Description

This is the low volatility version of the Global Sector Rotation Strategy and is used as a sub-strategy. It picks on a monthly basis the top two performing global sectors.

Methodology & Assets

EEM – iShares MSCI Emerging Markets
DBEM – Emerging Markets Equity Fund
EPP – iShares MSCI Pacific ex-Japan
DBAP – MSCI AC Asia Pacific ex Japan Hedged Equity Fund
FEZ – SPDR Euro STOXX 50
HEDJ – Europe Hedged Equity Fund
IHDG – WisdomTree Int’l Hedged Quality Divident ETF
MDY – S&P MidCap 400

From the HEDGE sub-strategy:
GLD – SPDR Gold Shares
TLT– iShares Barclays Long-Term Treasury (15-18yr)

From the Short Sectors sub-strategy:
SMN - ProShares UltraShort Basic Materials
ERY - Direxion Daily Energy Bear 3X ETF
SKF - ProShares UltraShort Financials
SIJ - ProShares UltraShort Industrial
REW - ProShares UltraShort Technolog
RXD - ProShares UltraShort Health Car
SCC - ProShares UltraShort Consumer Service
SDP - ProShares UltraShort Utilitie
SZK - ProShares UltraShort Consumer Goods

Statistics (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.'

Which means for our asset as example:
  • Compared with the benchmark SPY (115.1%) in the period of the last 5 years, the total return, or increase in value of 61.9% of GSRS Low Volatility Sub-strategy is lower, thus worse.
  • Compared with SPY (71.1%) in the period of the last 3 years, the total return, or increase in value of 29.1% is lower, thus worse.

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.'

Which means for our asset as example:
  • Looking at the compounded annual growth rate (CAGR) of 10.2% in the last 5 years of GSRS Low Volatility Sub-strategy, we see it is relatively lower, thus worse in comparison to the benchmark SPY (16.6%)
  • Compared with SPY (19.7%) in the period of the last 3 years, the compounded annual growth rate (CAGR) of 8.9% 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.'

Applying this definition to our asset in some examples:
  • Compared with the benchmark SPY (17.5%) in the period of the last 5 years, the volatility of 12.5% of GSRS Low Volatility Sub-strategy is smaller, thus better.
  • Looking at volatility in of 12.5% in the period of the last 3 years, we see it is relatively smaller, thus better in comparison to SPY (17.5%).

DownVol:

'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.'

Using this definition on our asset we see for example:
  • Looking at the downside deviation of 8.9% in the last 5 years of GSRS Low Volatility Sub-strategy, we see it is relatively smaller, thus better in comparison to the benchmark SPY (12.1%)
  • Compared with SPY (11.5%) in the period of the last 3 years, the downside volatility of 8.8% is smaller, thus better.

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.'

Applying this definition to our asset in some examples:
  • Compared with the benchmark SPY (0.8) in the period of the last 5 years, the Sharpe Ratio of 0.61 of GSRS Low Volatility Sub-strategy is lower, thus worse.
  • Compared with SPY (0.98) in the period of the last 3 years, the ratio of return and volatility (Sharpe) of 0.52 is smaller, thus worse.

Sortino:

'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.'

Which means for our asset as example:
  • Compared with the benchmark SPY (1.17) in the period of the last 5 years, the excess return divided by the downside deviation of 0.86 of GSRS Low Volatility Sub-strategy is lower, thus worse.
  • Looking at downside risk / excess return profile in of 0.73 in the period of the last 3 years, we see it is relatively smaller, thus worse in comparison to SPY (1.49).

Ulcer:

'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:
  • Compared with the benchmark SPY (8.48 ) in the period of the last 5 years, the Ulcer Index of 6.43 of GSRS Low Volatility Sub-strategy is lower, thus better.
  • Looking at Ulcer Ratio in of 4.7 in the period of the last 3 years, we see it is relatively lower, thus better in comparison to SPY (5.31 ).

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:
  • Compared with the benchmark SPY (-24.5 days) in the period of the last 5 years, the maximum drop from peak to valley of -19.9 days of GSRS Low Volatility Sub-strategy is higher, thus better.
  • During the last 3 years, the maximum DrawDown is -15.6 days, which is greater, thus better than the value of -18.8 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.'

Using this definition on our asset we see for example:
  • The maximum days below previous high over 5 years of GSRS Low Volatility Sub-strategy is 539 days, which is higher, thus worse compared to the benchmark SPY (488 days) in the same period.
  • During the last 3 years, the maximum days under water is 342 days, which is greater, thus worse than the value of 199 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.'

Using this definition on our asset we see for example:
  • Looking at the average days under water of 148 days in the last 5 years of GSRS Low Volatility Sub-strategy, we see it is relatively larger, thus worse in comparison to the benchmark SPY (120 days)
  • During the last 3 years, the average days under water is 101 days, which is greater, thus worse than the value of 47 days from the benchmark.

Performance (YTD)

Historical returns have been extended using synthetic data.

Allocations ()

Allocations

Returns (%)

  • Note that yearly returns do not equal the sum of monthly returns due to compounding.
  • Performance results of GSRS Low Volatility Sub-strategy are hypothetical and do not account for slippage, fees or taxes.
  • Results may be based on backtesting, which has many inherent limitations, some of which are described in our Terms of Use.