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.

'Total return is the amount of value an investor earns from a security over a specific period, typically one year, when all distributions are reinvested. Total return is expressed as a percentage of the amount invested. For example, a total return of 20% means the security increased by 20% of its original value due to a price increase, distribution of dividends (if a stock), coupons (if a bond) or capital gains (if a fund). Total return is a strong measure of an investment’s overall performance.'

Which means for our asset as example:- The total return, or increase in value over 5 years of US Market Strategy is 109.6%, which is higher, thus better compared to the benchmark DIA (69.8%) in the same period.
- Compared with DIA (36.7%) in the period of the last 3 years, the total return, or performance of 50.8% is higher, thus better.

'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.'

Applying this definition to our asset in some examples:- Looking at the compounded annual growth rate (CAGR) of 16% in the last 5 years of US Market Strategy, we see it is relatively larger, thus better in comparison to the benchmark DIA (11.2%)
- During the last 3 years, the annual return (CAGR) is 14.6%, which is greater, thus better than the value of 11% from the benchmark.

'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.'

Applying this definition to our asset in some examples:- Compared with the benchmark DIA (19.8%) in the period of the last 5 years, the historical 30 days volatility of 8.6% of US Market Strategy is smaller, thus better.
- During the last 3 years, the 30 days standard deviation is 9.9%, which is lower, thus better than the value of 23.2% from the benchmark.

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

Applying this definition to our asset in some examples:- Looking at the downside volatility of 5.9% in the last 5 years of US Market Strategy, we see it is relatively lower, thus better in comparison to the benchmark DIA (14.3%)
- During the last 3 years, the downside deviation is 6.9%, which is smaller, thus better than the value of 16.8% from the benchmark.

'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.'

Using this definition on our asset we see for example:- Looking at the risk / return profile (Sharpe) of 1.56 in the last 5 years of US Market Strategy, we see it is relatively greater, thus better in comparison to the benchmark DIA (0.44)
- Compared with DIA (0.37) in the period of the last 3 years, the ratio of return and volatility (Sharpe) of 1.23 is larger, thus better.

'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.'

Applying this definition to our asset in some examples:- The ratio of annual return and downside deviation over 5 years of US Market Strategy is 2.27, which is larger, thus better compared to the benchmark DIA (0.61) in the same period.
- During the last 3 years, the downside risk / excess return profile is 1.75, which is higher, thus better than the value of 0.5 from the benchmark.

'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.'

Applying this definition to our asset in some examples:- Looking at the Ulcer Index of 1.81 in the last 5 years of US Market Strategy, we see it is relatively lower, thus better in comparison to the benchmark DIA (6.35 )
- Compared with DIA (7.55 ) in the period of the last 3 years, the Downside risk index of 2.14 is smaller, thus better.

'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.'

Using this definition on our asset we see for example:- 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 greater, thus better.
- Compared with DIA (-36.7 days) in the period of the last 3 years, the maximum DrawDown of -15.3 days is greater, thus better.

'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'

Which means for our asset as 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 smaller, thus better in comparison to the benchmark DIA (202 days)
- During the last 3 years, the maximum days below previous high is 66 days, which is smaller, thus better than the value of 161 days from the benchmark.

'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 below previous high of 16 days in the last 5 years of US Market Strategy, we see it is relatively lower, thus better in comparison to the benchmark DIA (51 days)
- Looking at average time in days below previous high water mark in of 16 days in the period of the last 3 years, we see it is relatively smaller, thus better in comparison to DIA (46 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 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.