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 is the amount of value an investor earns from a security over a specific period, typically one year, when all distributions are reinvested. Total return is expressed as a percentage of the amount invested. For example, a total return of 20% means the security increased by 20% of its original value due to a price increase, distribution of dividends (if a stock), coupons (if a bond) or capital gains (if a fund). Total return is a strong measure of an investment’s overall performance.'

Which means for our asset as example:- Looking at the total return of 86.4% in the last 5 years of Global Market Rotation Strategy, we see it is relatively higher, thus better in comparison to the benchmark ACWI (65.2%)
- Compared with ACWI (10.6%) in the period of the last 3 years, the total return, or increase in value of 17.9% is greater, thus better.

'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.'

Using this definition on our asset we see for example:- Looking at the annual performance (CAGR) of 13.3% in the last 5 years of Global Market Rotation Strategy, we see it is relatively greater, thus better in comparison to the benchmark ACWI (10.6%)
- Looking at annual performance (CAGR) in of 5.7% in the period of the last 3 years, we see it is relatively larger, thus better in comparison to ACWI (3.4%).

'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.'

Which means for our asset as example:- Looking at the volatility of 9.8% in the last 5 years of Global Market Rotation Strategy, we see it is relatively lower, thus better in comparison to the benchmark ACWI (20%)
- Compared with ACWI (16.5%) in the period of the last 3 years, the 30 days standard deviation of 8.2% is smaller, 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 volatility of 7% in the last 5 years of Global Market Rotation Strategy, we see it is relatively lower, thus better in comparison to the benchmark ACWI (14.5%)
- Looking at downside risk in of 5.8% in the period of the last 3 years, we see it is relatively lower, thus better in comparison to ACWI (11.5%).

'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.'

Which means for our asset as example:- The ratio of return and volatility (Sharpe) over 5 years of Global Market Rotation Strategy is 1.1, which is higher, thus better compared to the benchmark ACWI (0.4) in the same period.
- Looking at Sharpe Ratio in of 0.38 in the period of the last 3 years, we see it is relatively larger, thus better in comparison to ACWI (0.06).

'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 downside risk / excess return profile over 5 years of Global Market Rotation Strategy is 1.55, which is higher, thus better compared to the benchmark ACWI (0.56) in the same period.
- During the last 3 years, the ratio of annual return and downside deviation is 0.54, which is greater, thus better than the value of 0.08 from the benchmark.

'Ulcer Index is a method for measuring investment risk that addresses the real concerns of investors, unlike the widely used standard deviation of return. UI is a measure of the depth and duration of drawdowns in prices from earlier highs. Using Ulcer Index instead of standard deviation can lead to very different conclusions about investment risk and risk-adjusted return, especially when evaluating strategies that seek to avoid major declines in portfolio value (market timing, dynamic asset allocation, hedge funds, etc.). The Ulcer Index was originally developed in 1987. Since then, it has been widely recognized and adopted by the investment community. According to Nelson Freeburg, editor of Formula Research, Ulcer Index is “perhaps the most fully realized statistical portrait of risk there is.'

Applying this definition to our asset in some examples:- Compared with the benchmark ACWI (9.93 ) in the period of the last 5 years, the Ulcer Index of 3.29 of Global Market Rotation Strategy is lower, thus better.
- During the last 3 years, the Downside risk index is 3.62 , which is lower, thus better than the value of 11 from the benchmark.

'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.'

Applying this definition to our asset in some examples:- Compared with the benchmark ACWI (-33.5 days) in the period of the last 5 years, the maximum reduction from previous high of -14.4 days of Global Market Rotation Strategy is higher, thus better.
- Compared with ACWI (-26.4 days) in the period of the last 3 years, the maximum DrawDown of -10.4 days is larger, thus better.

'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) in days.'

Using this definition on our asset we see for example:- Looking at the maximum time in days below previous high water mark of 281 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 (516 days)
- During the last 3 years, the maximum days under water is 281 days, which is smaller, thus better than the value of 516 days from the benchmark.

'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:- Looking at the average days under water of 55 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 (134 days)
- Looking at average days under water in of 75 days in the period of the last 3 years, we see it is relatively smaller, thus better in comparison to ACWI (194 days).

Historical returns have been extended using synthetic data.
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- Note that yearly returns do not equal the sum of monthly returns due to compounding.
- Performance results of Global Market Rotation Strategy are hypothetical and do not account for slippage, fees or taxes.
- Results may be based on backtesting, which has many inherent limitations, some of which are described in our Terms of Use.