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:
  • Compared with the benchmark DIA (84.1%) in the period of the last 5 years, the total return, or performance of 113.4% of US Market Strategy is higher, thus better.
  • Looking at total return in of 51.5% in the period of the last 3 years, we see it is relatively greater, thus better in comparison to DIA (30.5%).

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:
  • Looking at the annual performance (CAGR) of 16.4% in the last 5 years of US Market Strategy, we see it is relatively larger, thus better in comparison to the benchmark DIA (13%)
  • Compared with DIA (9.3%) in the period of the last 3 years, the annual performance (CAGR) of 14.9% is greater, thus better.

Volatility:

'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.'

Which means for our asset as example:
  • Compared with the benchmark DIA (20%) in the period of the last 5 years, the 30 days standard deviation of 8.9% of US Market Strategy is lower, thus better.
  • During the last 3 years, the historical 30 days volatility is 10.4%, which is smaller, thus better than the value of 24.2% from the benchmark.

DownVol:

'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.'

Applying this definition to our asset in some examples:
  • The downside volatility over 5 years of US Market Strategy is 6.2%, which is smaller, thus better compared to the benchmark DIA (14.5%) in the same period.
  • During the last 3 years, the downside deviation is 7.4%, which is lower, thus better than the value of 17.8% from the benchmark.

Sharpe:

'The Sharpe ratio is the measure of risk-adjusted return of a financial portfolio. Sharpe ratio is a measure of excess portfolio return over the risk-free rate relative to its standard deviation. Normally, the 90-day Treasury bill rate is taken as the proxy for risk-free rate. A portfolio with a higher Sharpe ratio is considered superior relative to its peers. The measure was named after William F Sharpe, a Nobel laureate and professor of finance, emeritus at Stanford University.'

Which means for our asset as example:
  • Compared with the benchmark DIA (0.53) in the period of the last 5 years, the Sharpe Ratio of 1.56 of US Market Strategy is higher, thus better.
  • Looking at Sharpe Ratio in of 1.19 in the period of the last 3 years, we see it is relatively greater, thus better in comparison to DIA (0.28).

Sortino:

'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.'

Which means for our asset as example:
  • Compared with the benchmark DIA (0.72) in the period of the last 5 years, the excess return divided by the downside deviation of 2.25 of US Market Strategy is larger, thus better.
  • Compared with DIA (0.38) in the period of the last 3 years, the downside risk / excess return profile of 1.68 is higher, thus better.

Ulcer:

'The ulcer index is a stock market risk measure or technical analysis indicator devised by Peter Martin in 1987, and published by him and Byron McCann in their 1989 book The Investors Guide to Fidelity Funds. It's designed as a measure of volatility, but only volatility in the downward direction, i.e. the amount of drawdown or retracement occurring over a period. Other volatility measures like standard deviation treat up and down movement equally, but a trader doesn't mind upward movement, it's the downside that causes stress and stomach ulcers that the index's name suggests.'

Which means for our asset as example:
  • The Downside risk index over 5 years of US Market Strategy is 1.82 , which is smaller, thus better compared to the benchmark DIA (6.46 ) in the same period.
  • Looking at Ulcer Index in of 2.22 in the period of the last 3 years, we see it is relatively smaller, thus better in comparison to DIA (8.02 ).

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:
  • Compared with the benchmark DIA (-36.7 days) in the period of the last 5 years, the maximum DrawDown of -15.3 days of US Market Strategy is higher, thus better.
  • Looking at maximum DrawDown 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). 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'

Using this definition on our asset we see for example:
  • Looking at the maximum days under water of 70 days in the last 5 years of US Market Strategy, we see it is relatively lower, thus better in comparison to the benchmark DIA (174 days)
  • Compared with DIA (174 days) in the period of the last 3 years, the maximum time in days below previous high water mark of 66 days is lower, thus better.

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.'

Which means for our asset as example:
  • The average days below previous high over 5 years of US Market Strategy is 16 days, which is lower, thus better compared to the benchmark DIA (46 days) in the same period.
  • During the last 3 years, the average days below previous high is 16 days, which is lower, thus better than the value of 61 days from the benchmark.

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.