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:

'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, or performance over 5 years of Bond ETF Rotation Strategy is 27.9%, which is larger, thus better compared to the benchmark AGG (15.7%) in the same period.
  • Compared with AGG (17.8%) in the period of the last 3 years, the total return, or performance of 16.5% is smaller, thus worse.

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.'

Using this definition on our asset we see for example:
  • The annual performance (CAGR) over 5 years of Bond ETF Rotation Strategy is 5%, which is higher, thus better compared to the benchmark AGG (3%) in the same period.
  • Looking at compounded annual growth rate (CAGR) in of 5.2% in the period of the last 3 years, we see it is relatively smaller, thus worse in comparison to AGG (5.6%).

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.'

Using this definition on our asset we see for example:
  • Looking at the historical 30 days volatility of 5.4% in the last 5 years of Bond ETF Rotation Strategy, we see it is relatively larger, thus worse in comparison to the benchmark AGG (4.6%)
  • During the last 3 years, the volatility is 6.2%, which is larger, thus worse than the value of 5.5% from the benchmark.

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:
  • The downside deviation over 5 years of Bond ETF Rotation Strategy is 3.9%, which is greater, thus worse compared to the benchmark AGG (3.5%) in the same period.
  • Looking at downside volatility in of 4.7% in the period of the last 3 years, we see it is relatively higher, thus worse in comparison to AGG (4.2%).

Sharpe:

'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.'

Using this definition on our asset we see for example:
  • Compared with the benchmark AGG (0.1) in the period of the last 5 years, the Sharpe Ratio of 0.48 of Bond ETF Rotation Strategy is larger, thus better.
  • Looking at Sharpe Ratio in of 0.44 in the period of the last 3 years, we see it is relatively smaller, thus worse in comparison to AGG (0.57).

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.'

Which means for our asset as example:
  • Looking at the excess return divided by the downside deviation of 0.65 in the last 5 years of Bond ETF Rotation Strategy, we see it is relatively greater, thus better in comparison to the benchmark AGG (0.13)
  • During the last 3 years, the excess return divided by the downside deviation is 0.59, which is lower, thus worse than the value of 0.74 from the benchmark.

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.'

Which means for our asset as example:
  • Compared with the benchmark AGG (1.74 ) in the period of the last 5 years, the Ulcer Ratio of 2.23 of Bond ETF Rotation Strategy is higher, thus worse.
  • During the last 3 years, the Ulcer Index is 2.73 , which is greater, thus worse than the value of 1.5 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.'

Applying this definition to our asset in some examples:
  • Looking at the maximum DrawDown of -12.8 days in the last 5 years of Bond ETF Rotation Strategy, we see it is relatively smaller, thus worse in comparison to the benchmark AGG (-9.6 days)
  • Compared with AGG (-9.6 days) in the period of the last 3 years, the maximum reduction from previous high of -12.8 days is lower, thus worse.

MaxDuration:

'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.'

Using this definition on our asset we see for example:
  • Looking at the maximum days under water of 345 days in the last 5 years of Bond ETF Rotation Strategy, we see it is relatively larger, thus worse in comparison to the benchmark AGG (331 days)
  • During the last 3 years, the maximum days under water is 345 days, which is higher, thus worse than the value of 304 days from the benchmark.

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.'

Applying this definition to our asset in some examples:
  • Compared with the benchmark AGG (105 days) in the period of the last 5 years, the average days under water of 76 days of Bond ETF Rotation Strategy is lower, thus better.
  • Looking at average days under water in of 98 days in the period of the last 3 years, we see it is relatively greater, thus worse in comparison to AGG (81 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 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.