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 investment’s overall performance.'

Which means for our asset as example:- Looking at the total return of 43.3% 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%)
- Looking at total return, or performance in of 10.6% in the period of the last 3 years, we see it is relatively greater, thus better in comparison to AGG (-8.7%).

'The compound annual growth rate isn't a true return rate, but rather a representational figure. It is essentially a number that describes the rate at which an investment would have grown if it had grown the same rate every year and the profits were reinvested at the end of each year. In reality, this sort of performance is unlikely. However, CAGR can be used to smooth returns so that they may be more easily understood when compared to alternative investments.'

Which means for our asset as example:- Compared with the benchmark AGG (0%) in the period of the last 5 years, the compounded annual growth rate (CAGR) of 7.5% of Bond ETF Rotation Strategy is greater, thus better.
- Compared with AGG (-3%) in the period of the last 3 years, the annual performance (CAGR) of 3.4% is larger, thus better.

'Volatility is a statistical measure of the dispersion of returns for a given security or market index. Volatility can either be measured by using the standard deviation or variance between returns from that same security or market index. Commonly, the higher the volatility, the riskier the security. In the securities markets, volatility is often associated with big swings in either direction. For example, when the stock market rises and falls more than one percent over a sustained period of time, it is called a 'volatile' market.'

Applying this definition to our asset in some examples:- Looking at the volatility of 8.8% in the last 5 years of Bond ETF Rotation Strategy, we see it is relatively greater, thus worse in comparison to the benchmark AGG (6.7%)
- During the last 3 years, the volatility is 5.2%, which is lower, thus better than the value of 6.9% from the benchmark.

'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:- Compared with the benchmark AGG (5%) in the period of the last 5 years, the downside volatility of 6.5% of Bond ETF Rotation Strategy is greater, thus worse.
- Looking at downside risk in of 3.4% in the period of the last 3 years, we see it is relatively lower, thus better in comparison to AGG (4.9%).

'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.'

Applying this definition to our asset in some examples:- Looking at the ratio of return and volatility (Sharpe) of 0.57 in the last 5 years of Bond ETF Rotation Strategy, we see it is relatively higher, thus better in comparison to the benchmark AGG (-0.37)
- Looking at risk / return profile (Sharpe) in of 0.17 in the period of the last 3 years, we see it is relatively larger, thus better in comparison to AGG (-0.79).

'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 (-0.5) in the period of the last 5 years, the ratio of annual return and downside deviation of 0.76 of Bond ETF Rotation Strategy is greater, thus better.
- Looking at downside risk / excess return profile in of 0.26 in the period of the last 3 years, we see it is relatively greater, thus better in comparison to AGG (-1.11).

'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:- Compared with the benchmark AGG (8.94 ) in the period of the last 5 years, the Ulcer Index of 3.08 of Bond ETF Rotation Strategy is lower, thus better.
- Looking at Downside risk index in of 2.12 in the period of the last 3 years, we see it is relatively lower, thus better in comparison to AGG (11 ).

'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.'

Applying this definition to our asset in some examples:- Compared with the benchmark AGG (-18.4 days) in the period of the last 5 years, the maximum drop from peak to valley of -21.4 days of Bond ETF Rotation Strategy is lower, thus worse.
- Looking at maximum DrawDown in of -4.9 days in the period of the last 3 years, we see it is relatively greater, thus better in comparison to AGG (-17.8 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.'

Which means for our asset as example:- Compared with the benchmark AGG (995 days) in the period of the last 5 years, the maximum days below previous high of 217 days of Bond ETF Rotation Strategy is lower, thus better.
- Compared with AGG (744 days) in the period of the last 3 years, the maximum days under water of 217 days is smaller, thus better.

'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:- The average days under water over 5 years of Bond ETF Rotation Strategy is 60 days, which is smaller, thus better compared to the benchmark AGG (417 days) in the same period.
- Looking at average days under water in of 57 days in the period of the last 3 years, we see it is relatively smaller, thus better in comparison to AGG (368 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 and do not account for slippage, fees or taxes.
- Results may be based on backtesting, which has many inherent limitations, some of which are described in our Terms of Use.