The Global Market Rotation Strategy is one of our core investment strategies. The strategy invests on a monthly basis in one of five broad global markets. It hedges the global equity exposure with variable allocation to the HEDGE sub-strategy.

December 2016 Update: We are enhancing the Treasury hedge. Before we allocated part of the portfolio to longer-term treasuries, namely the 3x leveraged ETF version, TMF. From now on we will be allocating to the best bond ETF as chosen by our Bond Rotation strategy (BRS). BRS choses from the JNK, CWB,PCY and TLT ETFs.

December 2015 Update: We are adding currency hedged ETFs in the universe that our algorithm can see. That means that we allow our algorithms to choose between a non-hedged ETF like EWG or a hedged ETF like HEWG. This allows our algorithm to input dollar strength as an additional parameter and be able to respond accordingly. This does not change the current logic, which is to bet on the best performing regions or countries. What it does is that it allows, in the case of extended dollar strength, to partially neutralize foreign currency risk for our U.S. based investors.

'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.'

Applying this definition to our asset in some examples:- The total return over 5 years of Global Market Rotation Strategy is 77%, which is larger, thus better compared to the benchmark ACWI (37.5%) in the same period.
- During the last 3 years, the total return, or increase in value is 30.8%, which is smaller, thus worse than the value of 37.2% from the benchmark.

'The compound annual growth rate isn't a true return rate, but rather a representational figure. It is essentially a number that describes the rate at which an investment would have grown if it had grown the same rate every year and the profits were reinvested at the end of each year. In reality, this sort of performance is unlikely. However, CAGR can be used to smooth returns so that they may be more easily understood when compared to alternative investments.'

Which means for our asset as example:- Compared with the benchmark ACWI (6.6%) in the period of the last 5 years, the compounded annual growth rate (CAGR) of 12.1% of Global Market Rotation Strategy is larger, thus better.
- Compared with ACWI (11.2%) in the period of the last 3 years, the compounded annual growth rate (CAGR) of 9.4% is lower, thus worse.

'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 7.1% in the last 5 years of Global Market Rotation Strategy, we see it is relatively smaller, thus better in comparison to the benchmark ACWI (13.6%)
- Compared with ACWI (12%) in the period of the last 3 years, the historical 30 days volatility of 6.6% is lower, thus better.

'The downside volatility is similar to the volatility, or standard deviation, but only takes losing/negative periods into account.'

Using this definition on our asset we see for example:- Looking at the downside risk of 7.8% in the last 5 years of Global Market Rotation Strategy, we see it is relatively lower, thus better in comparison to the benchmark ACWI (14.9%)
- Looking at downside risk in of 7.6% in the period of the last 3 years, we see it is relatively lower, thus better in comparison to ACWI (13.7%).

'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 Sharpe Ratio of 1.35 in the last 5 years of Global Market Rotation Strategy, we see it is relatively higher, thus better in comparison to the benchmark ACWI (0.3)
- Compared with ACWI (0.72) in the period of the last 3 years, the Sharpe Ratio of 1.05 is higher, thus better.

'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:- Compared with the benchmark ACWI (0.27) in the period of the last 5 years, the ratio of annual return and downside deviation of 1.22 of Global Market Rotation Strategy is larger, thus better.
- Looking at ratio of annual return and downside deviation in of 0.91 in the period of the last 3 years, we see it is relatively greater, thus better in comparison to ACWI (0.63).

'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:- Compared with the benchmark ACWI (6.21 ) in the period of the last 5 years, the Ulcer Ratio of 1.63 of Global Market Rotation Strategy is lower, thus better.
- Looking at Ulcer Ratio in of 1.48 in the period of the last 3 years, we see it is relatively lower, thus better in comparison to ACWI (5.17 ).

'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.'

Using this definition on our asset we see for example:- The maximum DrawDown over 5 years of Global Market Rotation Strategy is -6.5 days, which is greater, thus better compared to the benchmark ACWI (-19.5 days) in the same period.
- During the last 3 years, the maximum reduction from previous high is -6.4 days, which is greater, thus better than the value of -19.5 days from the benchmark.

'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.'

Using this definition on our asset we see for example:- Compared with the benchmark ACWI (407 days) in the period of the last 5 years, the maximum time in days below previous high water mark of 178 days of Global Market Rotation Strategy is lower, thus better.
- Looking at maximum days below previous high in of 140 days in the period of the last 3 years, we see it is relatively lower, thus better in comparison to ACWI (373 days).

'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.'

Using this definition on our asset we see for example:- Looking at the average time in days below previous high water mark of 37 days in the last 5 years of Global Market Rotation Strategy, we see it is relatively lower, thus better in comparison to the benchmark ACWI (137 days)
- Compared with ACWI (112 days) in the period of the last 3 years, the average time in days below previous high water mark of 32 days is smaller, thus better.

Historical returns have been extended using synthetic data.
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- "Year" returns in the table above are not equal to the sum of monthly returns due to compounding.
- Performance results of Global Market Rotation 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.