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.

'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:- The total return, or increase in value over 5 years of Universal Investment Strategy is 66.1%, which is greater, thus better compared to the benchmark SPY (62.6%) in the same period.
- Looking at total return, or performance in of 37.2% in the period of the last 3 years, we see it is relatively larger, thus better in comparison to SPY (32.1%).

'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.'

Using this definition on our asset we see for example:- The compounded annual growth rate (CAGR) over 5 years of Universal Investment Strategy is 10.7%, which is larger, thus better compared to the benchmark SPY (10.2%) in the same period.
- During the last 3 years, the compounded annual growth rate (CAGR) is 11.1%, which is higher, thus better than the value of 9.7% from the benchmark.

'Volatility is a statistical measure of the dispersion of returns for a given security or market index. Volatility can either be measured by using the standard deviation or variance between returns from that same security or market index. Commonly, the higher the volatility, the riskier the security. In the securities markets, volatility is often associated with big swings in either direction. For example, when the stock market rises and falls more than one percent over a sustained period of time, it is called a 'volatile' market.'

Applying this definition to our asset in some examples:- The historical 30 days volatility over 5 years of Universal Investment Strategy is 9.5%, which is lower, thus better compared to the benchmark SPY (21.5%) in the same period.
- During the last 3 years, the historical 30 days volatility is 10.6%, which is smaller, thus better than the value of 24.8% from the benchmark.

'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:- Compared with the benchmark SPY (15.6%) in the period of the last 5 years, the downside volatility of 6.9% of Universal Investment Strategy is lower, thus better.
- During the last 3 years, the downside deviation is 7.7%, which is lower, thus better than the value of 17.9% from the benchmark.

'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.'

Applying this definition to our asset in some examples:- Compared with the benchmark SPY (0.36) in the period of the last 5 years, the risk / return profile (Sharpe) of 0.87 of Universal Investment Strategy is larger, thus better.
- During the last 3 years, the ratio of return and volatility (Sharpe) is 0.81, which is greater, thus better than the value of 0.29 from the benchmark.

'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:- Looking at the downside risk / excess return profile of 1.19 in the last 5 years of Universal Investment Strategy, we see it is relatively greater, thus better in comparison to the benchmark SPY (0.5)
- Compared with SPY (0.4) in the period of the last 3 years, the ratio of annual return and downside deviation of 1.12 is larger, thus better.

'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 Index over 5 years of Universal Investment Strategy is 4 , which is lower, thus better compared to the benchmark SPY (8.52 ) in the same period.
- During the last 3 years, the Downside risk index is 4.79 , which is lower, thus better than the value of 10 from the benchmark.

'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.'

Using this definition on our asset we see for example:- The maximum reduction from previous high over 5 years of Universal Investment Strategy is -15 days, which is higher, thus better compared to the benchmark SPY (-33.7 days) in the same period.
- Looking at maximum DrawDown in of -15 days in the period of the last 3 years, we see it is relatively higher, thus better in comparison to SPY (-33.7 days).

'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:- Compared with the benchmark SPY (235 days) in the period of the last 5 years, the maximum days below previous high of 235 days of Universal Investment Strategy is greater, thus worse.
- During the last 3 years, the maximum days below previous high is 235 days, which is greater, thus worse than the value of 235 days from the benchmark.

'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.'

Applying this definition to our asset in some examples:- The average days under water over 5 years of Universal Investment Strategy is 50 days, which is lower, thus better compared to the benchmark SPY (55 days) in the same period.
- Compared with SPY (59 days) in the period of the last 3 years, the average days under water of 55 days is smaller, thus better.

Historical returns have been extended using synthetic data.
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- Note that yearly returns do not equal 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.