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.'

Applying this definition to our asset in some examples:- Compared with the benchmark ACWI (96.2%) in the period of the last 5 years, the total return, or increase in value of 101.1% of Global Market Rotation Strategy is larger, thus better.
- Looking at total return, or increase in value in of 39.4% in the period of the last 3 years, we see it is relatively lower, thus worse in comparison to ACWI (47.5%).

'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.'

Which means for our asset as example:- The annual performance (CAGR) over 5 years of Global Market Rotation Strategy is 15%, which is greater, thus better compared to the benchmark ACWI (14.4%) in the same period.
- Looking at annual performance (CAGR) in of 11.7% in the period of the last 3 years, we see it is relatively smaller, thus worse in comparison to ACWI (13.8%).

'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:- Compared with the benchmark ACWI (18.1%) in the period of the last 5 years, the historical 30 days volatility of 10.5% of Global Market Rotation Strategy is lower, thus better.
- Looking at volatility in of 12.3% in the period of the last 3 years, we see it is relatively lower, thus better in comparison to ACWI (21.4%).

'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 smaller, thus better in comparison to the benchmark ACWI (13.4%)
- During the last 3 years, the downside risk is 9.2%, which is smaller, thus better than the value of 15.8% from the benchmark.

'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.'

Which means for our asset as example:- The ratio of return and volatility (Sharpe) over 5 years of Global Market Rotation Strategy is 1.19, which is greater, thus better compared to the benchmark ACWI (0.66) in the same period.
- Looking at Sharpe Ratio in of 0.75 in the period of the last 3 years, we see it is relatively greater, thus better in comparison to ACWI (0.53).

'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:- Compared with the benchmark ACWI (0.89) in the period of the last 5 years, the excess return divided by the downside deviation of 1.61 of Global Market Rotation Strategy is greater, thus better.
- Compared with ACWI (0.71) in the period of the last 3 years, the downside risk / excess return profile of 0.99 is larger, thus better.

'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.'

Using this definition on our asset we see for example:- The Ulcer Ratio over 5 years of Global Market Rotation Strategy is 2.8 , which is lower, thus better compared to the benchmark ACWI (6.28 ) in the same period.
- Compared with ACWI (7.08 ) in the period of the last 3 years, the Downside risk index of 3.53 is lower, thus better.

'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:- Looking at the maximum reduction from previous high of -20.7 days in the last 5 years of Global Market Rotation Strategy, we see it is relatively higher, thus better in comparison to the benchmark ACWI (-33.5 days)
- During the last 3 years, the maximum drop from peak to valley is -20.7 days, which is larger, thus better than the value of -33.5 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.'

Applying this definition to our asset in some examples:- Compared with the benchmark ACWI (373 days) in the period of the last 5 years, the maximum days below previous high of 94 days of Global Market Rotation Strategy is smaller, thus better.
- Compared with ACWI (138 days) in the period of the last 3 years, the maximum days under water of 94 days is lower, thus better.

'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 below previous high of 17 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 (81 days)
- During the last 3 years, the average days under water is 20 days, which is smaller, thus better than the value of 37 days from the benchmark.

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.