Description

The U.S. Market Strategy was designed as an alternative to our Universal Investment Strategy which allocates between SPY (S&P 500 ETF) and TLT (U.S. Treasuries ETF). The equity component of this new strategy switches between SPY (S&P500), QQQ (Nasdaq 100), DIA (Dow 30) and SPLV (S&P 500 low volatility) so it can take advantage of different market conditions. The addition of SPLV provides a good defensive option in times of high market volatility. 

In addition to U.S. equities, the strategy utilizes a hedge strategy that switches between TLT, TIP, UUP and GLD.

The strategy's backtests performed substantially better than a simple SPY-TLT investment. All of the component ETFs are very liquid with small spreads making them easy to trade with negligible costs. 

 

Statistics (YTD)

What do these metrics mean? [Read More] [Hide]

TotalReturn:

'The total return on a portfolio of investments takes into account not only the capital appreciation on the portfolio, but also the income received on the portfolio. The income typically consists of interest, dividends, and securities lending fees. This contrasts with the price return, which takes into account only the capital gain on an investment.'

Applying this definition to our asset in some examples:
  • Looking at the total return, or increase in value of 89.1% in the last 5 years of US Market Strategy, we see it is relatively smaller, thus worse in comparison to the benchmark DIA (112.4%)
  • During the last 3 years, the total return is 42.3%, which is larger, thus better than the value of 40.1% from the benchmark.

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.'

Which means for our asset as example:
  • Compared with the benchmark DIA (16.3%) in the period of the last 5 years, the compounded annual growth rate (CAGR) of 13.6% of US Market Strategy is lower, thus worse.
  • Looking at compounded annual growth rate (CAGR) in of 12.5% in the period of the last 3 years, we see it is relatively larger, thus better in comparison to DIA (11.9%).

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.'

Which means for our asset as example:
  • Compared with the benchmark DIA (19.9%) in the period of the last 5 years, the 30 days standard deviation of 9% of US Market Strategy is lower, thus better.
  • Looking at historical 30 days volatility in of 10.6% in the period of the last 3 years, we see it is relatively lower, thus better in comparison to DIA (24.1%).

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 DIA (14.4%) in the period of the last 5 years, the downside deviation of 6.4% of US Market Strategy is lower, thus better.
  • Looking at downside volatility in of 7.5% in the period of the last 3 years, we see it is relatively lower, thus better in comparison to DIA (17.5%).

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.'

Applying this definition to our asset in some examples:
  • The risk / return profile (Sharpe) over 5 years of US Market Strategy is 1.23, which is greater, thus better compared to the benchmark DIA (0.69) in the same period.
  • Compared with DIA (0.39) in the period of the last 3 years, the ratio of return and volatility (Sharpe) of 0.95 is larger, thus better.

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.'

Using this definition on our asset we see for example:
  • The excess return divided by the downside deviation over 5 years of US Market Strategy is 1.74, which is larger, thus better compared to the benchmark DIA (0.96) in the same period.
  • During the last 3 years, the ratio of annual return and downside deviation is 1.33, which is higher, thus better than the value of 0.54 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.'

Using this definition on our asset we see for example:
  • The Ulcer Ratio over 5 years of US Market Strategy is 1.98 , which is smaller, thus better compared to the benchmark DIA (6.28 ) in the same period.
  • Looking at Ulcer Ratio in of 2.45 in the period of the last 3 years, we see it is relatively lower, thus better in comparison to DIA (7.58 ).

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.'

Applying this definition to our asset in some examples:
  • Looking at the maximum reduction from previous high of -15.3 days in the last 5 years of US Market Strategy, we see it is relatively higher, thus better in comparison to the benchmark DIA (-36.7 days)
  • Looking at maximum drop from peak to valley in of -15.3 days in the period of the last 3 years, we see it is relatively greater, thus better in comparison to DIA (-36.7 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:
  • Compared with the benchmark DIA (187 days) in the period of the last 5 years, the maximum days under water of 97 days of US Market Strategy is smaller, thus better.
  • During the last 3 years, the maximum time in days below previous high water mark is 97 days, which is lower, thus better than the value of 187 days from the benchmark.

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.'

Applying this definition to our asset in some examples:
  • The average days below previous high over 5 years of US Market Strategy is 19 days, which is lower, thus better compared to the benchmark DIA (45 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 DIA (48 days).

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 US Market 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.