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:

'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.'

Which means for our asset as example:
  • Looking at the total return, or increase in value of 85.3% in the last 5 years of US Market Strategy, we see it is relatively larger, thus better in comparison to the benchmark DIA (35.7%)
  • Looking at total return, or performance in of 40.4% in the period of the last 3 years, we see it is relatively higher, thus better in comparison to DIA (10.8%).

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.'

Which means for our asset as example:
  • The annual return (CAGR) over 5 years of US Market Strategy is 13.1%, which is higher, thus better compared to the benchmark DIA (6.3%) in the same period.
  • Compared with DIA (3.5%) in the period of the last 3 years, the annual performance (CAGR) of 12% is larger, 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:
  • Looking at the volatility of 8.3% in the last 5 years of US Market Strategy, we see it is relatively lower, thus better in comparison to the benchmark DIA (18.9%)
  • Compared with DIA (21.9%) in the period of the last 3 years, the 30 days standard deviation of 9.2% is lower, thus better.

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 (14.1%) in the period of the last 5 years, the downside volatility of 5.9% of US Market Strategy is smaller, thus better.
  • During the last 3 years, the downside risk is 6.8%, which is lower, thus better than the value of 16.5% 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:
  • The risk / return profile (Sharpe) over 5 years of US Market Strategy is 1.28, which is larger, thus better compared to the benchmark DIA (0.2) in the same period.
  • Looking at Sharpe Ratio in of 1.03 in the period of the last 3 years, we see it is relatively larger, thus better in comparison to DIA (0.04).

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 1.8, which is greater, thus better compared to the benchmark DIA (0.27) in the same period.
  • Compared with DIA (0.06) in the period of the last 3 years, the downside risk / excess return profile of 1.4 is higher, thus better.

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.'

Applying this definition to our asset in some examples:
  • Compared with the benchmark DIA (5.48 ) in the period of the last 5 years, the Ulcer Index of 1.81 of US Market Strategy is smaller, thus better.
  • Looking at Ulcer Ratio in of 2.06 in the period of the last 3 years, we see it is relatively smaller, thus better in comparison to DIA (6.18 ).

MaxDD:

'Maximum drawdown measures the loss in any losing period during a fund’s investment record. It is defined as the percent retrenchment from a fund’s peak value to the fund’s valley value. The drawdown is in effect from the time the fund’s retrenchment begins until a new fund high is reached. The maximum drawdown encompasses both the period from the fund’s peak to the fund’s valley (length), and the time from the fund’s valley to a new fund high (recovery). It measures the largest percentage drawdown that has occurred in any fund’s data record.'

Applying this definition to our asset in some examples:
  • The maximum drop from peak to valley over 5 years of US Market Strategy is -15.3 days, which is larger, thus better compared to the benchmark DIA (-36.7 days) in the same period.
  • During the last 3 years, the maximum drop from peak to valley is -15.3 days, which is greater, thus better than the value of -36.7 days from the benchmark.

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:
  • Compared with the benchmark DIA (227 days) in the period of the last 5 years, the maximum days below previous high of 72 days of US Market Strategy is lower, thus better.
  • During the last 3 years, the maximum time in days below previous high water mark is 66 days, which is lower, thus better than the value of 161 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:
  • Looking at the average days under water of 17 days in the last 5 years of US Market Strategy, we see it is relatively smaller, thus better in comparison to the benchmark DIA (54 days)
  • Compared with DIA (43 days) in the period of the last 3 years, the average days below previous high of 14 days is lower, thus better.

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.