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.'

Which means for our asset as example:
  • The total return, or increase in value over 5 years of BUG Permanent Portfolio Strategy is 44%, which is greater, thus better compared to the benchmark AGG (13.8%) in the same period.
  • During the last 3 years, the total return, or increase in value is 27.1%, which is larger, thus better than the value of 5.7% from the benchmark.

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 compounded annual growth rate (CAGR) over 5 years of BUG Permanent Portfolio Strategy is 7.6%, which is larger, thus better compared to the benchmark AGG (2.6%) in the same period.
  • During the last 3 years, the compounded annual growth rate (CAGR) is 8.3%, which is higher, thus better than the value of 1.9% from the benchmark.

Volatility:

'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 30 days standard deviation 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%)
  • Compared with AGG (2.8%) in the period of the last 3 years, the volatility of 5.5% is larger, thus worse.

DownVol:

'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:
  • Compared with the benchmark AGG (3.2%) in the period of the last 5 years, the downside volatility of 6.5% of BUG Permanent Portfolio Strategy is larger, thus worse.
  • Looking at downside volatility in of 6.4% in the period of the last 3 years, we see it is relatively higher, 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:
  • Looking at the Sharpe Ratio of 0.86 in the last 5 years of BUG Permanent Portfolio Strategy, we see it is relatively larger, thus better in comparison to the benchmark AGG (0.04)
  • During the last 3 years, the ratio of return and volatility (Sharpe) is 1.05, which is greater, thus better than the value of -0.22 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.'

Using this definition on our asset we see for example:
  • The excess return divided by the downside deviation over 5 years of BUG Permanent Portfolio Strategy is 0.78, which is greater, thus better compared to the benchmark AGG (0.04) in the same period.
  • Compared with AGG (-0.21) in the period of the last 3 years, the excess return divided by the downside deviation of 0.92 is higher, thus better.

Ulcer:

'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.'

Applying this definition to our asset in some examples:
  • The Ulcer Ratio over 5 years of BUG Permanent Portfolio Strategy is 2.78 , which is higher, thus better compared to the benchmark AGG (1.63 ) in the same period.
  • During the last 3 years, the Downside risk index is 2.71 , which is higher, thus better than the value of 1.9 from the benchmark.

MaxDD:

'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.'

Which means for our asset as example:
  • Looking at the maximum DrawDown of -7.6 days in the last 5 years of BUG Permanent Portfolio Strategy, we see it is relatively lower, thus worse in comparison to the benchmark AGG (-4.5 days)
  • Compared with AGG (-4.5 days) in the period of the last 3 years, the maximum drop from peak to valley of -7.1 days is smaller, thus worse.

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.'

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 days under water of 288 days of BUG Permanent Portfolio Strategy is smaller, thus better.
  • Compared with AGG (331 days) in the period of the last 3 years, the maximum days under water of 288 days is smaller, thus better.

AveDuration:

'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.'

Applying this definition to our asset in some examples:
  • The average days below previous high over 5 years of BUG Permanent Portfolio Strategy is 82 days, which is smaller, thus better compared to the benchmark AGG (113 days) in the same period.
  • Looking at average days under water in of 75 days in the period of the last 3 years, we see it is relatively lower, thus better in comparison to AGG (136 days).

Performance of BUG Permanent Portfolio Strategy (YTD)

Historical returns have been extended using synthetic data.

Allocations of BUG Permanent Portfolio Strategy
()

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.