Due to announced delisting of UGLD as of July 12, 2020, with last trading day July 2, 2020, we're replacing UGLD by a leveraged GLD position. Therefore the total allocation of the strategy can exceed 100%. See more information in this article.

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.

- 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

'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.'

Using this definition on our asset we see for example:- The total return over 5 years of Universal Investment Strategy 3x Leverage is 384.7%, which is higher, thus better compared to the benchmark SPY (90.6%) in the same period.
- Compared with SPY (45.9%) in the period of the last 3 years, the total return, or performance of 153.2% is higher, thus better.

'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:- Looking at the annual performance (CAGR) of 37.1% in the last 5 years of Universal Investment Strategy 3x Leverage, we see it is relatively larger, thus better in comparison to the benchmark SPY (13.8%)
- During the last 3 years, the annual return (CAGR) is 36.3%, which is greater, thus better than the value of 13.4% from the benchmark.

'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.'

Applying this definition to our asset in some examples:- Looking at the historical 30 days volatility of 25.8% in the last 5 years of Universal Investment Strategy 3x Leverage, we see it is relatively greater, thus worse in comparison to the benchmark SPY (19%)
- Compared with SPY (22.8%) in the period of the last 3 years, the 30 days standard deviation of 29.3% is larger, thus worse.

'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.'

Which means for our asset as example:- Looking at the downside volatility of 18.3% in the last 5 years of Universal Investment Strategy 3x Leverage, we see it is relatively larger, thus worse in comparison to the benchmark SPY (13.8%)
- Looking at downside deviation in of 21% in the period of the last 3 years, we see it is relatively larger, thus worse in comparison to SPY (16.7%).

'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:- Compared with the benchmark SPY (0.59) in the period of the last 5 years, the risk / return profile (Sharpe) of 1.34 of Universal Investment Strategy 3x Leverage is larger, thus better.
- Looking at Sharpe Ratio in of 1.16 in the period of the last 3 years, we see it is relatively larger, thus better in comparison to SPY (0.48).

'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.'

Which means for our asset as example:- Looking at the ratio of annual return and downside deviation of 1.9 in the last 5 years of Universal Investment Strategy 3x Leverage, we see it is relatively higher, thus better in comparison to the benchmark SPY (0.82)
- Compared with SPY (0.65) in the period of the last 3 years, the downside risk / excess return profile of 1.61 is larger, 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.'

Which means for our asset as example:- Compared with the benchmark SPY (5.82 ) in the period of the last 5 years, the Ulcer Ratio of 8.16 of Universal Investment Strategy 3x Leverage is greater, thus worse.
- Compared with SPY (7.15 ) in the period of the last 3 years, the Ulcer Index of 9.3 is greater, thus worse.

'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:- Compared with the benchmark SPY (-33.7 days) in the period of the last 5 years, the maximum reduction from previous high of -40.7 days of Universal Investment Strategy 3x Leverage is lower, thus worse.
- During the last 3 years, the maximum reduction from previous high is -40.7 days, which is smaller, thus worse 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). Many assume Max DD Duration is the length of time between new highs during which the Max DD (magnitude) occurred. But that isn’t always the case. The Max DD duration is the longest time between peaks, period. So it could be the time when the program also had its biggest peak to valley loss (and usually is, because the program needs a long time to recover from the largest loss), but it doesn’t have to be'

Applying this definition to our asset in some examples:- The maximum days under water over 5 years of Universal Investment Strategy 3x Leverage is 265 days, which is higher, 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 265 days is higher, thus worse.

'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.'

Which means for our asset as example:- Compared with the benchmark SPY (36 days) in the period of the last 5 years, the average time in days below previous high water mark of 50 days of Universal Investment Strategy 3x Leverage is larger, thus worse.
- Looking at average time in days below previous high water mark in of 66 days in the period of the last 3 years, we see it is relatively higher, thus worse in comparison to SPY (45 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 3x Leverage 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.