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:

'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.'

Which means for our asset as example:
  • The total return over 5 years of Bond ETF Rotation Strategy is 58.5%, which is greater, thus better compared to the benchmark AGG (13.8%) in the same period.
  • During the last 3 years, the total return is 40.4%, which is larger, thus better than the value of 5.7% from the benchmark.

CAGR:

'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:
  • The annual return (CAGR) over 5 years of Bond ETF Rotation Strategy is 9.7%, which is larger, thus better compared to the benchmark AGG (2.6%) in the same period.
  • Compared with AGG (1.9%) in the period of the last 3 years, the compounded annual growth rate (CAGR) of 12% is higher, thus better.

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:
  • Compared with the benchmark AGG (3%) in the period of the last 5 years, the volatility of 5.6% of Bond ETF Rotation Strategy is greater, thus worse.
  • Compared with AGG (2.8%) in the period of the last 3 years, the volatility of 5.1% is higher, thus worse.

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.'

Applying this definition to our asset in some examples:
  • The downside deviation over 5 years of Bond ETF Rotation Strategy is 6.1%, which is greater, thus worse compared to the benchmark AGG (3.2%) in the same period.
  • During the last 3 years, the downside deviation is 5.7%, which is higher, thus worse than the value of 3% 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.'

Using this definition on our asset we see for example:
  • The Sharpe Ratio over 5 years of Bond ETF Rotation Strategy is 1.27, which is greater, thus better compared to the benchmark AGG (0.04) in the same period.
  • During the last 3 years, the ratio of return and volatility (Sharpe) is 1.86, which is higher, thus better than the value of -0.22 from the benchmark.

Sortino:

'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:
  • Compared with the benchmark AGG (0.04) in the period of the last 5 years, the ratio of annual return and downside deviation of 1.17 of Bond ETF Rotation Strategy is greater, thus better.
  • Compared with AGG (-0.21) in the period of the last 3 years, the excess return divided by the downside deviation of 1.68 is larger, 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.'

Using this definition on our asset we see for example:
  • Compared with the benchmark AGG (1.63 ) in the period of the last 5 years, the Ulcer Index of 1.63 of Bond ETF Rotation Strategy is greater, thus better.
  • Compared with AGG (1.9 ) in the period of the last 3 years, the Ulcer Ratio of 0.85 is lower, thus worse.

MaxDD:

'Maximum drawdown is defined as the peak-to-trough decline of an investment during a specific period. It is usually quoted as a percentage of the peak value. The maximum drawdown can be calculated based on absolute returns, in order to identify strategies that suffer less during market downturns, such as low-volatility strategies. However, the maximum drawdown can also be calculated based on returns relative to a benchmark index, for identifying strategies that show steady outperformance over time.'

Applying this definition to our asset in some examples:
  • Looking at the maximum drop from peak to valley of -5.2 days in the last 5 years of Bond ETF Rotation Strategy, we see it is relatively smaller, thus worse in comparison to the benchmark AGG (-4.5 days)
  • Looking at maximum reduction from previous high in of -3.6 days in the period of the last 3 years, we see it is relatively higher, thus better in comparison to AGG (-4.5 days).

MaxDuration:

'The Maximum 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. It is the length of time the account was in the Max Drawdown. A Max Drawdown measures a retrenchment from when an equity curve reaches a new high. It’s the maximum an account lost during that retrenchment. This method is applied because a valley can’t be measured until a new high occurs. Once the new high is reached, the percentage change from the old high to the bottom of the largest trough is recorded.'

Applying this definition to our asset in some examples:
  • The maximum days under water over 5 years of Bond ETF Rotation Strategy is 290 days, which is lower, thus better compared to the benchmark AGG (331 days) in the same period.
  • 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 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.'

Which means for our asset as example:
  • Compared with the benchmark AGG (113 days) in the period of the last 5 years, the average days below previous high of 51 days of Bond ETF Rotation Strategy is lower, thus better.
  • Looking at average days below previous high in of 14 days in the period of the last 3 years, we see it is relatively lower, thus better in comparison to AGG (136 days).

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 (%)

  • "Year" returns in the table above are not equal to 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.