Description of BUG Permanent Portfolio Strategy

The BUG strategy is one of our more conservative strategies. The strategy does not attempt to predict prices or the future state of the economy. It holds a broad diversified number of assets that complement each other, each performing well in a different economic environment such as inflation, deflation, growth and stagnation. It is meant for long term, steady growth and low risk.

It inherits part of its logic from Harry Browne's tried-and-true Permanent Portfolio and the publicized workings of the All-Weather portfolio.

Methodology & Assets
  • US Market (SPY: S&P 500 SPDRs)
  • Long Duration Treasuries (TLT: iShares 20+ Year Treasury Bond)
  • Gold (GLD: Gold Shares SPDR)
  • Cash or equivalent (SHY: 1-3 Year Treasury Bonds)
  • Convertible Bonds (CWB: SPDR Barclays Convertible Securities)
  • Inflation Protected Treasuries (TIP: iShares TIPS Bond Fund)
  • Foreign Bonds (PCY: PowerShares Emerging Markets Sovereign Bond)

Statistics of BUG Permanent Portfolio 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.'

Using this definition on our asset we see for example:
  • Looking at the total return, or performance of 36.7% in the last 5 years of BUG Permanent Portfolio Strategy, we see it is relatively higher, thus better in comparison to the benchmark AGG (17.3%)
  • Compared with AGG (8.8%) in the period of the last 3 years, the total return of 21.5% is greater, thus better.

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:
  • Looking at the compounded annual growth rate (CAGR) of 6.5% in the last 5 years of BUG Permanent Portfolio Strategy, we see it is relatively higher, thus better in comparison to the benchmark AGG (3.2%)
  • During the last 3 years, the annual performance (CAGR) is 6.7%, 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.'

Applying this definition to our asset in some examples:
  • Looking at the volatility of 5.9% in the last 5 years of BUG Permanent Portfolio Strategy, we see it is relatively greater, thus worse in comparison to the benchmark AGG (3.1%)
  • Looking at 30 days standard deviation in of 5.5% in the period of the last 3 years, we see it is relatively higher, thus worse in comparison to AGG (2.8%).

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:
  • Compared with the benchmark AGG (3.3%) in the period of the last 5 years, the downside volatility of 6.6% of BUG Permanent Portfolio Strategy is greater, thus worse.
  • Looking at downside deviation in of 6.3% in the period of the last 3 years, we see it is relatively greater, thus worse in comparison to AGG (3%).

Sharpe:

'The Sharpe ratio is the measure of risk-adjusted return of a financial portfolio. Sharpe ratio is a measure of excess portfolio return over the risk-free rate relative to its standard deviation. Normally, the 90-day Treasury bill rate is taken as the proxy for risk-free rate. A portfolio with a higher Sharpe ratio is considered superior relative to its peers. The measure was named after William F Sharpe, a Nobel laureate and professor of finance, emeritus at Stanford University.'

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 risk / return profile (Sharpe) of 0.67 of BUG Permanent Portfolio Strategy is larger, thus better.
  • During the last 3 years, the risk / return profile (Sharpe) is 0.77, which is larger, thus better than the value of 0.12 from the benchmark.

Sortino:

'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.'

Using this definition on our asset we see for example:
  • Looking at the excess return divided by the downside deviation of 0.6 in the last 5 years of BUG Permanent Portfolio Strategy, we see it is relatively higher, thus better in comparison to the benchmark AGG (0.23)
  • Looking at ratio of annual return and downside deviation in of 0.67 in the period of the last 3 years, we see it is relatively higher, 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.'

Which means for our asset as example:
  • The Ulcer Ratio over 5 years of BUG Permanent Portfolio Strategy is 2.82 , which is higher, thus worse compared to the benchmark AGG (1.63 ) in the same period.
  • Compared with AGG (1.83 ) in the period of the last 3 years, the Ulcer Index of 2.76 is higher, thus worse.

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.'

Applying this definition to our asset in some examples:
  • Looking at the maximum drop from peak to valley of -7.6 days in the last 5 years of BUG Permanent Portfolio Strategy, we see it is relatively smaller, thus worse in comparison to the benchmark AGG (-4.5 days)
  • During the last 3 years, the maximum reduction from previous high is -7.1 days, which is smaller, thus worse than the value of -4.3 days from the benchmark.

MaxDuration:

'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:
  • The maximum days under water over 5 years of BUG Permanent Portfolio Strategy is 288 days, which is lower, thus better compared to the benchmark AGG (331 days) in the same period.
  • During the last 3 years, the maximum time in days below previous high water mark is 288 days, which is smaller, thus better than the value of 331 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.'

Which means for our asset as example:
  • Looking at the average days under water of 81 days in the last 5 years of BUG Permanent Portfolio Strategy, we see it is relatively lower, thus better in comparison to the benchmark AGG (114 days)
  • Compared with AGG (122 days) in the period of the last 3 years, the average days under water of 74 days is lower, thus better.

Performance of BUG Permanent Portfolio Strategy (YTD)

Historical returns have been extended using synthetic data.

Allocations of BUG Permanent Portfolio Strategy
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Allocations

Returns of BUG Permanent Portfolio Strategy (%)

  • "Year" returns in the table above are not equal to the sum of monthly returns due to compounding.
  • Performance results of BUG Permanent Portfolio 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.