Description of Bond ETF Rotation Strategy

The Bond Rotation Strategy is one of our core investment strategies. It is appropriate for investors looking to collect bond dividends while pursuing growth by rotating between bond sectors. The strategy evaluates and allocates to the best performing bond ETFs including treasuries, TIPS, foreign, high-yield and convertible bonds. This is a good strategy if you are looking for a safe long-term investment with low risk.

Statistics of Bond ETF Rotation Strategy (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.'

Applying this definition to our asset in some examples:
  • Looking at the total return of 52% in the last 5 years of Bond ETF Rotation Strategy, we see it is relatively higher, thus better in comparison to the benchmark AGG (16.2%)
  • During the last 3 years, the total return is 34.8%, which is larger, thus better than the value of 10.8% from the benchmark.

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:
  • Looking at the compounded annual growth rate (CAGR) of 8.7% in the last 5 years of Bond ETF Rotation Strategy, we see it is relatively larger, thus better in comparison to the benchmark AGG (3%)
  • Compared with AGG (3.5%) in the period of the last 3 years, the annual return (CAGR) of 10.5% is higher, thus better.

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.'

Applying this definition to our asset in some examples:
  • Compared with the benchmark AGG (3.1%) in the period of the last 5 years, the volatility of 5.6% of Bond ETF Rotation Strategy is larger, thus worse.
  • Compared with AGG (2.9%) in the period of the last 3 years, the 30 days standard deviation of 4.8% is higher, thus worse.

DownVol:

'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.'

Using this definition on our asset we see for example:
  • Looking at the downside volatility of 6.2% in the last 5 years of Bond ETF Rotation Strategy, we see it is relatively higher, thus worse in comparison to the benchmark AGG (3.4%)
  • During the last 3 years, the downside volatility is 5.4%, which is larger, thus worse than the value of 3.1% 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:
  • Compared with the benchmark AGG (0.17) in the period of the last 5 years, the risk / return profile (Sharpe) of 1.12 of Bond ETF Rotation Strategy is greater, thus better.
  • Looking at Sharpe Ratio in of 1.66 in the period of the last 3 years, we see it is relatively greater, thus better in comparison to AGG (0.34).

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:
  • Looking at the excess return divided by the downside deviation of 1.01 in the last 5 years of Bond ETF Rotation Strategy, we see it is relatively greater, thus better in comparison to the benchmark AGG (0.16)
  • Compared with AGG (0.31) in the period of the last 3 years, the excess return divided by the downside deviation of 1.48 is greater, 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:
  • The Downside risk index over 5 years of Bond ETF Rotation Strategy is 1.63 , which is larger, thus worse compared to the benchmark AGG (1.62 ) in the same period.
  • Looking at Downside risk index in of 0.86 in the period of the last 3 years, we see it is relatively lower, thus better in comparison to AGG (1.4 ).

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 Bond ETF Rotation Strategy is -5.2 days, which is lower, thus worse compared to the benchmark AGG (-4.5 days) in the same period.
  • Compared with AGG (-3.5 days) in the period of the last 3 years, the maximum reduction from previous high of -3 days is larger, 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'

Using this definition on our asset we see for example:
  • Compared with the benchmark AGG (331 days) in the period of the last 5 years, the maximum time in days below previous high water mark of 290 days of Bond ETF Rotation Strategy is lower, thus better.
  • Looking at maximum time in days below previous high water mark in of 71 days in the period of the last 3 years, we see it is relatively lower, thus better in comparison to AGG (331 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 51 days in the last 5 years of Bond ETF Rotation Strategy, we see it is relatively lower, thus better in comparison to the benchmark AGG (114 days)
  • During the last 3 years, the average days under water is 15 days, which is lower, thus better than the value of 89 days from the benchmark.

Performance of Bond ETF Rotation Strategy (YTD)

Historical returns have been extended using synthetic data.

Allocations of Bond ETF Rotation Strategy
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Allocations

Returns of Bond ETF Rotation Strategy (%)

  • Note that yearly returns do not equal the sum of monthly returns due to compounding.
  • Performance results of Bond ETF Rotation 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.