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.

'The total return on a portfolio of investments takes into account not only the capital appreciation on the portfolio, but also the income received on the portfolio. The income typically consists of interest, dividends, and securities lending fees. This contrasts with the price return, which takes into account only the capital gain on an investment.'

Using this definition on our asset we see for example:- Compared with the benchmark AGG (15%) in the period of the last 5 years, the total return of 50.1% of Bond ETF Rotation Strategy is higher, thus better.
- Looking at total return, or increase in value in of 34.4% in the period of the last 3 years, we see it is relatively greater, thus better in comparison to AGG (12.7%).

'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:- The compounded annual growth rate (CAGR) over 5 years of Bond ETF Rotation Strategy is 8.5%, which is larger, thus better compared to the benchmark AGG (2.8%) in the same period.
- Compared with AGG (4.1%) in the period of the last 3 years, the compounded annual growth rate (CAGR) of 10.3% is higher, thus better.

'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:- Compared with the benchmark AGG (3.1%) in the period of the last 5 years, the historical 30 days volatility of 5.5% of Bond ETF Rotation Strategy is larger, thus worse.
- Compared with AGG (2.9%) in the period of the last 3 years, the 30 days standard deviation of 4.8% is greater, thus worse.

'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:- Looking at the downside risk of 6.1% in the last 5 years of Bond ETF Rotation Strategy, we see it is relatively larger, thus worse in comparison to the benchmark AGG (3.3%)
- During the last 3 years, the downside deviation is 5.4%, which is larger, thus worse than the value of 3% from the benchmark.

'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 (0.11) in the period of the last 5 years, the risk / return profile (Sharpe) of 1.08 of Bond ETF Rotation Strategy is higher, thus better.
- Compared with AGG (0.55) in the period of the last 3 years, the Sharpe Ratio of 1.63 is larger, thus better.

'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.'

Applying this definition to our asset in some examples:- The excess return divided by the downside deviation over 5 years of Bond ETF Rotation Strategy is 0.98, which is higher, thus better compared to the benchmark AGG (0.1) in the same period.
- Looking at downside risk / excess return profile in of 1.46 in the period of the last 3 years, we see it is relatively higher, thus better in comparison to AGG (0.52).

'The ulcer index is a stock market risk measure or technical analysis indicator devised by Peter Martin in 1987, and published by him and Byron McCann in their 1989 book The Investors Guide to Fidelity Funds. It's designed as a measure of volatility, but only volatility in the downward direction, i.e. the amount of drawdown or retracement occurring over a period. Other volatility measures like standard deviation treat up and down movement equally, but a trader doesn't mind upward movement, it's the downside that causes stress and stomach ulcers that the index's name suggests.'

Which means for our asset as example:- Looking at the Ulcer Index of 1.73 in the last 5 years of Bond ETF Rotation Strategy, we see it is relatively larger, thus worse in comparison to the benchmark AGG (1.64 )
- Compared with AGG (1.4 ) in the period of the last 3 years, the Downside risk index of 0.89 is lower, thus better.

'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:- The maximum drop from peak to valley over 5 years of Bond ETF Rotation Strategy is -5.3 days, which is smaller, thus worse compared to the benchmark AGG (-4.5 days) in the same period.
- Looking at maximum reduction from previous high in of -3.3 days in the period of the last 3 years, we see it is relatively larger, thus better in comparison to AGG (-3.5 days).

'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.'

Using this definition on our asset we see for example:- The maximum days under water over 5 years of Bond ETF Rotation Strategy is 290 days, which is lower, thus better compared to the benchmark AGG (331 days) in the same period.
- Compared with AGG (331 days) in the period of the last 3 years, the maximum days below previous high of 72 days is smaller, thus better.

'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.'

Which means for our asset as example:- Compared with the benchmark AGG (115 days) in the period of the last 5 years, the average days under water of 53 days of Bond ETF Rotation Strategy is lower, thus better.
- Compared with AGG (89 days) in the period of the last 3 years, the average days under water of 16 days is lower, thus better.

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.