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 long-term bond investment with medium risk.

The strategy has been updated (as of May 1st, 2020) to allocate 40%-60% to our HEDGE sub-strategy. The statistics below reflect the updated model.

'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:- Looking at the total return, or performance of 27.8% in the last 5 years of Bond ETF Rotation Strategy, we see it is relatively higher, thus better in comparison to the benchmark AGG (15.7%)
- During the last 3 years, the total return is 15.9%, which is lower, thus worse than the value of 17.3% from the benchmark.

'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:- The compounded annual growth rate (CAGR) over 5 years of Bond ETF Rotation Strategy is 5%, which is greater, thus better compared to the benchmark AGG (3%) in the same period.
- During the last 3 years, the compounded annual growth rate (CAGR) is 5.1%, which is lower, thus worse than the value of 5.5% from the benchmark.

'Volatility is a statistical measure of the dispersion of returns for a given security or market index. Volatility can either be measured by using the standard deviation or variance between returns from that same security or market index. Commonly, the higher the volatility, the riskier the security. In the securities markets, volatility is often associated with big swings in either direction. For example, when the stock market rises and falls more than one percent over a sustained period of time, it is called a 'volatile' market.'

Applying this definition to our asset in some examples:- Compared with the benchmark AGG (4.6%) in the period of the last 5 years, the volatility of 5.4% of Bond ETF Rotation Strategy is larger, thus worse.
- Looking at 30 days standard deviation in of 6.3% in the period of the last 3 years, we see it is relatively higher, thus worse in comparison to AGG (5.5%).

'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 Bond ETF Rotation Strategy is 3.9%, which is larger, thus worse compared to the benchmark AGG (3.5%) in the same period.
- Looking at downside risk in of 4.7% in the period of the last 3 years, we see it is relatively greater, thus worse in comparison to AGG (4.2%).

'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.'

Applying this definition to our asset in some examples:- The ratio of return and volatility (Sharpe) over 5 years of Bond ETF Rotation Strategy is 0.47, which is higher, thus better compared to the benchmark AGG (0.1) in the same period.
- During the last 3 years, the Sharpe Ratio is 0.41, which is lower, thus worse than the value of 0.54 from the benchmark.

'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.'

Applying this definition to our asset in some examples:- The ratio of annual return and downside deviation over 5 years of Bond ETF Rotation Strategy is 0.64, which is greater, thus better compared to the benchmark AGG (0.13) in the same period.
- During the last 3 years, the ratio of annual return and downside deviation is 0.55, which is lower, thus worse than the value of 0.71 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.'

Which means for our asset as example:- The Ulcer Ratio over 5 years of Bond ETF Rotation Strategy is 2.24 , which is larger, thus worse compared to the benchmark AGG (1.8 ) in the same period.
- During the last 3 years, the Ulcer Index is 2.75 , which is greater, thus worse than the value of 1.48 from the benchmark.

'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.'

Which means for our asset as example:- Compared with the benchmark AGG (-9.6 days) in the period of the last 5 years, the maximum reduction from previous high of -12.8 days of Bond ETF Rotation Strategy is lower, thus worse.
- Compared with AGG (-9.6 days) in the period of the last 3 years, the maximum reduction from previous high of -12.8 days is lower, thus worse.

'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) in days.'

Applying this definition to our asset in some examples:- The maximum days under water over 5 years of Bond ETF Rotation Strategy is 345 days, which is higher, thus worse compared to the benchmark AGG (331 days) in the same period.
- During the last 3 years, the maximum days under water is 345 days, which is larger, thus worse than the value of 289 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.'

Applying this definition to our asset in some examples:- Compared with the benchmark AGG (111 days) in the period of the last 5 years, the average time in days below previous high water mark of 76 days of Bond ETF Rotation Strategy is smaller, thus better.
- During the last 3 years, the average time in days below previous high water mark is 98 days, which is greater, thus worse than the value of 75 days from the benchmark.

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 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.