it, therefore, should not be included in the risk calculation. Therefore, the Sortino ratio takes upside volatility out of the equation and uses only the downside standard deviation in its calculation instead of the total standard deviation that is used in calculating the Sharpe ratio.'

Using this definition on our asset we see for example:
  • The excess return divided by the downside deviation over 5 years of Bond ETF Rotation Strategy is 1.04, which is higher, thus better compared to the benchmark AGG (-0.78) in the same period.
  • Compared with AGG (-0.07) in the period of the last 3 years, the excess return divided by the downside deviation of 0.38 is larger, thus better.

Ulcer:

'The ulcer index is a stock market risk measure or technical analysis indicator devised by Peter Martin in 1987, and published by him and Byron McCann in their 1989 book The Investors Guide to Fidelity Funds. It's designed as a measure of volatility, but only volatility in the downward direction, i.e. the amount of drawdown or retracement occurring over a period. Other volatility measures like standard deviation treat up and down movement equally, but a trader doesn't mind upward movement, it's the downside that causes stress and stomach ulcers that the index's name suggests.'

Using this definition on our asset we see for example:
  • Looking at the Ulcer Ratio of 2.45 in the last 5 years of Bond ETF Rotation Strategy, we see it is relatively lower, thus better in comparison to the benchmark AGG (9.5 )
  • Compared with AGG (3.79 ) in the period of the last 3 years, the Downside risk index of 2.53 is smaller, thus better.

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.'

Applying this definition to our asset in some examples:
  • Compared with the benchmark AGG (-18.4 days) in the period of the last 5 years, the maximum reduction from previous high of -6.6 days of Bond ETF Rotation Strategy is higher, thus better.
  • Looking at maximum reduction from previous high in of -6.6 days in the period of the last 3 years, we see it is relatively larger, thus better in comparison to AGG (-9.8 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) in days.'

Which means for our asset as example:
  • Looking at the maximum days under water of 217 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 (1233 days)
  • Looking at maximum time in days below previous high water mark in of 198 days in the period of the last 3 years, we see it is relatively lower, thus better in comparison to AGG (487 days).

AveDuration:

'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.'

Which means for our asset as example:
  • The average days below previous high over 5 years of Bond ETF Rotation Strategy is 67 days, which is lower, thus better compared to the benchmark AGG (614 days) in the same period.
  • Looking at average days below previous high in of 55 days in the period of the last 3 years, we see it is relatively lower, thus better in comparison to AGG (190 days).

Performance (YTD)

Historical returns have been extended using synthetic data.

Allocations ()

Allocations

Returns (%)

  • Note that yearly returns do not equal the sum of monthly returns due to compounding.
  • Performance results of Bond ETF Rotation Strategy are hypothetical and do not account for slippage, fees or taxes.
  • Results may be based on backtesting, which has many inherent limitations, some of which are described in our Terms of Use.