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.

'The total return on a portfolio of investments takes into account not only the capital appreciation on the portfolio, but also the income received on the portfolio. The income typically consists of interest, dividends, and securities lending fees. This contrasts with the price return, which takes into account only the capital gain on an investment.'

Using this definition on our asset we see for example:- Looking at the total return, or increase in value of 48.3% in the last 5 years of Bond ETF Rotation Strategy, we see it is relatively higher, thus better in comparison to the benchmark AGG (5.2%)
- Looking at total return in of 43.7% in the period of the last 3 years, we see it is relatively larger, thus better in comparison to AGG (-3.7%).

'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.'

Applying this definition to our asset in some examples:- Looking at the annual performance (CAGR) of 8.2% in the last 5 years of Bond ETF Rotation Strategy, we see it is relatively larger, thus better in comparison to the benchmark AGG (1%)
- Compared with AGG (-1.3%) in the period of the last 3 years, the compounded annual growth rate (CAGR) of 12.8% is larger, thus better.

'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:- The 30 days standard deviation over 5 years of Bond ETF Rotation Strategy is 8.6%, which is larger, thus worse compared to the benchmark AGG (6%) in the same period.
- Looking at volatility in of 7.1% in the period of the last 3 years, we see it is relatively larger, thus worse in comparison to AGG (6%).

'The downside volatility is similar to the volatility, or standard deviation, but only takes losing/negative periods into account.'

Applying this definition to our asset in some examples:- The downside deviation over 5 years of Bond ETF Rotation Strategy is 6.4%, which is larger, thus worse compared to the benchmark AGG (4.4%) in the same period.
- Looking at downside volatility in of 4.4% in the period of the last 3 years, we see it is relatively greater, thus worse in comparison to AGG (4.1%).

'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:- Compared with the benchmark AGG (-0.25) in the period of the last 5 years, the ratio of return and volatility (Sharpe) of 0.66 of Bond ETF Rotation Strategy is greater, thus better.
- Looking at risk / return profile (Sharpe) in of 1.47 in the period of the last 3 years, we see it is relatively greater, thus better in comparison to AGG (-0.63).

'The Sortino ratio measures the risk-adjusted return of an investment asset, portfolio, or strategy. It is a modification of the Sharpe ratio but penalizes only those returns falling below a user-specified target or required rate of return, while the Sharpe ratio penalizes both upside and downside volatility equally. Though both ratios measure an investment's risk-adjusted return, they do so in significantly different ways that will frequently lead to differing conclusions as to the true nature of the investment's return-generating efficiency. The Sortino ratio is used as a way to compare the risk-adjusted performance of programs with differing risk and return profiles. In general, risk-adjusted returns seek to normalize the risk across programs and then see which has the higher return unit per risk.'

Which means for our asset as example:- The downside risk / excess return profile over 5 years of Bond ETF Rotation Strategy is 0.89, which is higher, thus better compared to the benchmark AGG (-0.33) in the same period.
- Compared with AGG (-0.91) in the period of the last 3 years, the ratio of annual return and downside deviation of 2.37 is higher, thus better.

'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.'

Which means for our asset as example:- Compared with the benchmark AGG (6.14 ) in the period of the last 5 years, the Ulcer Ratio of 2.94 of Bond ETF Rotation Strategy is smaller, thus better.
- During the last 3 years, the Downside risk index is 2.1 , which is lower, thus better than the value of 7.87 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:- The maximum DrawDown over 5 years of Bond ETF Rotation Strategy is -21.4 days, which is lower, thus worse compared to the benchmark AGG (-18.4 days) in the same period.
- Looking at maximum drop from peak to valley in of -5.2 days in the period of the last 3 years, we see it is relatively greater, thus better in comparison to AGG (-18.4 days).

'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.'

Using this definition on our asset we see for example:- Looking at the maximum days under water of 217 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 (662 days)
- Compared with AGG (662 days) in the period of the last 3 years, the maximum days under water of 217 days is smaller, thus better.

'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.'

Using this definition on our asset we see for example:- The average days below previous high over 5 years of Bond ETF Rotation Strategy is 62 days, which is lower, thus better compared to the benchmark AGG (201 days) in the same period.
- Looking at average time in days below previous high water mark in of 69 days in the period of the last 3 years, we see it is relatively lower, thus better in comparison to AGG (306 days).

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.