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:

'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 increase in value over 5 years of Short Term Bond Strategy is 15.7%, which is higher, thus better compared to the benchmark SHY (4%) in the same period.
  • During the last 3 years, the total return, or performance is 9.6%, which is larger, thus better than the value of 0.2% from the benchmark.

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.'

Using this definition on our asset we see for example:
  • Compared with the benchmark SHY (0.8%) in the period of the last 5 years, the annual return (CAGR) of 3% of Short Term Bond Strategy is greater, thus better.
  • Compared with SHY (0.1%) in the period of the last 3 years, the annual performance (CAGR) of 3.1% is greater, thus better.

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.'

Applying this definition to our asset in some examples:
  • Looking at the historical 30 days volatility of 2% 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%)
  • During the last 3 years, the volatility is 2.5%, which is higher, thus worse than the value of 1.4% from the benchmark.

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:
  • The downside deviation over 5 years of Short Term Bond Strategy is 1.6%, which is higher, thus worse compared to the benchmark SHY (0.8%) in the same period.
  • During the last 3 years, the downside volatility is 2.1%, which is greater, thus worse than the value of 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:
  • Compared with the benchmark SHY (-1.42) in the period of the last 5 years, the ratio of return and volatility (Sharpe) of 0.24 of Short Term Bond Strategy is larger, thus better.
  • Looking at Sharpe Ratio in of 0.24 in the period of the last 3 years, we see it is relatively higher, thus better in comparison to SHY (-1.78).

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:
  • Compared with the benchmark SHY (-2.07) in the period of the last 5 years, the excess return divided by the downside deviation of 0.29 of Short Term Bond Strategy is greater, thus better.
  • During the last 3 years, the downside risk / excess return profile is 0.3, which is higher, thus better than the value of -2.48 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.'

Using this definition on our asset we see for example:
  • Looking at the Downside risk index of 0.49 in the last 5 years of Short Term Bond Strategy, we see it is relatively smaller, thus better in comparison to the benchmark SHY (1 )
  • Looking at Ulcer Index in of 0.63 in the period of the last 3 years, we see it is relatively smaller, thus better in comparison to SHY (1.21 ).

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:
  • The maximum DrawDown over 5 years of Short Term Bond Strategy is -5.2 days, which is smaller, thus worse compared to the benchmark SHY (-4.7 days) in the same period.
  • During the last 3 years, the maximum drop from peak to valley is -5.2 days, which is lower, thus worse than the value of -4.7 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.'

Which means for our asset as example:
  • Compared with the benchmark SHY (308 days) in the period of the last 5 years, the maximum days under water of 154 days of Short Term Bond Strategy is lower, thus better.
  • During the last 3 years, the maximum time in days below previous high water mark is 154 days, which is lower, thus better than the value of 229 days from the benchmark.

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.'

Using this definition on our asset we see for example:
  • Looking at the average days under water of 24 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 (80 days)
  • Looking at average days under water in of 31 days in the period of the last 3 years, we see it is relatively lower, thus better in comparison to SHY (61 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.