Description

The Short Term Bond Strategy is essentially a place to park cash that earns interest. When combined with other higher risk strategies it creates a lower risk portfolio and generally improves the portfolio's Sharpe ratio. If your broker pays interest on cash balances that is comparable to the current yield of this strategy, you can choose to keep this allocation in cash instead.

Methodology & Assets

This strategy switches between very low risk ETFs that hold short term corporate or treasury bonds including GSY, MINT and NEAR.

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 SHY (5.1%) in the period of the last 5 years, the total return, or increase in value of 20.3% of Short Term Bond Strategy is higher, thus better.
  • During the last 3 years, the total return is 12.8%, which is higher, thus better than the value of -0.2% 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:
  • Looking at the compounded annual growth rate (CAGR) of 3.8% in the last 5 years of Short Term Bond Strategy, we see it is relatively higher, thus better in comparison to the benchmark SHY (1%)
  • Compared with SHY (-0.1%) in the period of the last 3 years, the annual performance (CAGR) of 4.1% is higher, thus better.

Volatility:

'Volatility is a rate at which the price of a security increases or decreases for a given set of returns. Volatility is measured by calculating the standard deviation of the annualized returns over a given period of time. It shows the range to which the price of a security may increase or decrease. Volatility measures the risk of a security. It is used in option pricing formula to gauge the fluctuations in the returns of the underlying assets. Volatility indicates the pricing behavior of the security and helps estimate the fluctuations that may happen in a short period of time.'

Using this definition on our asset we see for example:
  • The 30 days standard deviation over 5 years of Short Term Bond Strategy is 2%, which is greater, thus worse compared to the benchmark SHY (1.9%) in the same period.
  • Compared with SHY (2.2%) in the period of the last 3 years, the 30 days standard deviation of 1.4% is smaller, thus better.

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 1.6% in the last 5 years of Short Term Bond Strategy, we see it is relatively higher, thus worse in comparison to the benchmark SHY (1.2%)
  • Compared with SHY (1.5%) in the period of the last 3 years, the downside risk of 0.9% is lower, 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.'

Which means for our asset as example:
  • The Sharpe Ratio over 5 years of Short Term Bond Strategy is 0.63, which is higher, thus better compared to the benchmark SHY (-0.8) in the same period.
  • Compared with SHY (-1.17) in the period of the last 3 years, the ratio of return and volatility (Sharpe) of 1.13 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.'

Which means for our asset as example:
  • The downside risk / excess return profile over 5 years of Short Term Bond Strategy is 0.79, which is higher, thus better compared to the benchmark SHY (-1.24) in the same period.
  • Compared with SHY (-1.77) in the period of the last 3 years, the ratio of annual return and downside deviation of 1.78 is greater, thus better.

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 Downside risk index over 5 years of Short Term Bond Strategy is 0.52 , which is lower, thus better compared to the benchmark SHY (2.27 ) in the same period.
  • Looking at Ulcer Index in of 0.46 in the period of the last 3 years, we see it is relatively lower, thus better in comparison to SHY (2.93 ).

MaxDD:

'Maximum drawdown measures the loss in any losing period during a fund’s investment record. It is defined as the percent retrenchment from a fund’s peak value to the fund’s valley value. The drawdown is in effect from the time the fund’s retrenchment begins until a new fund high is reached. The maximum drawdown encompasses both the period from the fund’s peak to the fund’s valley (length), and the time from the fund’s valley to a new fund high (recovery). It measures the largest percentage drawdown that has occurred in any fund’s data record.'

Which means for our asset as example:
  • Compared with the benchmark SHY (-5.7 days) in the period of the last 5 years, the maximum reduction from previous high of -5.2 days of Short Term Bond Strategy is larger, thus better.
  • Looking at maximum reduction from previous high in of -2 days in the period of the last 3 years, we see it is relatively higher, thus better in comparison to SHY (-5.7 days).

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:
  • Compared with the benchmark SHY (666 days) in the period of the last 5 years, the maximum days below previous high of 265 days of Short Term Bond Strategy is lower, thus better.
  • During the last 3 years, the maximum days under water is 265 days, which is lower, thus better than the value of 666 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:
  • Compared with the benchmark SHY (201 days) in the period of the last 5 years, the average time in days below previous high water mark of 54 days of Short Term Bond Strategy is lower, thus better.
  • Looking at average days below previous high in of 72 days in the period of the last 3 years, we see it is relatively lower, thus better in comparison to SHY (300 days).

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 Short Term Bond 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.