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, 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.'

Using this definition on our asset we see for example:
  • Compared with the benchmark SPY (63%) in the period of the last 5 years, the total return, or performance of 199.1% of Volatility less than 15% is larger, thus better.
  • Compared with SPY (39.8%) in the period of the last 3 years, the total return of 80.6% is higher, thus better.

CAGR:

'The compound annual growth rate isn't a true return rate, but rather a representational figure. It is essentially a number that describes the rate at which an investment would have grown if it had grown the same rate every year and the profits were reinvested at the end of each year. In reality, this sort of performance is unlikely. However, CAGR can be used to smooth returns so that they may be more easily understood when compared to alternative investments.'

Using this definition on our asset we see for example:
  • Compared with the benchmark SPY (10.3%) in the period of the last 5 years, the annual return (CAGR) of 24.5% of Volatility less than 15% is larger, thus better.
  • Looking at annual performance (CAGR) in of 21.8% in the period of the last 3 years, we see it is relatively larger, thus better in comparison to SPY (11.8%).

Volatility:

'In finance, volatility (symbol σ) is the degree of variation of a trading price series over time as measured by the standard deviation of logarithmic returns. Historic volatility measures a time series of past market prices. Implied volatility looks forward in time, being derived from the market price of a market-traded derivative (in particular, an option). Commonly, the higher the volatility, the riskier the security.'

Using this definition on our asset we see for example:
  • Compared with the benchmark SPY (13.6%) in the period of the last 5 years, the historical 30 days volatility of 12.5% of Volatility less than 15% is lower, thus better.
  • Looking at 30 days standard deviation in of 12.2% in the period of the last 3 years, we see it is relatively smaller, thus better in comparison to SPY (12.7%).

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:
  • Compared with the benchmark SPY (14.9%) in the period of the last 5 years, the downside deviation of 14.2% of Volatility less than 15% is smaller, thus better.
  • During the last 3 years, the downside volatility is 14%, which is smaller, thus better than the value of 14.4% from the benchmark.

Sharpe:

'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.'

Which means for our asset as example:
  • Looking at the risk / return profile (Sharpe) of 1.76 in the last 5 years of Volatility less than 15%, we see it is relatively higher, thus better in comparison to the benchmark SPY (0.57)
  • Compared with SPY (0.73) in the period of the last 3 years, the risk / return profile (Sharpe) of 1.58 is higher, thus better.

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:
  • Looking at the ratio of annual return and downside deviation of 1.55 in the last 5 years of Volatility less than 15%, we see it is relatively larger, thus better in comparison to the benchmark SPY (0.52)
  • Looking at ratio of annual return and downside deviation in of 1.38 in the period of the last 3 years, we see it is relatively higher, thus better in comparison to SPY (0.65).

Ulcer:

'Ulcer Index is a method for measuring investment risk that addresses the real concerns of investors, unlike the widely used standard deviation of return. UI is a measure of the depth and duration of drawdowns in prices from earlier highs. Using Ulcer Index instead of standard deviation can lead to very different conclusions about investment risk and risk-adjusted return, especially when evaluating strategies that seek to avoid major declines in portfolio value (market timing, dynamic asset allocation, hedge funds, etc.). The Ulcer Index was originally developed in 1987. Since then, it has been widely recognized and adopted by the investment community. According to Nelson Freeburg, editor of Formula Research, Ulcer Index is “perhaps the most fully realized statistical portrait of risk there is.'

Applying this definition to our asset in some examples:
  • The Ulcer Index over 5 years of Volatility less than 15% is 2.85 , which is lower, thus better compared to the benchmark SPY (4.01 ) in the same period.
  • Compared with SPY (4.08 ) in the period of the last 3 years, the Ulcer Index of 2.9 is lower, thus better.

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:
  • Looking at the maximum drop from peak to valley of -9.9 days in the last 5 years of Volatility less than 15%, we see it is relatively greater, thus better in comparison to the benchmark SPY (-19.3 days)
  • Compared with SPY (-19.3 days) in the period of the last 3 years, the maximum reduction from previous high of -9.9 days is higher, thus better.

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 below previous high 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.
  • Compared with SPY (139 days) in the period of the last 3 years, the maximum days below previous high of 106 days is lower, thus better.

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.'

Which means for our asset as example:
  • Looking at the average time in days below previous high water mark of 22 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)
  • Compared with SPY (36 days) in the period of the last 3 years, the average days under water of 24 days is lower, thus better.

Performance of Volatility less than 15% (YTD)

Historical returns have been extended using synthetic data.

Allocations of Volatility less than 15%
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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.