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.

'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.'

Using this definition on our asset we see for example:- Looking at the total return, or increase in value of 107.6% in the last 5 years of US Market Strategy, we see it is relatively lower, thus worse in comparison to the benchmark DIA (114.2%)
- Looking at total return in of 46.4% in the period of the last 3 years, we see it is relatively smaller, thus worse in comparison to DIA (50.3%).

'Compound annual growth rate (CAGR) is a business and investing specific term for the geometric progression ratio that provides a constant rate of return over the time period. CAGR is not an accounting term, but it is often used to describe some element of the business, for example revenue, units delivered, registered users, etc. CAGR dampens the effect of volatility of periodic returns that can render arithmetic means irrelevant. It is particularly useful to compare growth rates from various data sets of common domain such as revenue growth of companies in the same industry.'

Which means for our asset as example:- Compared with the benchmark DIA (16.5%) in the period of the last 5 years, the annual performance (CAGR) of 15.7% of US Market Strategy is lower, thus worse.
- Compared with DIA (14.5%) in the period of the last 3 years, the compounded annual growth rate (CAGR) of 13.5% is lower, thus worse.

'Volatility is a rate at which the price of a security increases or decreases for a given set of returns. Volatility is measured by calculating the standard deviation of the annualized returns over a given period of time. It shows the range to which the price of a security may increase or decrease. Volatility measures the risk of a security. It is used in option pricing formula to gauge the fluctuations in the returns of the underlying assets. Volatility indicates the pricing behavior of the security and helps estimate the fluctuations that may happen in a short period of time.'

Using this definition on our asset we see for example:- The volatility over 5 years of US Market Strategy is 9.2%, which is smaller, thus better compared to the benchmark DIA (19.9%) in the same period.
- Looking at historical 30 days volatility in of 10.5% in the period of the last 3 years, we see it is relatively lower, thus better in comparison to DIA (24%).

'Downside risk is the financial risk associated with losses. That is, it is the risk of the actual return being below the expected return, or the uncertainty about the magnitude of that difference. 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:- The downside deviation over 5 years of US Market Strategy is 6.4%, which is smaller, thus better compared to the benchmark DIA (14.4%) in the same period.
- During the last 3 years, the downside risk is 7.4%, which is smaller, thus better than the value of 17.4% from the benchmark.

'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:- Looking at the Sharpe Ratio of 1.45 in the last 5 years of US Market Strategy, we see it is relatively higher, thus better in comparison to the benchmark DIA (0.7)
- Compared with DIA (0.5) in the period of the last 3 years, the Sharpe Ratio of 1.05 is greater, thus better.

'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.'

Using this definition on our asset we see for example:- Looking at the excess return divided by the downside deviation of 2.07 in the last 5 years of US Market Strategy, we see it is relatively larger, thus better in comparison to the benchmark DIA (0.97)
- Compared with DIA (0.69) in the period of the last 3 years, the excess return divided by the downside deviation of 1.48 is higher, 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:- Looking at the Ulcer Index of 1.93 in the last 5 years of US Market Strategy, we see it is relatively lower, thus better in comparison to the benchmark DIA (6.28 )
- Compared with DIA (7.57 ) in the period of the last 3 years, the Downside risk index of 2.39 is lower, thus better.

'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 reduction from previous high of -15.3 days in the last 5 years of US Market Strategy, we see it is relatively greater, thus better in comparison to the benchmark DIA (-36.7 days)
- During the last 3 years, the maximum drop from peak to valley is -15.3 days, which is larger, thus better than the value of -36.7 days from the benchmark.

'The Maximum 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. It is the length of time the account was in the Max Drawdown. A Max Drawdown measures a retrenchment from when an equity curve reaches a new high. It’s the maximum an account lost during that retrenchment. This method is applied because a valley can’t be measured until a new high occurs. Once the new high is reached, the percentage change from the old high to the bottom of the largest trough is recorded.'

Which means for our asset as example:- Compared with the benchmark DIA (187 days) in the period of the last 5 years, the maximum time in days below previous high water mark of 81 days of US Market Strategy is lower, thus better.
- Compared with DIA (187 days) in the period of the last 3 years, the maximum time in days below previous high water mark of 81 days is smaller, thus better.

'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.'

Which means for our asset as example:- Compared with the benchmark DIA (47 days) in the period of the last 5 years, the average days under water of 17 days of US Market Strategy is smaller, thus better.
- During the last 3 years, the average time in days below previous high water mark is 19 days, which is smaller, thus better than the value of 48 days from the benchmark.

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 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.