Description

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.

Statistics (YTD)

What do these metrics mean? [Read More] [Hide]

TotalReturn:

'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:
  • The total return, or increase in value over 5 years of Bond ETF Rotation Strategy is 47.3%, which is higher, thus better compared to the benchmark AGG (1.6%) in the same period.
  • During the last 3 years, the total return, or increase in value is 11.3%, which is greater, thus better than the value of -7.2% 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.'

Using this definition on our asset we see for example:
  • Looking at the compounded annual growth rate (CAGR) of 8.1% in the last 5 years of Bond ETF Rotation Strategy, we see it is relatively higher, thus better in comparison to the benchmark AGG (0.3%)
  • Compared with AGG (-2.5%) in the period of the last 3 years, the annual performance (CAGR) of 3.6% is higher, thus better.

Volatility:

'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.'

Applying this definition to our asset in some examples:
  • The 30 days standard deviation over 5 years of Bond ETF Rotation Strategy is 8.7%, which is larger, thus worse compared to the benchmark AGG (6.6%) in the same period.
  • During the last 3 years, the 30 days standard deviation is 5.2%, which is smaller, thus better than the value of 6.7% from the benchmark.

DownVol:

'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 volatility over 5 years of Bond ETF Rotation Strategy is 6.5%, which is larger, thus worse compared to the benchmark AGG (4.9%) in the same period.
  • During the last 3 years, the downside volatility is 3.4%, which is lower, thus better than the value of 4.8% 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:
  • Compared with the benchmark AGG (-0.33) in the period of the last 5 years, the Sharpe Ratio of 0.64 of Bond ETF Rotation Strategy is larger, thus better.
  • During the last 3 years, the risk / return profile (Sharpe) is 0.22, which is higher, thus better than the value of -0.74 from the benchmark.

Sortino:

'The Sortino ratio improves upon the Sharpe ratio by isolating downside volatility from total volatility by dividing excess return by the downside deviation. The Sortino ratio is a variation of the Sharpe ratio that differentiates harmful volatility from total overall volatility by using the asset's standard deviation of negative asset returns, called downside deviation. The Sortino ratio takes the asset's return and subtracts the risk-free rate, and then divides that amount by the asset's downside deviation. The ratio was named after Frank A. Sortino.'

Which means for our asset as example:
  • The downside risk / excess return profile over 5 years of Bond ETF Rotation Strategy is 0.85, which is greater, thus better compared to the benchmark AGG (-0.45) in the same period.
  • Compared with AGG (-1.04) in the period of the last 3 years, the downside risk / excess return profile of 0.34 is higher, thus better.

Ulcer:

'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.'

Applying this definition to our asset in some examples:
  • The Downside risk index over 5 years of Bond ETF Rotation Strategy is 3.07 , which is lower, thus better compared to the benchmark AGG (8.48 ) in the same period.
  • During the last 3 years, the Ulcer Ratio is 2.12 , which is smaller, thus better than the value of 10 from the benchmark.

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.'

Which means for our asset as example:
  • The maximum reduction from previous high over 5 years of Bond ETF Rotation Strategy is -21.4 days, which is smaller, thus worse compared to the benchmark AGG (-18.4 days) in the same period.
  • Compared with AGG (-17.8 days) in the period of the last 3 years, the maximum DrawDown of -4.9 days is larger, thus better.

MaxDuration:

'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 time in days below previous high water mark over 5 years of Bond ETF Rotation Strategy is 217 days, which is smaller, thus better compared to the benchmark AGG (917 days) in the same period.
  • During the last 3 years, the maximum days below previous high is 217 days, which is lower, thus better than the value of 666 days from the benchmark.

AveDuration:

'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 days under water over 5 years of Bond ETF Rotation Strategy is 60 days, which is lower, thus better compared to the benchmark AGG (361 days) in the same period.
  • During the last 3 years, the average time in days below previous high water mark is 57 days, which is lower, thus better than the value of 302 days from the benchmark.

Performance (YTD)

Historical returns have been extended using synthetic data.

Allocations ()

Allocations

Returns (%)

  • 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.