Description

The 3X Universal Investment Strategy (UISx3) is a leveraged version of our core Universal Investment Strategy (UIS), an evolved, intelligent version of the classic 60/40 equity/bond portfolio that can adapt to current conditions, shifting portfolio weight away from stocks in difficult markets and adding weight to equity in bull runs.

The 3x leveraged version of the strategy employs SPXL, TMF and UGLD, which are the leveraged versions of the S&P 500 ETF, the Treasury 20+ year ETF and the Gold ETF. Unlike the base UIS, the leveraged version only uses TMF and UGLD to hedge SPXL exposure.

The UISx3 is appropriate for investors who are comfortable taking on higher risks in exchange for the potential for of higher returns. Because leveraged ETFs are used, we recommend allocating no more than 15% of your total portfolio to this strategy.

Methodology & Assets
  • SPXL - Direxion Daily S&P 500 Bull 3X Shares ETF
  • TMF - Direxion Daily 30-Year Treasury Bull 3x Shares ETF
  • UGLD - VelocityShares 3x Long Gold ETN

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.'

Applying this definition to our asset in some examples:
  • Compared with the benchmark SPY (77.1%) in the period of the last 5 years, the total return, or performance of 243.5% of Leveraged Universal Investment Strategy is higher, thus better.
  • Looking at total return in of 151.6% in the period of the last 3 years, we see it is relatively higher, thus better in comparison to SPY (51.7%).

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:
  • The compounded annual growth rate (CAGR) over 5 years of Leveraged Universal Investment Strategy is 28%, which is greater, thus better compared to the benchmark SPY (12.1%) in the same period.
  • During the last 3 years, the annual performance (CAGR) is 36.1%, which is larger, thus better than the value of 14.9% 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.'

Using this definition on our asset we see for example:
  • Compared with the benchmark SPY (13.3%) in the period of the last 5 years, the volatility of 19.9% of Leveraged Universal Investment Strategy is greater, thus worse.
  • Looking at historical 30 days volatility in of 18% in the period of the last 3 years, we see it is relatively greater, thus worse in comparison to SPY (13%).

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:
  • Compared with the benchmark SPY (9.6%) in the period of the last 5 years, the downside risk of 13.9% of Leveraged Universal Investment Strategy is greater, thus worse.
  • Compared with SPY (9.4%) in the period of the last 3 years, the downside volatility of 12.5% is higher, thus worse.

Sharpe:

'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.'

Using this definition on our asset we see for example:
  • The risk / return profile (Sharpe) over 5 years of Leveraged Universal Investment Strategy is 1.28, which is greater, thus better compared to the benchmark SPY (0.72) in the same period.
  • Looking at ratio of return and volatility (Sharpe) in of 1.87 in the period of the last 3 years, we see it is relatively greater, thus better in comparison to SPY (0.96).

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.'

Applying this definition to our asset in some examples:
  • Compared with the benchmark SPY (1) in the period of the last 5 years, the excess return divided by the downside deviation of 1.84 of Leveraged Universal Investment Strategy is greater, thus better.
  • During the last 3 years, the ratio of annual return and downside deviation is 2.69, which is larger, thus better than the value of 1.32 from the benchmark.

Ulcer:

'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:
  • Looking at the Ulcer Ratio of 9.51 in the last 5 years of Leveraged Universal Investment Strategy, we see it is relatively larger, thus worse in comparison to the benchmark SPY (3.97 )
  • During the last 3 years, the Downside risk index is 7.98 , which is greater, thus worse than the value of 4.1 from the benchmark.

MaxDD:

'Maximum drawdown is defined as the peak-to-trough decline of an investment during a specific period. It is usually quoted as a percentage of the peak value. The maximum drawdown can be calculated based on absolute returns, in order to identify strategies that suffer less during market downturns, such as low-volatility strategies. However, the maximum drawdown can also be calculated based on returns relative to a benchmark index, for identifying strategies that show steady outperformance over time.'

Using this definition on our asset we see for example:
  • Compared with the benchmark SPY (-19.3 days) in the period of the last 5 years, the maximum drop from peak to valley of -23.5 days of Leveraged Universal Investment Strategy is lower, thus worse.
  • Looking at maximum drop from peak to valley in of -23.2 days in the period of the last 3 years, we see it is relatively lower, thus worse in comparison to SPY (-19.3 days).

MaxDuration:

'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.'

Using this definition on our asset we see for example:
  • The maximum time in days below previous high water mark over 5 years of Leveraged Universal Investment Strategy is 265 days, which is greater, thus worse compared to the benchmark SPY (187 days) in the same period.
  • Looking at maximum days below previous high in of 265 days in the period of the last 3 years, we see it is relatively larger, thus worse in comparison to SPY (139 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.'

Using this definition on our asset we see for example:
  • Looking at the average days below previous high of 71 days in the last 5 years of Leveraged Universal Investment Strategy, we see it is relatively greater, thus worse in comparison to the benchmark SPY (42 days)
  • Compared with SPY (37 days) in the period of the last 3 years, the average days under water of 62 days is higher, thus worse.

Performance (YTD)

Historical returns have been extended using synthetic data.

Allocations
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Allocations

Returns (%)

  • Note that yearly returns do not equal the sum of monthly returns due to compounding.
  • Performance results of Leveraged 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.