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.

'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, or performance of 51.6% in the last 5 years of Bond ETF Rotation Strategy, we see it is relatively larger, thus better in comparison to the benchmark AGG (13%)
- Compared with AGG (6.3%) in the period of the last 3 years, the total return, or performance of 38% is higher, thus better.

'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.'

Using this definition on our asset we see for example:- Looking at the annual performance (CAGR) of 8.7% in the last 5 years of Bond ETF Rotation Strategy, we see it is relatively greater, thus better in comparison to the benchmark AGG (2.5%)
- During the last 3 years, the compounded annual growth rate (CAGR) is 11.4%, which is greater, thus better than the value of 2.1% from the benchmark.

'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 5.6%, which is higher, thus worse compared to the benchmark AGG (3%) in the same period.
- Compared with AGG (2.8%) in the period of the last 3 years, the historical 30 days volatility of 5.1% is larger, thus worse.

'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 AGG (3.2%) in the period of the last 5 years, the downside risk of 6.1% of Bond ETF Rotation Strategy is higher, thus worse.
- During the last 3 years, the downside deviation is 5.7%, which is higher, thus worse than the value of 3% from the benchmark.

'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.'

Which means for our asset as example:- The ratio of return and volatility (Sharpe) over 5 years of Bond ETF Rotation Strategy is 1.1, which is higher, thus better compared to the benchmark AGG (-0.01) in the same period.
- Compared with AGG (-0.15) in the period of the last 3 years, the risk / return profile (Sharpe) of 1.74 is larger, thus better.

'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.'

Using this definition on our asset we see for example:- Compared with the benchmark AGG (-0.01) in the period of the last 5 years, the downside risk / excess return profile of 1.01 of Bond ETF Rotation Strategy is higher, thus better.
- During the last 3 years, the excess return divided by the downside deviation is 1.56, which is higher, thus better than the value of -0.14 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.'

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 Ratio of 1.63 of Bond ETF Rotation Strategy is greater, thus better.
- Looking at Ulcer Index in of 0.85 in the period of the last 3 years, we see it is relatively lower, thus worse in comparison to AGG (1.9 ).

'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.'

Using this definition on our asset we see for example:- The maximum DrawDown 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.
- Looking at maximum drop from peak to valley 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).

'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.'

Which means for our asset as example:- The maximum days below previous high over 5 years of Bond ETF Rotation Strategy is 290 days, which is smaller, thus better compared to the benchmark AGG (331 days) in the same period.
- During the last 3 years, the maximum days under water is 71 days, which is smaller, thus better than the value of 331 days from the benchmark.

'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.'

Applying this definition to our asset in some examples:- The average time in days below previous high water mark over 5 years of Bond ETF Rotation Strategy is 50 days, which is lower, thus better compared to the benchmark AGG (113 days) in the same period.
- Compared with AGG (138 days) in the period of the last 3 years, the average time in days below previous high water mark of 14 days is smaller, thus better.

Historical returns have been extended using synthetic data.
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- "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.