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:
  • The total return, or increase in value over 5 years of BUG Permanent Portfolio Strategy is 51.9%, which is greater, thus better compared to the benchmark AGG (15.5%) in the same period.
  • Compared with AGG (13.5%) in the period of the last 3 years, the total return of 35.5% 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.'

Using this definition on our asset we see for example:
  • The compounded annual growth rate (CAGR) over 5 years of BUG Permanent Portfolio Strategy is 8.7%, which is higher, thus better compared to the benchmark AGG (2.9%) in the same period.
  • Compared with AGG (4.3%) in the period of the last 3 years, the compounded annual growth rate (CAGR) of 10.7% is greater, thus better.

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.'

Using this definition on our asset we see for example:
  • Looking at the historical 30 days volatility of 5.5% in the last 5 years of BUG Permanent Portfolio Strategy, we see it is relatively higher, thus worse in comparison to the benchmark AGG (3.1%)
  • Compared with AGG (2.8%) in the period of the last 3 years, the historical 30 days volatility of 4.7% is larger, thus worse.

DownVol:

'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.'

Using this definition on our asset we see for example:
  • Looking at the downside volatility of 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 (3.4%)
  • During the last 3 years, the downside deviation is 5.2%, which is larger, thus worse than the value of 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.'

Using this definition on our asset we see for example:
  • Compared with the benchmark AGG (0.14) in the period of the last 5 years, the Sharpe Ratio of 1.14 of BUG Permanent Portfolio Strategy is higher, thus better.
  • During the last 3 years, the ratio of return and volatility (Sharpe) is 1.75, which is higher, thus better than the value of 0.64 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.'

Using this definition on our asset we see for example:
  • Looking at the downside risk / excess return profile of 1.03 in the last 5 years of BUG Permanent Portfolio Strategy, we see it is relatively higher, thus better in comparison to the benchmark AGG (0.13)
  • During the last 3 years, the excess return divided by the downside deviation is 1.56, which is higher, thus better than the value of 0.6 from the benchmark.

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 Ulcer Index of 2.91 in the last 5 years of BUG Permanent Portfolio Strategy, we see it is relatively larger, thus worse in comparison to the benchmark AGG (1.64 )
  • Looking at Ulcer Ratio in of 3.09 in the period of the last 3 years, we see it is relatively greater, thus worse in comparison to AGG (1.4 ).

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:
  • The maximum reduction from previous high over 5 years of BUG Permanent Portfolio Strategy is -8.7 days, which is lower, thus worse compared to the benchmark AGG (-4.5 days) in the same period.
  • Looking at maximum DrawDown in of -8.7 days in the period of the last 3 years, we see it is relatively smaller, thus worse in comparison to AGG (-3.5 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'

Which means for our asset as example:
  • Compared with the benchmark AGG (331 days) in the period of the last 5 years, the maximum time in days below previous high water mark of 331 days of BUG Permanent Portfolio Strategy is greater, thus worse.
  • Compared with AGG (331 days) in the period of the last 3 years, the maximum days under water of 331 days is larger, thus worse.

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.'

Using this definition on our asset we see for example:
  • Compared with the benchmark AGG (115 days) in the period of the last 5 years, the average days below previous high of 82 days of BUG Permanent Portfolio Strategy is smaller, thus better.
  • During the last 3 years, the average days under water is 94 days, which is greater, thus worse than the value of 90 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 (%)

  • 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.