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 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.'

Using this definition on our asset we see for example:
  • Compared with the benchmark AGG (1.9%) in the period of the last 5 years, the total return of 48.4% of Bond ETF Rotation Strategy is larger, thus better.
  • Compared with AGG (-8.1%) in the period of the last 3 years, the total return, or performance of 7.6% is higher, thus better.

CAGR:

'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 8.2% in the last 5 years of Bond ETF Rotation Strategy, we see it is relatively higher, thus better in comparison to the benchmark AGG (0.4%)
  • During the last 3 years, the compounded annual growth rate (CAGR) is 2.5%, which is larger, thus better than the value of -2.8% from the benchmark.

Volatility:

'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.'

Using this definition on our asset we see for example:
  • The historical 30 days volatility over 5 years of Bond ETF Rotation Strategy is 8.7%, which is higher, thus worse compared to the benchmark AGG (6.6%) in the same period.
  • During the last 3 years, the 30 days standard deviation is 5.3%, which is smaller, thus better than the value of 6.7% from the benchmark.

DownVol:

'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.'

Using this definition on our asset we see for example:
  • The downside deviation over 5 years of Bond ETF Rotation Strategy is 6.5%, which is higher, thus worse compared to the benchmark AGG (4.9%) in the same period.
  • During the last 3 years, the downside volatility is 3.5%, 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:
  • Looking at the risk / return profile (Sharpe) of 0.65 in the last 5 years of Bond ETF Rotation Strategy, we see it is relatively higher, thus better in comparison to the benchmark AGG (-0.32)
  • Looking at risk / return profile (Sharpe) in of 0 in the period of the last 3 years, we see it is relatively higher, thus better in comparison to AGG (-0.78).

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.'

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 0.88, which is greater, thus better compared to the benchmark AGG (-0.44) in the same period.
  • Compared with AGG (-1.1) in the period of the last 3 years, the downside risk / excess return profile of 0 is larger, thus better.

Ulcer:

'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.'

Using this definition on our asset we see for example:
  • Looking at the Ulcer Ratio of 3.07 in the last 5 years of Bond ETF Rotation Strategy, we see it is relatively lower, thus better in comparison to the benchmark AGG (8.43 )
  • Compared with AGG (10 ) in the period of the last 3 years, the Downside risk index of 2.13 is smaller, thus better.

MaxDD:

'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:
  • 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.
  • During the last 3 years, the maximum reduction from previous high is -4.9 days, which is larger, thus better than the value of -17.8 days from the benchmark.

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:
  • Compared with the benchmark AGG (909 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.
  • During the last 3 years, the maximum days below previous high is 217 days, which is smaller, thus better than the value of 658 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:
  • Looking at the average time in days below previous high water mark of 60 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 (357 days)
  • Looking at average time in days below previous high water mark in of 57 days in the period of the last 3 years, we see it is relatively lower, thus better in comparison to AGG (296 days).

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.