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 of 20.3% in the last 5 years of Short Term Bond Strategy, we see it is relatively greater, thus better in comparison to the benchmark SHY (4.8%)
  • Compared with SHY (-0.7%) in the period of the last 3 years, the total return, or performance of 12.7% is larger, 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.'

Using this definition on our asset we see for example:
  • Looking at the annual performance (CAGR) of 3.8% in the last 5 years of Short Term Bond Strategy, we see it is relatively greater, thus better in comparison to the benchmark SHY (0.9%)
  • During the last 3 years, the compounded annual growth rate (CAGR) is 4.1%, which is greater, thus better than the value of -0.2% from the benchmark.

Volatility:

'Volatility is a statistical measure of the dispersion of returns for a given security or market index. Volatility can either be measured by using the standard deviation or variance between returns from that same security or market index. Commonly, the higher the volatility, the riskier the security. In the securities markets, volatility is often associated with big swings in either direction. For example, when the stock market rises and falls more than one percent over a sustained period of time, it is called a 'volatile' market.'

Using this definition on our asset we see for example:
  • Compared with the benchmark SHY (1.9%) in the period of the last 5 years, the historical 30 days volatility of 2% of Short Term Bond Strategy is greater, thus worse.
  • Compared with SHY (2.2%) in the period of the last 3 years, the volatility of 1.4% is smaller, thus better.

DownVol:

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

Applying this definition to our asset in some examples:
  • Looking at the downside risk 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 (1.2%)
  • Looking at downside volatility in of 0.9% in the period of the last 3 years, we see it is relatively smaller, thus better in comparison to SHY (1.5%).

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:
  • Looking at the risk / return profile (Sharpe) of 0.63 in the last 5 years of Short Term Bond Strategy, we see it is relatively greater, thus better in comparison to the benchmark SHY (-0.83)
  • During the last 3 years, the ratio of return and volatility (Sharpe) is 1.12, which is higher, thus better than the value of -1.24 from the benchmark.

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 ratio of annual return and downside deviation over 5 years of Short Term Bond Strategy is 0.78, which is higher, thus better compared to the benchmark SHY (-1.27) in the same period.
  • During the last 3 years, the downside risk / excess return profile is 1.75, which is higher, thus better than the value of -1.85 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.'

Using this definition on our asset we see for example:
  • The Ulcer Ratio over 5 years of Short Term Bond Strategy is 0.52 , which is smaller, thus better compared to the benchmark SHY (2.27 ) in the same period.
  • During the last 3 years, the Ulcer Ratio is 0.46 , which is lower, thus better than the value of 2.93 from the benchmark.

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.'

Which means for our asset as example:
  • Compared with the benchmark SHY (-5.7 days) in the period of the last 5 years, the maximum DrawDown of -5.2 days of Short Term Bond Strategy is greater, thus better.
  • During the last 3 years, the maximum reduction from previous high is -2 days, which is larger, thus better than the value of -5.7 days from the benchmark.

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 (679 days) in the period of the last 5 years, the maximum time in days below previous high water mark of 265 days of Short Term Bond Strategy is smaller, thus better.
  • Compared with SHY (679 days) in the period of the last 3 years, the maximum days below previous high of 265 days is smaller, 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.'

Using this definition on our asset we see for example:
  • Compared with the benchmark SHY (209 days) in the period of the last 5 years, the average time in days below previous high water mark of 53 days of Short Term Bond Strategy is smaller, thus better.
  • Looking at average time in days below previous high water mark in of 73 days in the period of the last 3 years, we see it is relatively lower, thus better in comparison to SHY (312 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.