Description of The Global Sector Rotation Strategy Low Volatility version

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 of The Global Sector Rotation Strategy Low Volatility version (YTD)

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

TotalReturn:

'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.'

Which means for our asset as example:
  • Looking at the total return, or performance of 49.2% in the last 5 years of The Global Sector Rotation Strategy Low Volatility version, we see it is relatively lower, thus worse in comparison to the benchmark SPY (68.7%)
  • Looking at total return, or performance in of 32.9% in the period of the last 3 years, we see it is relatively smaller, thus worse in comparison to SPY (47.9%).

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:
  • The annual return (CAGR) over 5 years of The Global Sector Rotation Strategy Low Volatility version is 8.3%, which is lower, thus worse compared to the benchmark SPY (11%) in the same period.
  • Looking at annual return (CAGR) in of 10% in the period of the last 3 years, we see it is relatively lower, thus worse in comparison to SPY (14%).

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:
  • The 30 days standard deviation over 5 years of The Global Sector Rotation Strategy Low Volatility version is 11.2%, which is lower, thus better compared to the benchmark SPY (13.3%) in the same period.
  • During the last 3 years, the volatility is 10.2%, which is smaller, thus better than the value of 12.5% from the benchmark.

DownVol:

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

Applying this definition to our asset in some examples:
  • Looking at the downside risk of 12.2% in the last 5 years of The Global Sector Rotation Strategy Low Volatility version, we see it is relatively lower, thus better in comparison to the benchmark SPY (14.6%)
  • During the last 3 years, the downside volatility is 11.5%, which is lower, thus better than the value of 14.2% from the benchmark.

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.'

Using this definition on our asset we see for example:
  • Looking at the Sharpe Ratio of 0.52 in the last 5 years of The Global Sector Rotation Strategy Low Volatility version, we see it is relatively smaller, thus worse in comparison to the benchmark SPY (0.64)
  • Compared with SPY (0.91) in the period of the last 3 years, the risk / return profile (Sharpe) of 0.73 is smaller, thus worse.

Sortino:

'The Sortino ratio, a variation of the Sharpe ratio only factors in the downside, or negative volatility, rather than the total volatility used in calculating the Sharpe ratio. The theory behind the Sortino variation is that upside volatility is a plus for the investment, and it, therefore, should not be included in the risk calculation. Therefore, the Sortino ratio takes upside volatility out of the equation and uses only the downside standard deviation in its calculation instead of the total standard deviation that is used in calculating the Sharpe ratio.'

Applying this definition to our asset in some examples:
  • The ratio of annual return and downside deviation over 5 years of The Global Sector Rotation Strategy Low Volatility version is 0.48, which is smaller, thus worse compared to the benchmark SPY (0.58) in the same period.
  • Looking at excess return divided by the downside deviation in of 0.65 in the period of the last 3 years, we see it is relatively lower, thus worse in comparison to SPY (0.81).

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:
  • Looking at the Ulcer Index of 3.83 in the last 5 years of The Global Sector Rotation Strategy Low Volatility version, we see it is relatively lower, thus worse in comparison to the benchmark SPY (3.96 )
  • Compared with SPY (4.01 ) in the period of the last 3 years, the Downside risk index of 4.29 is higher, 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.'

Using this definition on our asset we see for example:
  • The maximum reduction from previous high over 5 years of The Global Sector Rotation Strategy Low Volatility version is -11.4 days, which is higher, thus better compared to the benchmark SPY (-19.3 days) in the same period.
  • During the last 3 years, the maximum reduction from previous high is -11.4 days, which is larger, thus better than the value of -19.3 days from the benchmark.

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.'

Applying this definition to our asset in some examples:
  • The maximum days under water over 5 years of The Global Sector Rotation Strategy Low Volatility version is 248 days, which is higher, thus worse compared to the benchmark SPY (187 days) in the same period.
  • During the last 3 years, the maximum days under water is 248 days, which is larger, thus worse than the value of 139 days from the benchmark.

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.'

Which means for our asset as example:
  • Looking at the average days below previous high of 56 days in the last 5 years of The Global Sector Rotation Strategy Low Volatility version, we see it is relatively larger, thus worse in comparison to the benchmark SPY (41 days)
  • Compared with SPY (36 days) in the period of the last 3 years, the average time in days below previous high water mark of 69 days is larger, thus worse.

Performance of The Global Sector Rotation Strategy Low Volatility version (YTD)

Historical returns have been extended using synthetic data.

Allocations of The Global Sector Rotation Strategy Low Volatility version
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Allocations

Returns of The Global Sector Rotation Strategy Low Volatility version (%)

  • "Year" returns in the table above are not equal to the sum of monthly returns due to compounding.
  • Performance results of The Global Sector Rotation Strategy Low Volatility version 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.