Description

The Short Term Bond Strategy is essentially a place to park cash that earns interest. When combined with other higher risk strategies it creates a lower risk portfolio and generally improves the portfolio's Sharpe ratio. If your broker pays interest on cash balances that is comparable to the current yield of this strategy, you can choose to keep this allocation in cash instead.

Methodology & Assets

This strategy switches between very low risk ETFs that hold short term corporate or treasury bonds including GSY, MINT and NEAR.

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:
  • Looking at the total return, or performance of 15.3% in the last 5 years of Short Term Bond Strategy, we see it is relatively higher, thus better in comparison to the benchmark SHY (3%)
  • Looking at total return, or increase in value in of 8.9% in the period of the last 3 years, we see it is relatively larger, thus better in comparison to SHY (-1.6%).

CAGR:

'The compound annual growth rate isn't a true return rate, but rather a representational figure. It is essentially a number that describes the rate at which an investment would have grown if it had grown the same rate every year and the profits were reinvested at the end of each year. In reality, this sort of performance is unlikely. However, CAGR can be used to smooth returns so that they may be more easily understood when compared to alternative investments.'

Applying this definition to our asset in some examples:
  • Looking at the compounded annual growth rate (CAGR) of 2.9% in the last 5 years of Short Term Bond Strategy, we see it is relatively greater, thus better in comparison to the benchmark SHY (0.6%)
  • During the last 3 years, the annual performance (CAGR) is 2.9%, which is larger, thus better than the value of -0.5% 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:
  • Looking at the volatility of 2% in the last 5 years of Short Term Bond Strategy, we see it is relatively greater, thus worse in comparison to the benchmark SHY (1.4%)
  • Compared with SHY (1.6%) in the period of the last 3 years, the 30 days standard deviation of 2.5% is higher, thus worse.

DownVol:

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

Which means for our asset as example:
  • Looking at the downside volatility of 1.6% in the last 5 years of Short Term Bond Strategy, we see it is relatively larger, thus worse in comparison to the benchmark SHY (1%)
  • During the last 3 years, the downside volatility is 2.1%, which is greater, thus worse than the value of 1.1% 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:
  • The ratio of return and volatility (Sharpe) over 5 years of Short Term Bond Strategy is 0.2, which is greater, thus better compared to the benchmark SHY (-1.37) in the same period.
  • Looking at ratio of return and volatility (Sharpe) in of 0.15 in the period of the last 3 years, we see it is relatively greater, thus better in comparison to SHY (-1.94).

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.'

Which means for our asset as example:
  • Compared with the benchmark SHY (-2) in the period of the last 5 years, the ratio of annual return and downside deviation of 0.25 of Short Term Bond Strategy is higher, thus better.
  • During the last 3 years, the excess return divided by the downside deviation is 0.19, which is greater, thus better than the value of -2.71 from the benchmark.

Ulcer:

'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.'

Which means for our asset as example:
  • The Ulcer Index over 5 years of Short Term Bond Strategy is 0.52 , which is lower, thus better compared to the benchmark SHY (1.67 ) in the same period.
  • Compared with SHY (2.14 ) in the period of the last 3 years, the Downside risk index of 0.67 is smaller, thus better.

MaxDD:

'Maximum drawdown measures the loss in any losing period during a fund’s investment record. It is defined as the percent retrenchment from a fund’s peak value to the fund’s valley value. The drawdown is in effect from the time the fund’s retrenchment begins until a new fund high is reached. The maximum drawdown encompasses both the period from the fund’s peak to the fund’s valley (length), and the time from the fund’s valley to a new fund high (recovery). It measures the largest percentage drawdown that has occurred in any fund’s data record.'

Applying this definition to our asset in some examples:
  • The maximum DrawDown over 5 years of Short Term Bond Strategy is -5.2 days, which is larger, thus better compared to the benchmark SHY (-5.7 days) in the same period.
  • Looking at maximum reduction from previous high in of -5.2 days in the period of the last 3 years, we see it is relatively higher, thus better in comparison to SHY (-5.7 days).

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.'

Applying this definition to our asset in some examples:
  • Compared with the benchmark SHY (339 days) in the period of the last 5 years, the maximum days below previous high of 264 days of Short Term Bond Strategy is lower, thus better.
  • Looking at maximum time in days below previous high water mark in of 264 days in the period of the last 3 years, we see it is relatively lower, thus better in comparison to SHY (339 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.'

Applying this definition to our asset in some examples:
  • Looking at the average time in days below previous high water mark of 53 days in the last 5 years of Short Term Bond Strategy, we see it is relatively smaller, thus better in comparison to the benchmark SHY (73 days)
  • Looking at average days below previous high in of 68 days in the period of the last 3 years, we see it is relatively smaller, thus better in comparison to SHY (101 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 Short Term Bond 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.