Description of Bond ETF Rotation Strategy

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 safe long-term investment with low risk.

Statistics of Bond ETF Rotation Strategy (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.'

Which means for our asset as example:
  • Looking at the total return, or increase in value of 75.8% in the last 5 years of Bond ETF Rotation Strategy, we see it is relatively greater, thus better in comparison to the benchmark AGG (17.4%)
  • Looking at total return, or performance in of 44.7% in the period of the last 3 years, we see it is relatively greater, thus better in comparison to AGG (8.8%).

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.'

Applying this definition to our asset in some examples:
  • The annual performance (CAGR) over 5 years of Bond ETF Rotation Strategy is 11.9%, which is higher, thus better compared to the benchmark AGG (3.3%) in the same period.
  • During the last 3 years, the annual return (CAGR) is 13.1%, which is greater, thus better than the value of 2.9% from the benchmark.

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.'

Which means for our asset as example:
  • Looking at the historical 30 days volatility of 5.8% in the last 5 years of Bond ETF Rotation Strategy, we see it is relatively higher, thus worse in comparison to the benchmark AGG (3.1%)
  • During the last 3 years, the 30 days standard deviation is 5.1%, which is greater, thus worse than the value of 2.9% from the benchmark.

DownVol:

'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:
  • Looking at the downside risk of 6.3% in the last 5 years of Bond ETF Rotation Strategy, we see it is relatively larger, thus worse in comparison to the benchmark AGG (3.4%)
  • Compared with AGG (3.1%) in the period of the last 3 years, the downside volatility of 5.5% is larger, thus worse.

Sharpe:

'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 (0.24) in the period of the last 5 years, the ratio of return and volatility (Sharpe) of 1.63 of Bond ETF Rotation Strategy is higher, thus better.
  • During the last 3 years, the Sharpe Ratio is 2.1, which is higher, thus better than the value of 0.12 from the benchmark.

Sortino:

'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.'

Applying this definition to our asset in some examples:
  • Looking at the downside risk / excess return profile of 1.5 in the last 5 years of Bond ETF Rotation Strategy, we see it is relatively larger, thus better in comparison to the benchmark AGG (0.22)
  • Looking at ratio of annual return and downside deviation in of 1.92 in the period of the last 3 years, we see it is relatively greater, thus better in comparison to AGG (0.12).

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.'

Applying this definition to our asset in some examples:
  • Looking at the Downside risk index of 1.33 in the last 5 years of Bond ETF Rotation Strategy, we see it is relatively lower, thus better in comparison to the benchmark AGG (1.64 )
  • Compared with AGG (1.83 ) in the period of the last 3 years, the Ulcer Ratio of 0.76 is lower, thus better.

MaxDD:

'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 (-4.5 days) in the period of the last 5 years, the maximum DrawDown of -5.1 days of Bond ETF Rotation Strategy is lower, thus worse.
  • During the last 3 years, the maximum reduction from previous high is -3.7 days, which is larger, thus better than the value of -4.2 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.'

Applying this definition to our asset in some examples:
  • Compared with the benchmark AGG (331 days) in the period of the last 5 years, the maximum time in days below previous high water mark of 207 days of Bond ETF Rotation Strategy is smaller, thus better.
  • Looking at maximum days below previous high in of 65 days in the period of the last 3 years, we see it is relatively lower, thus better in comparison to AGG (331 days).

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.'

Using this definition on our asset we see for example:
  • The average days below previous high over 5 years of Bond ETF Rotation Strategy is 31 days, which is lower, thus better compared to the benchmark AGG (115 days) in the same period.
  • Compared with AGG (118 days) in the period of the last 3 years, the average days under water of 11 days is lower, thus better.

Performance of Bond ETF Rotation Strategy (YTD)

Historical returns have been extended using synthetic data.

Allocations of Bond ETF Rotation Strategy
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Allocations

Returns of Bond ETF Rotation Strategy (%)

  • "Year" returns in the table above are not equal to 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.