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, 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:- Compared with the benchmark SPY (115.8%) in the period of the last 5 years, the total return of 67.2% of Universal Investment Strategy is lower, thus worse.
- Compared with SPY (57%) in the period of the last 3 years, the total return of 32.8% is lower, 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.'

Which means for our asset as example:- The compounded annual growth rate (CAGR) over 5 years of Universal Investment Strategy is 10.8%, which is smaller, thus worse compared to the benchmark SPY (16.7%) in the same period.
- Compared with SPY (16.3%) in the period of the last 3 years, the annual return (CAGR) of 9.9% is lower, thus worse.

'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 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 (18.8%)
- During the last 3 years, the volatility is 10.2%, which is smaller, 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.'

Using this definition on our asset we see for example:- Compared with the benchmark SPY (13.7%) in the period of the last 5 years, the downside deviation of 6.2% of Universal Investment Strategy is smaller, thus better.
- Looking at downside deviation in of 7.4% in the period of the last 3 years, we see it is relatively lower, thus better in comparison to SPY (16.4%).

'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.'

Which means for our asset as example:- The ratio of return and volatility (Sharpe) over 5 years of Universal Investment Strategy is 0.97, which is higher, thus better compared to the benchmark SPY (0.75) in the same period.
- Looking at risk / return profile (Sharpe) in of 0.73 in the period of the last 3 years, we see it is relatively larger, thus better in comparison to SPY (0.61).

'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 SPY (1.04) in the period of the last 5 years, the downside risk / excess return profile of 1.35 of Universal Investment Strategy is higher, thus better.
- Looking at excess return divided by the downside deviation in of 1.01 in the period of the last 3 years, we see it is relatively larger, thus better in comparison to SPY (0.84).

'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.'

Applying this definition to our asset in some examples:- The Downside risk index over 5 years of Universal Investment Strategy is 2.29 , 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.

'A maximum drawdown is the maximum loss from a peak to a trough of a portfolio, before a new peak is attained. Maximum Drawdown is an indicator of downside risk over a specified time period. It can be used both as a stand-alone measure or as an input into other metrics such as 'Return over Maximum Drawdown' and the Calmar Ratio. Maximum Drawdown is expressed in percentage terms.'

Which means for our asset as example:- Looking at the maximum DrawDown of -16.9 days in the last 5 years of Universal Investment Strategy, we see it is relatively larger, thus better in comparison to the benchmark SPY (-33.7 days)
- During the last 3 years, the maximum DrawDown is -16.9 days, which is larger, 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.'

Applying this definition to our asset in some examples:- The maximum days below previous high over 5 years of Universal Investment Strategy is 139 days, which is larger, thus worse compared to the benchmark SPY (139 days) in the same period.
- Compared with SPY (139 days) in the period of the last 3 years, the maximum time in days below previous high water mark of 104 days is smaller, thus better.

'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:- The average time in days below previous high water mark over 5 years of Universal Investment Strategy is 29 days, which is lower, thus better compared to the benchmark SPY (33 days) in the same period.
- Looking at average days below previous high in of 25 days in the period of the last 3 years, we see it is relatively lower, thus better in comparison to SPY (35 days).

Historical returns have been extended using synthetic data.
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- 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.