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 88.1% in the last 5 years of Global Market Rotation Strategy, we see it is relatively higher, thus better in comparison to the benchmark ACWI (39.7%)
- Compared with ACWI (34.4%) in the period of the last 3 years, the total return, or increase in value of 45.7% is larger, 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.'

Which means for our asset as example:- Looking at the compounded annual growth rate (CAGR) of 13.5% in the last 5 years of Global Market Rotation Strategy, we see it is relatively greater, thus better in comparison to the benchmark ACWI (6.9%)
- Looking at annual return (CAGR) in of 13.4% in the period of the last 3 years, we see it is relatively greater, thus better in comparison to ACWI (10.4%).

'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.'

Using this definition on our asset we see for example:- Compared with the benchmark ACWI (20.3%) in the period of the last 5 years, the historical 30 days volatility of 9.4% of Global Market Rotation Strategy is lower, thus better.
- Compared with ACWI (17.7%) in the period of the last 3 years, the 30 days standard deviation of 9.2% is smaller, thus better.

'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.'

Applying this definition to our asset in some examples:- Compared with the benchmark ACWI (14.8%) in the period of the last 5 years, the downside risk of 6.6% of Global Market Rotation Strategy is smaller, thus better.
- During the last 3 years, the downside deviation is 6.4%, which is lower, thus better than the value of 12.5% from the benchmark.

'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.'

Applying this definition to our asset in some examples:- Compared with the benchmark ACWI (0.22) in the period of the last 5 years, the ratio of return and volatility (Sharpe) of 1.16 of Global Market Rotation Strategy is higher, thus better.
- Compared with ACWI (0.45) in the period of the last 3 years, the ratio of return and volatility (Sharpe) of 1.18 is greater, thus better.

'The Sortino ratio, a variation of the Sharpe ratio only factors in the downside, or negative volatility, rather than the total volatility used in calculating the Sharpe ratio. The theory behind the Sortino variation is that upside volatility is a plus for the investment, and it, therefore, should not be included in the risk calculation. Therefore, the Sortino ratio takes upside volatility out of the equation and uses only the downside standard deviation in its calculation instead of the total standard deviation that is used in calculating the Sharpe ratio.'

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 1.65, which is higher, thus better compared to the benchmark ACWI (0.3) in the same period.
- During the last 3 years, the excess return divided by the downside deviation is 1.7, which is greater, thus better than the value of 0.63 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:- The Downside risk index over 5 years of Global Market Rotation Strategy is 3.25 , which is lower, thus better compared to the benchmark ACWI (9.86 ) in the same period.
- Compared with ACWI (11 ) in the period of the last 3 years, the Ulcer Ratio of 3.62 is lower, thus better.

'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:- The maximum drop from peak to valley over 5 years of Global Market Rotation Strategy is -14.4 days, which is greater, thus better compared to the benchmark ACWI (-33.5 days) in the same period.
- Looking at maximum DrawDown in of -10.4 days in the period of the last 3 years, we see it is relatively greater, thus better in comparison to ACWI (-26.4 days).

'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 (352 days) in the period of the last 5 years, the maximum time in days below previous high water mark of 278 days of Global Market Rotation Strategy is lower, thus better.
- During the last 3 years, the maximum days below previous high is 278 days, which is lower, thus better than the value of 352 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.'

Which means for our asset as example:- The average days below previous high over 5 years of Global Market Rotation Strategy is 55 days, which is lower, thus better compared to the benchmark ACWI (78 days) in the same period.
- Looking at average days under water in of 73 days in the period of the last 3 years, we see it is relatively lower, thus better in comparison to ACWI (100 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, 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.