Description of Global Sector Rotation Strategy

The Global Sector Rotation Strategy (GSRS) provides a good diversification to our other strategies. The strategy invests in the top two performing global sectors. Global sector ETFs often display well-defined, long lasting, up or down trends which makes them a good fit rotation strategies. Another advantage of sector rotation strategies is that even in sideways markets, there are often still individual sectors that are performing well.

This strategy consists of three sub-strategies: GSRS aggressive , GSRS low-volatility and the HEDGE sub-strategies.

Methodology & Assets
  • CUT - Guggenheim Beacon Global Timber Equities
  • KXI - iShares S&P Global Consumer Staples
  • EXI - iShares S&P Global Industrials
  • LIT - Global X Solactive Lithium Index
  • FAN - First Trust ISE Global Wind Energy
  • MOO - Market Vectors Agribusiness
  • NLR - Market Vectors Nuclear Energy
  • GNR - SPDR S&P Global Natural Resources
  • PIO - PowerShares Palisades Global Water
  • GURU - Global X Top Guru Holdings
  • PKW - PowerShares Buyback Achievers
  • IGF - iShares S&P Global Infrastructure Index
  • REMX - Market Vectors Rare Earth Strategic Metals
  • IXC - iShares S&P Global Energy Sector Index
  • RWX - SPDR DJ International Real Estate
  • IXG - iShares S&P Global Financials
  • RXI - iShares S&P Global Consumer Discretionary
  • IXJ - iShares S&P Global Healthcare Sector
  • SEA - Guggenheim Delta Global Shipping Index
  • IXN - iShares S&P Global Technology
  • SLX - Market Vectors Global Steel
  • IXP - iShares S&P Global Telecom Sector
  • SOIL - GlobalX Solactive Fertilizers-Potash
  • KOL - Market Vectors Global Coal
  • TAN - Guggenheim MAC Global Solar Energy
  • FPX - First Trust US IPO ETF
  • JXI - iShares Global Utilities

Statistics of Global Sector Rotation Strategy (YTD)

What do these metrics mean? [Read More] [Hide]

TotalReturn:

'The total return on a portfolio of investments takes into account not only the capital appreciation on the portfolio, but also the income received on the portfolio. The income typically consists of interest, dividends, and securities lending fees. This contrasts with the price return, which takes into account only the capital gain on an investment.'

Applying this definition to our asset in some examples:
  • Compared with the benchmark ACWI (37.5%) in the period of the last 5 years, the total return, or increase in value of 60.1% of Global Sector Rotation Strategy is higher, thus better.
  • During the last 3 years, the total return, or performance is 30.8%, which is lower, thus worse than the value of 37.2% 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.'

Applying this definition to our asset in some examples:
  • The compounded annual growth rate (CAGR) over 5 years of Global Sector Rotation Strategy is 9.9%, which is greater, thus better compared to the benchmark ACWI (6.6%) in the same period.
  • Compared with ACWI (11.2%) in the period of the last 3 years, the annual return (CAGR) of 9.4% is lower, thus worse.

Volatility:

'In finance, volatility (symbol σ) is the degree of variation of a trading price series over time as measured by the standard deviation of logarithmic returns. Historic volatility measures a time series of past market prices. Implied volatility looks forward in time, being derived from the market price of a market-traded derivative (in particular, an option). Commonly, the higher the volatility, the riskier the security.'

Which means for our asset as example:
  • Compared with the benchmark ACWI (13.6%) in the period of the last 5 years, the volatility of 7.1% of Global Sector Rotation Strategy is lower, thus better.
  • During the last 3 years, the 30 days standard deviation is 6.1%, which is smaller, thus better than the value of 12% from the benchmark.

DownVol:

'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 deviation of 7.4% in the last 5 years of Global Sector Rotation Strategy, we see it is relatively smaller, thus better in comparison to the benchmark ACWI (14.9%)
  • Looking at downside deviation in of 6.6% in the period of the last 3 years, we see it is relatively smaller, thus better in comparison to ACWI (13.7%).

Sharpe:

'The Sharpe ratio (also known as the Sharpe index, the Sharpe measure, and the reward-to-variability ratio) is a way to examine the performance of an investment by adjusting for its risk. The ratio measures the excess return (or risk premium) per unit of deviation in an investment asset or a trading strategy, typically referred to as risk, named after William F. Sharpe.'

Using this definition on our asset we see for example:
  • The ratio of return and volatility (Sharpe) over 5 years of Global Sector Rotation Strategy is 1.05, which is greater, thus better compared to the benchmark ACWI (0.3) in the same period.
  • Compared with ACWI (0.72) in the period of the last 3 years, the ratio of return and volatility (Sharpe) of 1.14 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.'

Using this definition on our asset we see for example:
  • 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 of Global Sector Rotation Strategy is greater, thus better.
  • During the last 3 years, the ratio of annual return and downside deviation is 1.05, which is larger, thus better than the value of 0.63 from the benchmark.

Ulcer:

'The ulcer index is a stock market risk measure or technical analysis indicator devised by Peter Martin in 1987, and published by him and Byron McCann in their 1989 book The Investors Guide to Fidelity Funds. It's designed as a measure of volatility, but only volatility in the downward direction, i.e. the amount of drawdown or retracement occurring over a period. Other volatility measures like standard deviation treat up and down movement equally, but a trader doesn't mind upward movement, it's the downside that causes stress and stomach ulcers that the index's name suggests.'

Using this definition on our asset we see for example:
  • The Ulcer Index over 5 years of Global Sector Rotation Strategy is 2.22 , which is lower, thus better compared to the benchmark ACWI (6.21 ) in the same period.
  • Compared with ACWI (5.17 ) in the period of the last 3 years, the Ulcer Ratio of 2.42 is smaller, thus better.

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:
  • Looking at the maximum drop from peak to valley of -6.4 days in the last 5 years of Global Sector Rotation Strategy, we see it is relatively higher, thus better in comparison to the benchmark ACWI (-19.5 days)
  • Compared with ACWI (-19.5 days) in the period of the last 3 years, the maximum drop from peak to valley of -6.4 days is greater, thus better.

MaxDuration:

'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 days below previous high of 251 days in the last 5 years of Global Sector Rotation Strategy, we see it is relatively lower, thus better in comparison to the benchmark ACWI (407 days)
  • Compared with ACWI (373 days) in the period of the last 3 years, the maximum days below previous high of 251 days is smaller, thus better.

AveDuration:

'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.'

Applying this definition to our asset in some examples:
  • Compared with the benchmark ACWI (137 days) in the period of the last 5 years, the average time in days below previous high water mark of 46 days of Global Sector Rotation Strategy is lower, thus better.
  • Compared with ACWI (112 days) in the period of the last 3 years, the average days under water of 58 days is lower, thus better.

Performance of Global Sector Rotation Strategy (YTD)

Historical returns have been extended using synthetic data.

Allocations of Global Sector Rotation Strategy
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Allocations

Returns of Global Sector Rotation Strategy (%)

  • "Year" returns in the table above are not equal to the sum of monthly returns due to compounding.
  • Performance results of Global Sector 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.