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 is the amount of value an investor earns from a security over a specific period, typically one year, when all distributions are reinvested. Total return is expressed as a percentage of the amount invested. For example, a total return of 20% means the security increased by 20% of its original value due to a price increase, distribution of dividends (if a stock), coupons (if a bond) or capital gains (if a fund). Total return is a strong measure of an investmentâ€™s overall performance.'

Using this definition on our asset we see for example:- Looking at the total return, or increase in value of 31.1% in the last 5 years of Bond ETF Rotation Strategy, we see it is relatively larger, thus better in comparison to the benchmark AGG (16.9%)
- Compared with AGG (17.6%) in the period of the last 3 years, the total return, or increase in value of 14.7% is lower, thus worse.

'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.'

Which means for our asset as example:- The annual performance (CAGR) over 5 years of Bond ETF Rotation Strategy is 5.6%, which is higher, thus better compared to the benchmark AGG (3.2%) in the same period.
- Looking at compounded annual growth rate (CAGR) in of 4.7% in the period of the last 3 years, we see it is relatively lower, thus worse in comparison to AGG (5.6%).

'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.'

Which means for our asset as example:- The 30 days standard deviation over 5 years of Bond ETF Rotation Strategy is 5.4%, which is larger, thus worse compared to the benchmark AGG (4.6%) in the same period.
- Looking at historical 30 days volatility in of 6.2% in the period of the last 3 years, we see it is relatively higher, thus worse in comparison to AGG (5.4%).

'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 4%, which is larger, thus worse compared to the benchmark AGG (3.5%) in the same period.
- Compared with AGG (4.2%) in the period of the last 3 years, the downside risk of 4.6% is greater, thus worse.

'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:- Looking at the ratio of return and volatility (Sharpe) of 0.56 in the last 5 years of Bond ETF Rotation Strategy, we see it is relatively greater, thus better in comparison to the benchmark AGG (0.15)
- Compared with AGG (0.56) in the period of the last 3 years, the risk / return profile (Sharpe) of 0.35 is lower, thus worse.

'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:- The excess return divided by the downside deviation over 5 years of Bond ETF Rotation Strategy is 0.77, which is greater, thus better compared to the benchmark AGG (0.19) in the same period.
- Compared with AGG (0.73) in the period of the last 3 years, the excess return divided by the downside deviation of 0.47 is lower, thus worse.

'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:- The Downside risk index over 5 years of Bond ETF Rotation Strategy is 2.25 , which is larger, thus worse compared to the benchmark AGG (1.81 ) in the same period.
- Compared with AGG (1.43 ) in the period of the last 3 years, the Ulcer Ratio of 2.8 is higher, thus worse.

'A maximum drawdown is the maximum loss from a peak to a trough of a portfolio, before a new peak is attained. Maximum Drawdown is an indicator of downside risk over a specified time period. It can be used both as a stand-alone measure or as an input into other metrics such as 'Return over Maximum Drawdown' and the Calmar Ratio. Maximum Drawdown is expressed in percentage terms.'

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.
- During the last 3 years, the maximum drop from peak to valley is -12.8 days, which is lower, thus worse than the value of -9.6 days from the benchmark.

'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:- Compared with the benchmark AGG (331 days) in the period of the last 5 years, the maximum days under water of 330 days of Bond ETF Rotation Strategy is lower, thus better.
- Compared with AGG (215 days) in the period of the last 3 years, the maximum days under water of 330 days is higher, thus worse.

'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:- Looking at the average days under water of 73 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 (109 days)
- During the last 3 years, the average time in days below previous high water mark is 95 days, which is greater, thus worse than the value of 49 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.