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, 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.'

Using this definition on our asset we see for example:- The total return over 5 years of Bond ETF Rotation Strategy is 44.9%, which is higher, thus better compared to the benchmark AGG (-0.5%) in the same period.
- During the last 3 years, the total return, or performance is 6.1%, which is greater, thus better than the value of -10.4% 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.'

Which means for our asset as example:- Looking at the annual return (CAGR) of 7.7% in the last 5 years of Bond ETF Rotation Strategy, we see it is relatively larger, thus better in comparison to the benchmark AGG (-0.1%)
- During the last 3 years, the annual performance (CAGR) is 2%, which is higher, thus better than the value of -3.6% from the benchmark.

'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 (6.7%) in the period of the last 5 years, the 30 days standard deviation of 8.8% of Bond ETF Rotation Strategy is higher, thus worse.
- Looking at 30 days standard deviation in of 5.2% in the period of the last 3 years, we see it is relatively lower, thus better in comparison to AGG (6.8%).

'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.'

Applying this definition to our asset in some examples:- Compared with the benchmark AGG (4.9%) in the period of the last 5 years, the downside volatility of 6.5% of Bond ETF Rotation Strategy is higher, thus worse.
- During the last 3 years, the downside risk is 3.5%, which is lower, thus better than the value of 4.9% 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 (-0.39) in the period of the last 5 years, the ratio of return and volatility (Sharpe) of 0.59 of Bond ETF Rotation Strategy is higher, thus better.
- Looking at risk / return profile (Sharpe) in of -0.1 in the period of the last 3 years, we see it is relatively higher, thus better in comparison to AGG (-0.9).

'The Sortino ratio, a variation of the Sharpe ratio only factors in the downside, or negative volatility, rather than the total volatility used in calculating the Sharpe ratio. The theory behind the Sortino variation is that upside volatility is a plus for the investment, and it, therefore, should not be included in the risk calculation. Therefore, the Sortino ratio takes upside volatility out of the equation and uses only the downside standard deviation in its calculation instead of the total standard deviation that is used in calculating the Sharpe ratio.'

Applying this definition to our asset in some examples:- Compared with the benchmark AGG (-0.53) in the period of the last 5 years, the excess return divided by the downside deviation of 0.8 of Bond ETF Rotation Strategy is larger, thus better.
- Compared with AGG (-1.25) in the period of the last 3 years, the excess return divided by the downside deviation of -0.14 is larger, thus better.

'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:- The Ulcer Index over 5 years of Bond ETF Rotation Strategy is 3.07 , which is lower, thus better compared to the benchmark AGG (8.57 ) in the same period.
- Looking at Ulcer Ratio in of 2.12 in the period of the last 3 years, we see it is relatively lower, thus better in comparison to AGG (10 ).

'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 reduction from previous high of -21.4 days of Bond ETF Rotation Strategy is lower, thus worse.
- Looking at maximum drop from peak to valley 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 (930 days) in the period of the last 5 years, the maximum days below previous high of 217 days of Bond ETF Rotation Strategy is smaller, thus better.
- Compared with AGG (679 days) in the period of the last 3 years, the maximum days below previous high of 217 days is lower, 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 time in days below previous high water mark over 5 years of Bond ETF Rotation Strategy is 60 days, which is lower, thus better compared to the benchmark AGG (373 days) in the same period.
- Compared with AGG (314 days) in the period of the last 3 years, the average time in days below previous high water mark of 57 days is lower, thus better.

Historical returns have been extended using synthetic data.
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Allocations and holdings shown below are delayed by one month.

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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.