Description of Global Market Rotation Strategy

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.

Version History

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.

Statistics of Global Market Rotation 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:
  • Compared with the benchmark ACWI (57.3%) in the period of the last 5 years, the total return, or increase in value of 87.2% of Global Market Rotation Strategy is higher, thus better.
  • During the last 3 years, the total return is 54.5%, which is greater, thus better than the value of 43.1% from the benchmark.

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 annual return (CAGR) over 5 years of Global Market Rotation Strategy is 13.4%, which is greater, thus better compared to the benchmark ACWI (9.5%) in the same period.
  • During the last 3 years, the annual return (CAGR) is 15.6%, which is higher, thus better than the value of 12.7% from the benchmark.

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.'

Which means for our asset as example:
  • Compared with the benchmark ACWI (13.3%) in the period of the last 5 years, the historical 30 days volatility of 6.6% of Global Market Rotation Strategy is smaller, thus better.
  • Looking at 30 days standard deviation in of 6% in the period of the last 3 years, we see it is relatively lower, thus better in comparison to ACWI (11.9%).

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.'

Which means for our asset as example:
  • Looking at the downside risk of 7.5% in the last 5 years of Global Market Rotation Strategy, we see it is relatively smaller, thus better in comparison to the benchmark ACWI (14.8%)
  • Compared with ACWI (13.8%) in the period of the last 3 years, the downside deviation of 7.1% is smaller, thus better.

Sharpe:

'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.'

Using this definition on our asset we see for example:
  • The risk / return profile (Sharpe) over 5 years of Global Market Rotation Strategy is 1.64, which is greater, thus better compared to the benchmark ACWI (0.53) in the same period.
  • Compared with ACWI (0.85) in the period of the last 3 years, the Sharpe Ratio of 2.17 is larger, thus better.

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.'

Applying this definition to our asset in some examples:
  • Looking at the downside risk / excess return profile of 1.46 in the last 5 years of Global Market Rotation Strategy, we see it is relatively higher, thus better in comparison to the benchmark ACWI (0.47)
  • During the last 3 years, the excess return divided by the downside deviation is 1.85, which is larger, thus better than the value of 0.74 from the benchmark.

Ulcer:

'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.'

Using this definition on our asset we see for example:
  • Compared with the benchmark ACWI (6.14 ) in the period of the last 5 years, the Ulcer Index of 2.16 of Global Market Rotation Strategy is lower, thus better.
  • During the last 3 years, the Ulcer Ratio is 1.01 , which is lower, thus better than the value of 5.14 from the benchmark.

MaxDD:

'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:
  • Compared with the benchmark ACWI (-19.5 days) in the period of the last 5 years, the maximum reduction from previous high of -8.7 days of Global Market Rotation Strategy is larger, thus better.
  • During the last 3 years, the maximum drop from peak to valley is -6.6 days, which is larger, thus better than the value of -19.5 days from the benchmark.

MaxDuration:

'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 (408 days) in the period of the last 5 years, the maximum days under water of 289 days of Global Market Rotation Strategy is lower, thus better.
  • During the last 3 years, the maximum days below previous high is 122 days, which is smaller, thus better than the value of 373 days from the benchmark.

AveDuration:

'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.'

Which means for our asset as example:
  • Compared with the benchmark ACWI (141 days) in the period of the last 5 years, the average time in days below previous high water mark of 54 days of Global Market Rotation Strategy is lower, thus better.
  • Looking at average days below previous high in of 20 days in the period of the last 3 years, we see it is relatively smaller, thus better in comparison to ACWI (114 days).

Performance of Global Market Rotation Strategy (YTD)

Historical returns have been extended using synthetic data.

Allocations of Global Market Rotation Strategy
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Allocations

Returns of Global Market Rotation Strategy (%)

  • 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.