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, or performance of 60.6% in the last 5 years of Universal Investment Strategy, we see it is relatively lower, thus worse in comparison to the benchmark SPY (65.6%)
- During the last 3 years, the total return, or performance is 29.9%, which is smaller, thus worse than the value of 48.8% 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.'

Which means for our asset as example:- The annual return (CAGR) over 5 years of Universal Investment Strategy is 9.9%, which is smaller, thus worse compared to the benchmark SPY (10.6%) in the same period.
- Compared with SPY (14.2%) in the period of the last 3 years, the annual return (CAGR) of 9.1% is smaller, thus worse.

'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.'

Which means for our asset as example:- Compared with the benchmark SPY (13.6%) in the period of the last 5 years, the historical 30 days volatility of 6.8% of Universal Investment Strategy is lower, thus better.
- 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 (12.8%).

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

Using this definition on our asset we see for example:- The downside volatility over 5 years of Universal Investment Strategy is 7.4%, which is smaller, thus better compared to the benchmark SPY (15%) in the same period.
- Looking at downside deviation in of 7% in the period of the last 3 years, we see it is relatively smaller, thus better in comparison to SPY (14.6%).

'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.'

Using this definition on our asset we see for example:- Looking at the ratio of return and volatility (Sharpe) of 1.1 in the last 5 years of Universal Investment Strategy, we see it is relatively higher, thus better in comparison to the benchmark SPY (0.6)
- Compared with SPY (0.91) in the period of the last 3 years, the Sharpe Ratio of 1.07 is higher, thus better.

'The Sortino ratio measures the risk-adjusted return of an investment asset, portfolio, or strategy. It is a modification of the Sharpe ratio but penalizes only those returns falling below a user-specified target or required rate of return, while the Sharpe ratio penalizes both upside and downside volatility equally. Though both ratios measure an investment's risk-adjusted return, they do so in significantly different ways that will frequently lead to differing conclusions as to the true nature of the investment's return-generating efficiency. The Sortino ratio is used as a way to compare the risk-adjusted performance of programs with differing risk and return profiles. In general, risk-adjusted returns seek to normalize the risk across programs and then see which has the higher return unit per risk.'

Applying this definition to our asset in some examples:- Looking at the ratio of annual return and downside deviation of 1.01 in the last 5 years of Universal Investment Strategy, we see it is relatively greater, thus better in comparison to the benchmark SPY (0.54)
- Compared with SPY (0.8) in the period of the last 3 years, the ratio of annual return and downside deviation of 0.94 is larger, thus better.

'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:- Compared with the benchmark SPY (4.03 ) in the period of the last 5 years, the Downside risk index of 1.74 of Universal Investment Strategy is lower, thus better.
- Looking at Ulcer Index in of 1.75 in the period of the last 3 years, we see it is relatively lower, thus better in comparison to SPY (4.1 ).

'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.'

Applying this definition to our asset in some examples:- Compared with the benchmark SPY (-19.3 days) in the period of the last 5 years, the maximum drop from peak to valley of -5.7 days of Universal Investment Strategy is larger, thus better.
- Looking at maximum drop from peak to valley in of -5.2 days in the period of the last 3 years, we see it is relatively higher, thus better in comparison to SPY (-19.3 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:- Looking at the maximum days below previous high of 141 days in the last 5 years of Universal Investment Strategy, we see it is relatively smaller, thus better in comparison to the benchmark SPY (187 days)
- Looking at maximum time in days below previous high water mark in of 141 days in the period of the last 3 years, we see it is relatively larger, thus worse in comparison to SPY (139 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.'

Applying this definition to our asset in some examples:- Compared with the benchmark SPY (41 days) in the period of the last 5 years, the average days below previous high of 33 days of Universal Investment Strategy is lower, thus better.
- Looking at average time in days below previous high water mark in of 34 days in the period of the last 3 years, we see it is relatively lower, thus better in comparison to SPY (35 days).

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.