Description

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.

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.

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 (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:
  • The total return, or increase in value over 5 years of BUG Permanent Portfolio Strategy is 53.7%, which is greater, thus better compared to the benchmark AGG (1.8%) in the same period.
  • Looking at total return, or increase in value in of 33.9% in the period of the last 3 years, we see it is relatively greater, thus better in comparison to AGG (-6.4%).

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.'

Using this definition on our asset we see for example:
  • The annual performance (CAGR) over 5 years of BUG Permanent Portfolio Strategy is 9%, which is higher, thus better compared to the benchmark AGG (0.4%) in the same period.
  • Looking at compounded annual growth rate (CAGR) in of 10.2% in the period of the last 3 years, we see it is relatively larger, thus better in comparison to AGG (-2.2%).

Volatility:

'Volatility is a rate at which the price of a security increases or decreases for a given set of returns. Volatility is measured by calculating the standard deviation of the annualized returns over a given period of time. It shows the range to which the price of a security may increase or decrease. Volatility measures the risk of a security. It is used in option pricing formula to gauge the fluctuations in the returns of the underlying assets. Volatility indicates the pricing behavior of the security and helps estimate the fluctuations that may happen in a short period of time.'

Which means for our asset as example:
  • Compared with the benchmark AGG (5.7%) in the period of the last 5 years, the 30 days standard deviation of 8.8% of BUG Permanent Portfolio Strategy is higher, thus worse.
  • Looking at historical 30 days volatility in of 10.2% in the period of the last 3 years, we see it is relatively larger, thus worse in comparison to AGG (6.9%).

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.'

Which means for our asset as example:
  • Looking at the downside deviation of 6.6% in the last 5 years of BUG Permanent Portfolio Strategy, we see it is relatively greater, thus worse in comparison to the benchmark AGG (4.3%)
  • During the last 3 years, the downside volatility is 7.7%, which is greater, thus worse than the value of 5.3% from the benchmark.

Sharpe:

'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:
  • Looking at the ratio of return and volatility (Sharpe) of 0.74 in the last 5 years of BUG Permanent Portfolio Strategy, we see it is relatively greater, thus better in comparison to the benchmark AGG (-0.38)
  • Looking at ratio of return and volatility (Sharpe) in of 0.76 in the period of the last 3 years, we see it is relatively higher, thus better in comparison to AGG (-0.68).

Sortino:

'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.'

Which means for our asset as example:
  • Compared with the benchmark AGG (-0.5) in the period of the last 5 years, the excess return divided by the downside deviation of 0.98 of BUG Permanent Portfolio Strategy is larger, thus better.
  • Looking at excess return divided by the downside deviation in of 1.01 in the period of the last 3 years, we see it is relatively higher, thus better in comparison to AGG (-0.88).

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:
  • Looking at the Downside risk index of 4.06 in the last 5 years of BUG Permanent Portfolio Strategy, we see it is relatively lower, thus better in comparison to the benchmark AGG (5.27 )
  • During the last 3 years, the Ulcer Ratio is 4.78 , which is lower, thus better than the value of 6.71 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.'

Using this definition on our asset we see for example:
  • Compared with the benchmark AGG (-18.4 days) in the period of the last 5 years, the maximum reduction from previous high of -19.3 days of BUG Permanent Portfolio Strategy is lower, thus worse.
  • Looking at maximum DrawDown in of -19.3 days in the period of the last 3 years, we see it is relatively smaller, thus worse in comparison to AGG (-18.4 days).

MaxDuration:

'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'

Applying this definition to our asset in some examples:
  • Compared with the benchmark AGG (590 days) in the period of the last 5 years, the maximum time in days below previous high water mark of 287 days of BUG Permanent Portfolio Strategy is lower, thus better.
  • During the last 3 years, the maximum days below previous high is 233 days, which is smaller, thus better than the value of 590 days from the benchmark.

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.'

Which means for our asset as example:
  • Looking at the average days below previous high of 75 days in the last 5 years of BUG Permanent Portfolio Strategy, we see it is relatively smaller, thus better in comparison to the benchmark AGG (185 days)
  • Looking at average time in days below previous high water mark in of 57 days in the period of the last 3 years, we see it is relatively lower, thus better in comparison to AGG (250 days).

Performance (YTD)

Historical returns have been extended using synthetic data.

Allocations ()

Allocations

Returns (%)

  • Note that yearly returns do not equal 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.