Description of Leveraged Universal Investment Strategy

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 of Leveraged Universal Investment Strategy (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:
  • Looking at the total return, or performance of 203.3% in the last 5 years of Leveraged Universal Investment Strategy, we see it is relatively larger, thus better in comparison to the benchmark SPY (64%)
  • Looking at total return, or increase in value in of 76.9% in the period of the last 3 years, we see it is relatively greater, thus better in comparison to SPY (51.6%).

CAGR:

'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:
  • Compared with the benchmark SPY (10.4%) in the period of the last 5 years, the annual return (CAGR) of 24.9% of Leveraged Universal Investment Strategy is larger, thus better.
  • During the last 3 years, the annual return (CAGR) is 21%, which is larger, thus better than the value of 14.9% 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.'

Which means for our asset as example:
  • Looking at the 30 days standard deviation of 23% in the last 5 years of Leveraged Universal Investment Strategy, we see it is relatively greater, thus worse in comparison to the benchmark SPY (13.4%)
  • Compared with SPY (12.5%) in the period of the last 3 years, the 30 days standard deviation of 21.7% is larger, thus worse.

DownVol:

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

Using this definition on our asset we see for example:
  • Compared with the benchmark SPY (14.6%) in the period of the last 5 years, the downside risk of 25.6% of Leveraged Universal Investment Strategy is higher, thus worse.
  • Looking at downside volatility in of 24.3% in the period of the last 3 years, we see it is relatively greater, thus worse in comparison to SPY (14%).

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.'

Using this definition on our asset we see for example:
  • Compared with the benchmark SPY (0.59) in the period of the last 5 years, the risk / return profile (Sharpe) of 0.97 of Leveraged Universal Investment Strategy is larger, thus better.
  • Looking at ratio of return and volatility (Sharpe) in of 0.85 in the period of the last 3 years, we see it is relatively lower, thus worse in comparison to SPY (1).

Sortino:

'The Sortino ratio measures the risk-adjusted return of an investment asset, portfolio, or strategy. It is a modification of the Sharpe ratio but penalizes only those returns falling below a user-specified target or required rate of return, while the Sharpe ratio penalizes both upside and downside volatility equally. Though both ratios measure an investment's risk-adjusted return, they do so in significantly different ways that will frequently lead to differing conclusions as to the true nature of the investment's return-generating efficiency. The Sortino ratio is used as a way to compare the risk-adjusted performance of programs with differing risk and return profiles. In general, risk-adjusted returns seek to normalize the risk across programs and then see which has the higher return unit per risk.'

Using this definition on our asset we see for example:
  • The excess return divided by the downside deviation over 5 years of Leveraged Universal Investment Strategy is 0.87, which is larger, thus better compared to the benchmark SPY (0.54) in the same period.
  • Looking at excess return divided by the downside deviation in of 0.76 in the period of the last 3 years, we see it is relatively smaller, thus worse in comparison to SPY (0.89).

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:
  • Compared with the benchmark SPY (3.99 ) in the period of the last 5 years, the Downside risk index of 14 of Leveraged Universal Investment Strategy is higher, thus worse.
  • Compared with SPY (4.04 ) in the period of the last 3 years, the Ulcer Ratio of 16 is greater, thus worse.

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.'

Which means for our asset as example:
  • Looking at the maximum reduction from previous high of -38.3 days in the last 5 years of Leveraged Universal Investment Strategy, we see it is relatively lower, thus worse in comparison to the benchmark SPY (-19.3 days)
  • Looking at maximum reduction from previous high in of -38.3 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.'

Applying this definition to our asset in some examples:
  • The maximum days below previous high over 5 years of Leveraged Universal Investment Strategy is 350 days, which is larger, thus worse compared to the benchmark SPY (187 days) in the same period.
  • Looking at maximum time in days below previous high water mark in of 350 days in the period of the last 3 years, we see it is relatively greater, thus worse in comparison to SPY (139 days).

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 109 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 (41 days)
  • During the last 3 years, the average time in days below previous high water mark is 107 days, which is greater, thus worse than the value of 36 days from the benchmark.

Performance of Leveraged Universal Investment Strategy (YTD)

Historical returns have been extended using synthetic data.

Allocations of Leveraged Universal Investment Strategy
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Allocations

Returns of Leveraged Universal Investment Strategy (%)

  • "Year" returns in the table above are not equal to 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.