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.'

Using this definition on our asset we see for example:- Looking at the total return, or increase in value of 24.1% in the last 5 years of Bond ETF Rotation Strategy, we see it is relatively larger, thus better in comparison to the benchmark AGG (16.6%)
- During the last 3 years, the total return, or performance is 11.2%, which is lower, thus worse than the value of 12.7% from the benchmark.

'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:- Compared with the benchmark AGG (3.1%) in the period of the last 5 years, the annual return (CAGR) of 4.4% of Bond ETF Rotation Strategy is greater, thus better.
- Looking at annual return (CAGR) in of 3.6% in the period of the last 3 years, we see it is relatively lower, thus worse in comparison to AGG (4%).

'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 5.4% in the last 5 years of Bond ETF Rotation Strategy, we see it is relatively higher, thus worse in comparison to the benchmark AGG (4.7%)
- Looking at historical 30 days volatility in of 6.3% in the period of the last 3 years, we see it is relatively larger, thus worse in comparison to AGG (5.6%).

'The downside volatility is similar to the volatility, or standard deviation, but only takes losing/negative periods into account.'

Which means for our asset as example:- Looking at the downside volatility of 4% in the last 5 years of Bond ETF Rotation Strategy, we see it is relatively greater, thus worse in comparison to the benchmark AGG (3.5%)
- Looking at downside volatility in of 4.8% in the period of the last 3 years, we see it is relatively greater, thus worse in comparison to AGG (4.3%).

'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.'

Using this definition on our asset we see for example:- The Sharpe Ratio over 5 years of Bond ETF Rotation Strategy is 0.35, which is higher, thus better compared to the benchmark AGG (0.13) in the same period.
- During the last 3 years, the risk / return profile (Sharpe) is 0.17, which is lower, thus worse than the value of 0.28 from the benchmark.

'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.'

Which means for our asset as example:- The downside risk / excess return profile over 5 years of Bond ETF Rotation Strategy is 0.48, which is larger, thus better compared to the benchmark AGG (0.18) in the same period.
- During the last 3 years, the ratio of annual return and downside deviation is 0.23, which is smaller, thus worse than the value of 0.36 from the benchmark.

'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 Downside risk index of 2.26 in the last 5 years of Bond ETF Rotation Strategy, we see it is relatively greater, thus worse in comparison to the benchmark AGG (1.65 )
- Looking at Ulcer Index in of 2.76 in the period of the last 3 years, we see it is relatively larger, thus worse in comparison to AGG (1.64 ).

'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.'

Applying this definition to our asset in some examples:- Compared with the benchmark AGG (-9.6 days) in the period of the last 5 years, the maximum DrawDown of -12.8 days of Bond ETF Rotation Strategy is smaller, thus worse.
- During the last 3 years, the maximum reduction from previous high is -12.8 days, which is lower, thus worse than the value of -9.6 days from the benchmark.

'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). Many assume Max DD Duration is the length of time between new highs during which the Max DD (magnitude) occurred. But that isn’t always the case. The Max DD duration is the longest time between peaks, period. So it could be the time when the program also had its biggest peak to valley loss (and usually is, because the program needs a long time to recover from the largest loss), but it doesn’t have to be'

Using this definition on our asset we see for example:- Compared with the benchmark AGG (366 days) in the period of the last 5 years, the maximum days under water of 345 days of Bond ETF Rotation Strategy is lower, thus better.
- Looking at maximum days under water in of 345 days in the period of the last 3 years, we see it is relatively smaller, thus better in comparison to AGG (366 days).

'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 (113 days) in the period of the last 5 years, the average days below previous high of 75 days of Bond ETF Rotation Strategy is smaller, thus better.
- During the last 3 years, the average days under water is 98 days, which is smaller, thus better than the value of 110 days from the benchmark.

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.