Description of Volatility less than 15%

This portfolio has been optimized for achieving the highest possible return while limiting the historical volatility to 15% or less over the analyzed period. As a reference, the volatility limit of 15% is slightly below the historical volatility, or risk, of the SPDR S&P 500 (SPY). This is an aggressive portfolio suited for investors with a relatively high risk tolerance and aggressive growth expectations.

Please note that this portfolio might use leveraged ETF and single stocks. Should these not be allowed in your retirement account please see our 401k and IRS compatible Conservative, Moderate, and Aggressive Risk Portfolios. Contact us for special requirements.

Methodology & Assets
This portfolio is constructed by our proprietary optimization alogrithm based on Modern Portfolio Theory pioneered by Nobel Laureate Harry Markowitz. Using historical returns, the algorithm finds the asset allocation that produced the highest return with volatility less than 15%.

While this portfolio provides an optimized asset allocation based on historical returns, your investment objectives, risk profile and personal experience are important factors when deciding on the best investment vehicle for yourself. You can also use the Portfolio Builder or Portfolio Optimizer to construct your own personalized portfolio.

Assets and weight constraints used in the optimizer process:
  • Bond ETF Rotation Strategy (BRS) (0% to 100%)
  • BUG Permanent Portfolio Strategy (BUG) (0% to 100%)
  • World Top 4 Strategy (WTOP4) (0% to 100%)
  • Global Sector Rotation Strategy (GSRS) (0% to 100%)
  • Global Market Rotation Strategy (GMRS) (0% to 100%)
  • Maximum Yield Strategy (MYRS) (0% to 100%)
  • NASDAQ 100 Strategy (NAS100) (0% to 100%)
  • Leveraged Gold-Currency Strategy (GLD-USD) (0% to 100%)
  • US Sector Rotation Strategy (USSECT) (0% to 100%)
  • Leveraged Universal Investment Strategy (UISx3) (0% to 100%)
  • US Market Strategy (USMarket) (0% to 100%)
  • Dow 30 Strategy (DOW30) (0% to 100%)
  • Universal Investment Strategy (UIS) (0% to 100%)

Statistics of Volatility less than 15% (YTD)

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

TotalReturn:

'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.'

Using this definition on our asset we see for example:
  • Looking at the total return of 208.3% in the last 5 years of Volatility less than 15%, we see it is relatively larger, thus better in comparison to the benchmark SPY (65.8%)
  • Looking at total return, or increase in value in of 92.1% in the period of the last 3 years, we see it is relatively greater, thus better in comparison to SPY (49.4%).

CAGR:

'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.'

Applying this definition to our asset in some examples:
  • Compared with the benchmark SPY (10.6%) in the period of the last 5 years, the annual performance (CAGR) of 25.3% of Volatility less than 15% is greater, thus better.
  • During the last 3 years, the annual return (CAGR) is 24.4%, which is greater, thus better than the value of 14.3% from the benchmark.

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.'

Using this definition on our asset we see for example:
  • The 30 days standard deviation over 5 years of Volatility less than 15% is 12.4%, which is lower, thus better compared to the benchmark SPY (13.3%) in the same period.
  • During the last 3 years, the 30 days standard deviation is 12.2%, which is smaller, thus better than the value of 12.6% 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.'

Which means for our asset as example:
  • The downside risk over 5 years of Volatility less than 15% is 14.1%, which is lower, thus better compared to the benchmark SPY (14.6%) in the same period.
  • During the last 3 years, the downside volatility is 13.9%, which is smaller, thus better than the value of 14.3% from the benchmark.

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.'

Which means for our asset as example:
  • The risk / return profile (Sharpe) over 5 years of Volatility less than 15% is 1.83, which is larger, thus better compared to the benchmark SPY (0.61) in the same period.
  • Looking at ratio of return and volatility (Sharpe) in of 1.8 in the period of the last 3 years, we see it is relatively greater, thus better in comparison to SPY (0.94).

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.'

Applying this definition to our asset in some examples:
  • The downside risk / excess return profile over 5 years of Volatility less than 15% is 1.62, which is larger, thus better compared to the benchmark SPY (0.56) in the same period.
  • Compared with SPY (0.83) in the period of the last 3 years, the downside risk / excess return profile of 1.58 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 SPY (3.99 ) in the period of the last 5 years, the Ulcer Index of 2.76 of Volatility less than 15% is lower, thus better.
  • Looking at Ulcer Ratio in of 2.74 in the period of the last 3 years, we see it is relatively lower, thus better in comparison to SPY (4.05 ).

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.'

Using this definition on our asset we see for example:
  • The maximum DrawDown over 5 years of Volatility less than 15% is -9.9 days, which is larger, thus better compared to the benchmark SPY (-19.3 days) in the same period.
  • Looking at maximum reduction from previous high in of -9.9 days in the period of the last 3 years, we see it is relatively larger, thus better in comparison to SPY (-19.3 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'

Which means for our asset as example:
  • The maximum days under water over 5 years of Volatility less than 15% is 106 days, which is lower, thus better compared to the benchmark SPY (187 days) in the same period.
  • Looking at maximum time in days below previous high water mark in of 106 days in the period of the last 3 years, we see it is relatively lower, thus better in comparison to SPY (139 days).

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.'

Using this definition on our asset we see for example:
  • Looking at the average time in days below previous high water mark of 20 days in the last 5 years of Volatility less than 15%, we see it is relatively lower, thus better in comparison to the benchmark SPY (41 days)
  • Looking at average days below previous high in of 21 days in the period of the last 3 years, we see it is relatively lower, thus better in comparison to SPY (36 days).

Performance of Volatility less than 15% (YTD)

Historical returns have been extended using synthetic data.

Allocations of Volatility less than 15%
()

Allocations

Returns of Volatility less than 15% (%)

  • "Year" returns in the table above are not equal to the sum of monthly returns due to compounding.
  • Performance results of Volatility less than 15% 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.