Description of Global Market Rotation Strategy

The Global Market Rotation Strategy is one of our core investment strategies. The strategy invests on a monthly basis in one of five broad global markets. It hedges the global equity exposure with variable allocation to the HEDGE sub-strategy.

Version History

December 2016 Update: We are enhancing the Treasury hedge. Before we allocated part of the portfolio to longer-term treasuries, namely the 3x leveraged ETF version, TMF. From now on we will be allocating to the best bond ETF as chosen by our Bond Rotation strategy (BRS). BRS choses from the JNK, CWB,PCY and TLT ETFs.

December 2015 Update: We are adding currency hedged ETFs in the universe that our algorithm can see. That means that we allow our algorithms to choose between a non-hedged ETF like EWG or a hedged ETF like HEWG. This allows our algorithm to input dollar strength as an additional parameter and be able to respond accordingly. This does not change the current logic, which is to bet on the best performing regions or countries. What it does is that it allows, in the case of extended dollar strength, to partially neutralize foreign currency risk for our U.S. based investors.

Statistics of Global Market Rotation Strategy (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.'

Which means for our asset as example:
  • The total return, or increase in value over 5 years of Global Market Rotation Strategy is 100.4%, which is greater, thus better compared to the benchmark ACWI (41.4%) in the same period.
  • Compared with ACWI (37.2%) in the period of the last 3 years, the total return, or increase in value of 44.2% is greater, thus better.

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.'

Using this definition on our asset we see for example:
  • Compared with the benchmark ACWI (7.2%) in the period of the last 5 years, the annual performance (CAGR) of 14.9% of Global Market Rotation Strategy is higher, thus better.
  • Compared with ACWI (11.1%) in the period of the last 3 years, the annual performance (CAGR) of 13% is greater, thus better.

Volatility:

'Volatility is a rate at which the price of a security increases or decreases for a given set of returns. Volatility is measured by calculating the standard deviation of the annualized returns over a given period of time. It shows the range to which the price of a security may increase or decrease. Volatility measures the risk of a security. It is used in option pricing formula to gauge the fluctuations in the returns of the underlying assets. Volatility indicates the pricing behavior of the security and helps estimate the fluctuations that may happen in a short period of time.'

Which means for our asset as example:
  • Looking at the historical 30 days volatility of 7% in the last 5 years of Global Market Rotation Strategy, we see it is relatively lower, thus better in comparison to the benchmark ACWI (13.2%)
  • Looking at volatility in of 6.6% in the period of the last 3 years, we see it is relatively lower, thus better in comparison to ACWI (12.2%).

DownVol:

'The downside volatility is similar to the volatility, or standard deviation, but only takes losing/negative periods into account.'

Using this definition on our asset we see for example:
  • The downside deviation over 5 years of Global Market Rotation Strategy is 7.7%, which is smaller, thus better compared to the benchmark ACWI (14.5%) in the same period.
  • During the last 3 years, the downside volatility is 7.4%, which is lower, thus better than the value of 14% from the benchmark.

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.'

Applying this definition to our asset in some examples:
  • Compared with the benchmark ACWI (0.35) in the period of the last 5 years, the risk / return profile (Sharpe) of 1.77 of Global Market Rotation Strategy is greater, thus better.
  • During the last 3 years, the risk / return profile (Sharpe) is 1.59, which is higher, thus better than the value of 0.71 from the benchmark.

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 excess return divided by the downside deviation of 1.62 in the last 5 years of Global Market Rotation Strategy, we see it is relatively greater, thus better in comparison to the benchmark ACWI (0.32)
  • During the last 3 years, the ratio of annual return and downside deviation is 1.41, which is greater, thus better than the value of 0.62 from the benchmark.

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.'

Which means for our asset as example:
  • Compared with the benchmark ACWI (6.16 ) in the period of the last 5 years, the Ulcer Ratio of 1.58 of Global Market Rotation Strategy is lower, thus worse.
  • Compared with ACWI (5.04 ) in the period of the last 3 years, the Downside risk index of 1.4 is lower, thus worse.

MaxDD:

'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.'

Which means for our asset as example:
  • Compared with the benchmark ACWI (-19.5 days) in the period of the last 5 years, the maximum drop from peak to valley of -6.5 days of Global Market Rotation Strategy is larger, thus better.
  • Compared with ACWI (-19.5 days) in the period of the last 3 years, the maximum reduction from previous high of -6.4 days is larger, thus better.

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:
  • The maximum days below previous high over 5 years of Global Market Rotation Strategy is 178 days, which is lower, thus better compared to the benchmark ACWI (408 days) in the same period.
  • Compared with ACWI (311 days) in the period of the last 3 years, the maximum days under water of 141 days is lower, thus better.

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 ACWI (125 days) in the period of the last 5 years, the average days under water of 36 days of Global Market Rotation Strategy is smaller, thus better.
  • Compared with ACWI (82 days) in the period of the last 3 years, the average days below previous high of 30 days is lower, thus better.

Performance of Global Market Rotation Strategy (YTD)

Historical returns have been extended using synthetic data.

Allocations of Global Market Rotation Strategy
()

Allocations

Returns of Global Market Rotation Strategy (%)

  • "Year" returns in the table above are not equal to the sum of monthly returns due to compounding.
  • Performance results of Global Market 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.