The Universal Investment Strategy (UIS) is one of our core investment strategies. It is an evolved, intelligent version of the classic 60/40 equity/bond portfolio. Much like the classic portfolio, UIS holds both the S&P 500 index and bonds. However, UIS can intelligently adapt to current conditions by shifting weight away from stocks in difficult markets and adding weight in bullish markets.

Instead of using simple bond ETF, UIS uses a sub-strategy, called HEDGE, which can choose between different types of safe-heaven ETFs.

The equity/bond (or in our case equity/HEDGE) pair is interesting because most of the time these two asset classes profit from an inverse correlation. If there is a real stock market correction, usually ETFs included in the HEDGE strategy (Treasuries, Gold, etc) are the 'safe' assets where money flows to, providing crash protection.

'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.'

Using this definition on our asset we see for example:- Looking at the total return of 76.6% in the last 5 years of Universal Investment Strategy, we see it is relatively greater, thus better in comparison to the benchmark SPY (68.2%)
- During the last 3 years, the total return is 37.8%, which is lower, thus worse than the value of 47.7% from the benchmark.

'The compound annual growth rate (CAGR) is a useful measure of growth over multiple time periods. It can be thought of as the growth rate that gets you from the initial investment value to the ending investment value if you assume that the investment has been compounding over the time period.'

Applying this definition to our asset in some examples:- The annual return (CAGR) over 5 years of Universal Investment Strategy is 12.1%, which is greater, thus better compared to the benchmark SPY (11%) in the same period.
- Compared with SPY (13.9%) in the period of the last 3 years, the annual return (CAGR) of 11.3% is smaller, thus worse.

'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.'

Applying this definition to our asset in some examples:- Looking at the volatility of 6.8% in the last 5 years of Universal Investment Strategy, we see it is relatively lower, thus better in comparison to the benchmark SPY (13.2%)
- Looking at 30 days standard deviation in of 6.2% in the period of the last 3 years, we see it is relatively lower, thus better in comparison to SPY (12.4%).

'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.'

Applying this definition to our asset in some examples:- Looking at the downside volatility of 7.5% in the last 5 years of Universal Investment Strategy, we see it is relatively smaller, thus better in comparison to the benchmark SPY (14.6%)
- Compared with SPY (14%) in the period of the last 3 years, the downside deviation of 6.9% is lower, thus better.

'The Sharpe ratio is the measure of risk-adjusted return of a financial portfolio. Sharpe ratio is a measure of excess portfolio return over the risk-free rate relative to its standard deviation. Normally, the 90-day Treasury bill rate is taken as the proxy for risk-free rate. A portfolio with a higher Sharpe ratio is considered superior relative to its peers. The measure was named after William F Sharpe, a Nobel laureate and professor of finance, emeritus at Stanford University.'

Which means for our asset as example:- Compared with the benchmark SPY (0.64) in the period of the last 5 years, the Sharpe Ratio of 1.41 of Universal Investment Strategy is greater, thus better.
- Looking at ratio of return and volatility (Sharpe) in of 1.42 in the period of the last 3 years, we see it is relatively larger, thus better in comparison to SPY (0.92).

'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.'

Using this definition on our asset we see for example:- Compared with the benchmark SPY (0.58) in the period of the last 5 years, the excess return divided by the downside deviation of 1.28 of Universal Investment Strategy is larger, thus better.
- During the last 3 years, the ratio of annual return and downside deviation is 1.27, which is higher, thus better than the value of 0.81 from the benchmark.

'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.'

Which means for our asset as example:- The Ulcer Ratio over 5 years of Universal Investment Strategy is 1.72 , which is lower, thus worse compared to the benchmark SPY (3.95 ) in the same period.
- Looking at Ulcer Ratio in of 1.78 in the period of the last 3 years, we see it is relatively smaller, thus worse in comparison to SPY (4 ).

'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:- The maximum reduction from previous high over 5 years of Universal Investment Strategy is -5.7 days, which is greater, thus better compared to the benchmark SPY (-19.3 days) in the same period.
- Compared with SPY (-19.3 days) in the period of the last 3 years, the maximum drop from peak to valley of -5.2 days is larger, thus better.

'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.'

Applying this definition to our asset in some examples:- The maximum days below previous high over 5 years of Universal Investment Strategy is 141 days, which is lower, thus better compared to the benchmark SPY (187 days) in the same period.
- Looking at maximum days below previous high in of 141 days in the period of the last 3 years, we see it is relatively greater, thus worse in comparison to SPY (131 days).

'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:- Compared with the benchmark SPY (39 days) in the period of the last 5 years, the average days under water of 31 days of Universal Investment Strategy is lower, thus better.
- Compared with SPY (33 days) in the period of the last 3 years, the average days below previous high of 34 days is greater, thus worse.

Historical returns have been extended using synthetic data.
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- "Year" returns in the table above are not equal to the sum of monthly returns due to compounding.
- Performance results of Universal Investment 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.