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:- The total return, or performance over 5 years of Universal Investment Strategy is 73.2%, which is greater, thus better compared to the benchmark SPY (66.2%) in the same period.
- During the last 3 years, the total return, or performance is 35.4%, which is lower, thus worse than the value of 47.5% from the benchmark.

'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 Universal Investment Strategy is 11.6%, which is larger, thus better compared to the benchmark SPY (10.7%) in the same period.
- During the last 3 years, the compounded annual growth rate (CAGR) is 10.7%, which is lower, thus worse than the value of 13.9% from the benchmark.

'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:- The volatility over 5 years of Universal Investment Strategy is 6.7%, which is lower, thus better compared to the benchmark SPY (13.3%) in the same period.
- 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 (12.5%).

'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:- The downside risk over 5 years of Universal Investment Strategy is 7.3%, which is lower, thus better compared to the benchmark SPY (14.6%) in the same period.
- Looking at downside risk in of 7% in the period of the last 3 years, we see it is relatively smaller, thus better in comparison to SPY (14.2%).

'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.'

Using this definition on our asset we see for example:- Compared with the benchmark SPY (0.62) in the period of the last 5 years, the risk / return profile (Sharpe) of 1.36 of Universal Investment Strategy is higher, thus better.
- Looking at Sharpe Ratio in of 1.31 in the period of the last 3 years, we see it is relatively larger, thus better in comparison to SPY (0.91).

'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:- Looking at the ratio of annual return and downside deviation of 1.25 in the last 5 years of Universal Investment Strategy, we see it is relatively larger, thus better in comparison to the benchmark SPY (0.56)
- During the last 3 years, the excess return divided by the downside deviation is 1.17, which is greater, thus better than the value of 0.8 from the benchmark.

'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:- Looking at the Ulcer Ratio of 1.72 in the last 5 years of Universal Investment Strategy, we see it is relatively smaller, thus worse in comparison to the benchmark SPY (3.96 )
- During the last 3 years, the Ulcer Index is 1.81 , which is lower, thus worse than the value of 4.01 from the benchmark.

'Maximum drawdown is defined as the peak-to-trough decline of an investment during a specific period. It is usually quoted as a percentage of the peak value. The maximum drawdown can be calculated based on absolute returns, in order to identify strategies that suffer less during market downturns, such as low-volatility strategies. However, the maximum drawdown can also be calculated based on returns relative to a benchmark index, for identifying strategies that show steady outperformance over time.'

Using this definition on our asset we see for example:- The maximum drop from peak to valley 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.
- During the last 3 years, the maximum drop from peak to valley is -5.2 days, which is larger, thus better than the value of -19.3 days from the benchmark.

'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). Many assume Max DD Duration is the length of time between new highs during which the Max DD (magnitude) occurred. But that isn’t always the case. The Max DD duration is the longest time between peaks, period. So it could be the time when the program also had its biggest peak to valley loss (and usually is, because the program needs a long time to recover from the largest loss), but it doesn’t have to be'

Which means for our asset as example:- 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.
- During the last 3 years, the maximum days below previous high is 141 days, which is larger, thus worse than the value of 139 days from the benchmark.

'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 (41 days) in the period of the last 5 years, the average days below previous high of 32 days of Universal Investment Strategy is smaller, thus better.
- Compared with SPY (36 days) in the period of the last 3 years, the average days under water of 36 days is larger, 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.