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:

'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.'

Applying this definition to our asset in some examples:
  • Looking at the total return, or increase in value of 34.2% in the last 5 years of BUG Permanent Portfolio Strategy, we see it is relatively larger, thus better in comparison to the benchmark AGG (15.3%)
  • Compared with AGG (7.2%) in the period of the last 3 years, the total return, or performance of 25.6% is higher, thus better.

CAGR:

'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.'

Applying this definition to our asset in some examples:
  • Compared with the benchmark AGG (2.9%) in the period of the last 5 years, the compounded annual growth rate (CAGR) of 6.1% of BUG Permanent Portfolio Strategy is larger, thus better.
  • During the last 3 years, the annual performance (CAGR) is 7.9%, which is higher, thus better than the value of 2.3% from the benchmark.

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.'

Applying this definition to our asset in some examples:
  • Compared with the benchmark AGG (3%) in the period of the last 5 years, the 30 days standard deviation of 6% of BUG Permanent Portfolio Strategy is larger, thus worse.
  • During the last 3 years, the 30 days standard deviation is 5.6%, which is larger, thus worse than the value of 2.8% from the benchmark.

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.'

Using this definition on our asset we see for example:
  • The downside risk over 5 years of BUG Permanent Portfolio Strategy is 6.6%, which is larger, thus worse compared to the benchmark AGG (3.3%) in the same period.
  • During the last 3 years, the downside deviation is 6.4%, which is larger, thus worse than the value of 3% from the benchmark.

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.'

Using this definition on our asset we see for example:
  • Compared with the benchmark AGG (0.13) in the period of the last 5 years, the risk / return profile (Sharpe) of 0.59 of BUG Permanent Portfolio Strategy is higher, thus better.
  • During the last 3 years, the Sharpe Ratio is 0.96, which is higher, thus better than the value of -0.06 from the benchmark.

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.'

Applying this definition to our asset in some examples:
  • Looking at the downside risk / excess return profile of 0.54 in the last 5 years of BUG Permanent Portfolio Strategy, we see it is relatively higher, thus better in comparison to the benchmark AGG (0.12)
  • Compared with AGG (-0.05) in the period of the last 3 years, the ratio of annual return and downside deviation of 0.85 is higher, thus better.

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.'

Applying this definition to our asset in some examples:
  • Looking at the Downside risk index of 2.82 in the last 5 years of BUG Permanent Portfolio Strategy, we see it is relatively greater, thus worse in comparison to the benchmark AGG (1.63 )
  • Looking at Ulcer Ratio in of 2.76 in the period of the last 3 years, we see it is relatively greater, thus worse in comparison to AGG (1.9 ).

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.'

Which means for our asset as example:
  • Looking at the maximum reduction from previous high 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)
  • During the last 3 years, the maximum DrawDown is -7.1 days, which is smaller, thus worse than the value of -4.5 days from the benchmark.

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'

Using this definition on our asset we see for example:
  • Looking at the maximum days below previous high of 288 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 (331 days)
  • Compared with AGG (331 days) in the period of the last 3 years, the maximum time in days below previous high water mark 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.'

Which means for our asset as example:
  • Looking at the average days below previous high of 81 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 (114 days)
  • During the last 3 years, the average days under water is 75 days, which is lower, thus better than the value of 138 days from the benchmark.

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.