The Universal Investment Strategy (UIS) is one of our core investment strategies. It is an evolved, intelligent version of the classic 60/40 equity/bond portfolio. Much like the classic portfolio, UIS holds both the S&P 500 index and bonds. However, UIS can intelligently adapt to current conditions by shifting weight away from stocks in difficult markets and adding weight in bullish markets.

Instead of using simple bond ETF, UIS uses a sub-strategy, called HEDGE, which can choose between different types of safe-heaven ETFs.

The equity/bond (or in our case equity/HEDGE) pair is interesting because most of the time these two asset classes profit from an inverse correlation. If there is a real stock market correction, usually ETFs included in the HEDGE strategy (Treasuries, Gold, etc) are the 'safe' assets where money flows to, providing crash protection.

'Total return is the amount of value an investor earns from a security over a specific period, typically one year, when all distributions are reinvested. Total return is expressed as a percentage of the amount invested. For example, a total return of 20% means the security increased by 20% of its original value due to a price increase, distribution of dividends (if a stock), coupons (if a bond) or capital gains (if a fund). Total return is a strong measure of an investment’s overall performance.'

Which means for our asset as example:- The total return, or increase in value over 5 years of Universal Investment Strategy is 66.4%, which is smaller, thus worse compared to the benchmark SPY (122.7%) in the same period.
- Compared with SPY (65.3%) in the period of the last 3 years, the total return of 40.1% is smaller, thus worse.

'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:- The annual return (CAGR) over 5 years of Universal Investment Strategy is 10.7%, which is smaller, thus worse compared to the benchmark SPY (17.4%) in the same period.
- Looking at annual return (CAGR) in of 11.9% in the period of the last 3 years, we see it is relatively smaller, thus worse in comparison to SPY (18.2%).

'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 30 days standard deviation of 8.6% in the last 5 years of Universal Investment Strategy, we see it is relatively lower, thus better in comparison to the benchmark SPY (18.7%)
- During the last 3 years, the 30 days standard deviation is 10.2%, which is lower, thus better than the value of 22.5% from the benchmark.

'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.'

Applying this definition to our asset in some examples:- The downside deviation over 5 years of Universal Investment Strategy is 6.2%, which is lower, thus better compared to the benchmark SPY (13.6%) in the same period.
- During the last 3 years, the downside volatility is 7.4%, which is lower, thus better than the value of 16.3% from the benchmark.

'The Sharpe ratio was developed by Nobel laureate William F. Sharpe, and is used to help investors understand the return of an investment compared to its risk. The ratio is the average return earned in excess of the risk-free rate per unit of volatility or total risk. Subtracting the risk-free rate from the mean return allows an investor to better isolate the profits associated with risk-taking activities. One intuition of this calculation is that a portfolio engaging in 'zero risk' investments, such as the purchase of U.S. Treasury bills (for which the expected return is the risk-free rate), has a Sharpe ratio of exactly zero. Generally, the greater the value of the Sharpe ratio, the more attractive the risk-adjusted return.'

Applying this definition to our asset in some examples:- The risk / return profile (Sharpe) over 5 years of Universal Investment Strategy is 0.96, which is greater, thus better compared to the benchmark SPY (0.8) in the same period.
- During the last 3 years, the Sharpe Ratio is 0.92, which is larger, thus better than the value of 0.7 from the benchmark.

'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.'

Applying this definition to our asset in some examples:- Looking at the ratio of annual return and downside deviation of 1.33 in the last 5 years of Universal Investment Strategy, we see it is relatively greater, thus better in comparison to the benchmark SPY (1.1)
- Compared with SPY (0.96) in the period of the last 3 years, the downside risk / excess return profile of 1.27 is greater, thus better.

'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.'

Applying this definition to our asset in some examples:- The Ulcer Index over 5 years of Universal Investment Strategy is 2.3 , which is lower, thus better compared to the benchmark SPY (5.58 ) in the same period.
- During the last 3 years, the Ulcer Index is 2.69 , which is smaller, thus better than the value of 6.83 from the benchmark.

'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 drop from peak to valley over 5 years of Universal Investment Strategy is -16.9 days, which is greater, thus better compared to the benchmark SPY (-33.7 days) in the same period.
- During the last 3 years, the maximum reduction from previous high is -16.9 days, which is greater, thus better than the value of -33.7 days from the benchmark.

'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:- Looking at the maximum days under water of 139 days in the last 5 years of Universal Investment Strategy, we see it is relatively higher, thus worse in comparison to the benchmark SPY (139 days)
- During the last 3 years, the maximum days below previous high is 104 days, which is smaller, thus better than the value of 139 days from the benchmark.

'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.'

Which means for our asset as example:- Compared with the benchmark SPY (33 days) in the period of the last 5 years, the average time in days below previous high water mark of 29 days of Universal Investment Strategy is smaller, thus better.
- Compared with SPY (35 days) in the period of the last 3 years, the average time in days below previous high water mark of 25 days is smaller, thus better.

Historical returns have been extended using synthetic data.
[Show Details]

Allocations and holdings shown below are delayed by one month. To see current trading allocations of Universal Investment Strategy, register now.

()

- Note that yearly returns do not equal the sum of monthly returns due to compounding.
- Performance results of Universal Investment 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.