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.'

Which means for our asset as example:
  • The total return, or performance over 5 years of Global Sector Rotation Strategy is 75%, which is higher, thus better compared to the benchmark ACWI (37.4%) in the same period.
  • During the last 3 years, the total return, or performance is 37.7%, which is higher, thus better than the value of 37.6% from the benchmark.

CAGR:

'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.'

Applying this definition to our asset in some examples:
  • Looking at the annual performance (CAGR) of 11.8% in the last 5 years of Global Sector Rotation Strategy, we see it is relatively higher, thus better in comparison to the benchmark ACWI (6.6%)
  • Looking at annual performance (CAGR) in of 11.3% in the period of the last 3 years, we see it is relatively greater, thus better in comparison to ACWI (11.3%).

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.'

Applying this definition to our asset in some examples:
  • Compared with the benchmark ACWI (13.3%) in the period of the last 5 years, the historical 30 days volatility of 7.1% of Global Sector Rotation Strategy is smaller, thus better.
  • Looking at volatility in of 6.4% in the period of the last 3 years, we see it is relatively smaller, thus better in comparison to ACWI (12.3%).

DownVol:

'The downside volatility is similar to the volatility, or standard deviation, but only takes losing/negative periods into account.'

Which means for our asset as example:
  • Looking at the downside risk of 7.3% in the last 5 years of Global Sector Rotation Strategy, we see it is relatively smaller, thus better in comparison to the benchmark ACWI (14.6%)
  • Compared with ACWI (14.1%) in the period of the last 3 years, the downside risk of 6.8% is lower, thus better.

Sharpe:

'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:
  • Compared with the benchmark ACWI (0.31) in the period of the last 5 years, the ratio of return and volatility (Sharpe) of 1.32 of Global Sector Rotation Strategy is greater, thus better.
  • Looking at risk / return profile (Sharpe) in of 1.38 in the period of the last 3 years, we see it is relatively greater, thus better in comparison to ACWI (0.71).

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:
  • The downside risk / excess return profile over 5 years of Global Sector Rotation Strategy is 1.28, which is higher, thus better compared to the benchmark ACWI (0.28) in the same period.
  • During the last 3 years, the excess return divided by the downside deviation is 1.29, which is greater, thus better than the value of 0.62 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 (6.18 ) in the period of the last 5 years, the Ulcer Index of 2.31 of Global Sector Rotation Strategy is lower, thus worse.
  • Compared with ACWI (5.06 ) in the period of the last 3 years, the Downside risk index of 2.65 is smaller, thus worse.

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.'

Applying this definition to our asset in some examples:
  • The maximum reduction from previous high over 5 years of Global Sector Rotation Strategy is -6.5 days, which is higher, thus better compared to the benchmark ACWI (-19.5 days) in the same period.
  • Compared with ACWI (-19.5 days) in the period of the last 3 years, the maximum drop from peak to valley of -6.5 days is greater, thus better.

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.'

Which means for our asset as example:
  • The maximum days under water over 5 years of Global Sector Rotation Strategy is 252 days, which is lower, thus better compared to the benchmark ACWI (408 days) in the same period.
  • Looking at maximum time in days below previous high water mark in of 252 days in the period of the last 3 years, we see it is relatively smaller, thus better in comparison to ACWI (330 days).

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:
  • The average time in days below previous high water mark over 5 years of Global Sector Rotation Strategy is 42 days, which is smaller, thus better compared to the benchmark ACWI (130 days) in the same period.
  • During the last 3 years, the average time in days below previous high water mark is 57 days, which is lower, thus better than the value of 92 days from the benchmark.

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.