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:- Compared with the benchmark AGG (1.8%) in the period of the last 5 years, the total return, or increase in value of 48.8% of Bond ETF Rotation Strategy is greater, thus better.
- Compared with AGG (-6.4%) in the period of the last 3 years, the total return, or increase in value of 27.3% is larger, 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.'

Applying this definition to our asset in some examples:- Looking at the annual performance (CAGR) of 8.3% in the last 5 years of Bond ETF Rotation Strategy, we see it is relatively greater, thus better in comparison to the benchmark AGG (0.4%)
- During the last 3 years, the annual performance (CAGR) is 8.4%, which is greater, thus better than the value of -2.2% from the benchmark.

'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.'

Applying this definition to our asset in some examples:- The volatility over 5 years of Bond ETF Rotation Strategy is 8.4%, which is larger, thus worse compared to the benchmark AGG (5.7%) in the same period.
- Compared with AGG (6.9%) in the period of the last 3 years, the volatility of 9.9% is higher, thus worse.

'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.'

Using this definition on our asset we see for example:- The downside risk over 5 years of Bond ETF Rotation Strategy is 6.4%, which is larger, thus worse compared to the benchmark AGG (4.3%) in the same period.
- Compared with AGG (5.3%) in the period of the last 3 years, the downside risk of 7.5% is larger, thus worse.

'The Sharpe ratio was developed by Nobel laureate William F. Sharpe, and is used to help investors understand the return of an investment compared to its risk. The ratio is the average return earned in excess of the risk-free rate per unit of volatility or total risk. Subtracting the risk-free rate from the mean return allows an investor to better isolate the profits associated with risk-taking activities. One intuition of this calculation is that a portfolio engaging in 'zero risk' investments, such as the purchase of U.S. Treasury bills (for which the expected return is the risk-free rate), has a Sharpe ratio of exactly zero. Generally, the greater the value of the Sharpe ratio, the more attractive the risk-adjusted return.'

Applying this definition to our asset in some examples:- Compared with the benchmark AGG (-0.38) in the period of the last 5 years, the risk / return profile (Sharpe) of 0.69 of Bond ETF Rotation Strategy is larger, thus better.
- Looking at risk / return profile (Sharpe) in of 0.6 in the period of the last 3 years, we see it is relatively higher, thus better in comparison to AGG (-0.68).

'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:- Looking at the ratio of annual return and downside deviation of 0.91 in the last 5 years of Bond ETF Rotation Strategy, we see it is relatively greater, thus better in comparison to the benchmark AGG (-0.5)
- Looking at excess return divided by the downside deviation in of 0.78 in the period of the last 3 years, we see it is relatively larger, thus better in comparison to AGG (-0.88).

'Ulcer Index is a method for measuring investment risk that addresses the real concerns of investors, unlike the widely used standard deviation of return. UI is a measure of the depth and duration of drawdowns in prices from earlier highs. Using Ulcer Index instead of standard deviation can lead to very different conclusions about investment risk and risk-adjusted return, especially when evaluating strategies that seek to avoid major declines in portfolio value (market timing, dynamic asset allocation, hedge funds, etc.). The Ulcer Index was originally developed in 1987. Since then, it has been widely recognized and adopted by the investment community. According to Nelson Freeburg, editor of Formula Research, Ulcer Index is “perhaps the most fully realized statistical portrait of risk there is.'

Using this definition on our asset we see for example:- Looking at the Ulcer Index of 2.88 in the last 5 years of Bond ETF Rotation Strategy, we see it is relatively smaller, thus better in comparison to the benchmark AGG (5.27 )
- Looking at Ulcer Ratio in of 3.35 in the period of the last 3 years, we see it is relatively lower, thus better in comparison to AGG (6.71 ).

'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.'

Using this definition on our asset we see for example:- Looking at the maximum DrawDown of -21.4 days in the last 5 years of Bond ETF Rotation Strategy, we see it is relatively lower, thus worse in comparison to the benchmark AGG (-18.4 days)
- Looking at maximum DrawDown in of -21.4 days in the period of the last 3 years, we see it is relatively smaller, thus worse in comparison to AGG (-18.4 days).

'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.'

Using this definition on our asset we see for example:- The maximum days under water over 5 years of Bond ETF Rotation Strategy is 186 days, which is smaller, thus better compared to the benchmark AGG (590 days) in the same period.
- During the last 3 years, the maximum days under water is 186 days, which is smaller, thus better than the value of 590 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.'

Using this definition on our asset we see for example:- Compared with the benchmark AGG (185 days) in the period of the last 5 years, the average days under water of 57 days of Bond ETF Rotation Strategy is smaller, thus better.
- Looking at average time in days below previous high water mark in of 64 days in the period of the last 3 years, we see it is relatively lower, thus better in comparison to AGG (250 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.