Due to announced delisting of UGLD as of July 12, 2020, with last trading day July 2, 2020, we're replacing UGLD by a leveraged GLD position. Therefore the total allocation of the strategy can exceed 100%. See more information in this article.

The 3X Universal Investment Strategy (UISx3) is a leveraged version of our core Universal Investment Strategy (UIS), an evolved, intelligent version of the classic 60/40 equity/bond portfolio that can adapt to current conditions, shifting portfolio weight away from stocks in difficult markets and adding weight to equity in bull runs.

The 3x leveraged version of the strategy employs SPXL, TMF and UGLD, which are the leveraged versions of the S&P 500 ETF, the Treasury 20+ year ETF and the Gold ETF. Unlike the base UIS, the leveraged version only uses TMF and UGLD to hedge SPXL exposure.

The UISx3 is appropriate for investors who are comfortable taking on higher risks in exchange for the potential for of higher returns. Because leveraged ETFs are used, we recommend allocating no more than 15% of your total portfolio to this strategy.

- SPXL - Direxion Daily S&P 500 Bull 3X Shares ETF
- TMF - Direxion Daily 30-Year Treasury Bull 3x Shares ETF
- UGLD - VelocityShares 3x Long Gold ETN

'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.'

Applying this definition to our asset in some examples:- The total return, or increase in value over 5 years of Leveraged Universal Investment Strategy is 249.7%, which is greater, thus better compared to the benchmark SPY (66.2%) in the same period.
- Looking at total return, or performance in of 111.6% in the period of the last 3 years, we see it is relatively higher, thus better in comparison to SPY (36.8%).

'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.'

Using this definition on our asset we see for example:- The annual performance (CAGR) over 5 years of Leveraged Universal Investment Strategy is 28.5%, which is higher, thus better compared to the benchmark SPY (10.7%) in the same period.
- During the last 3 years, the annual return (CAGR) is 28.4%, which is larger, thus better than the value of 11% from the benchmark.

'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:- Compared with the benchmark SPY (19%) in the period of the last 5 years, the historical 30 days volatility of 25.2% of Leveraged Universal Investment Strategy is greater, thus worse.
- During the last 3 years, the 30 days standard deviation is 27.8%, which is higher, thus worse than the value of 22% from the benchmark.

'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:- The downside risk over 5 years of Leveraged Universal Investment Strategy is 18.2%, which is larger, thus worse compared to the benchmark SPY (13.9%) in the same period.
- Looking at downside deviation in of 20.4% in the period of the last 3 years, we see it is relatively greater, thus worse in comparison to SPY (16.1%).

'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.'

Using this definition on our asset we see for example:- Compared with the benchmark SPY (0.43) in the period of the last 5 years, the risk / return profile (Sharpe) of 1.03 of Leveraged Universal Investment Strategy is larger, thus better.
- Looking at Sharpe Ratio in of 0.93 in the period of the last 3 years, we see it is relatively higher, thus better in comparison to SPY (0.39).

'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 (0.59) in the period of the last 5 years, the ratio of annual return and downside deviation of 1.42 of Leveraged Universal Investment Strategy is higher, thus better.
- Compared with SPY (0.53) in the period of the last 3 years, the excess return divided by the downside deviation of 1.27 is higher, 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.'

Applying this definition to our asset in some examples:- Looking at the Ulcer Index of 8.53 in the last 5 years of Leveraged Universal Investment Strategy, we see it is relatively higher, thus worse in comparison to the benchmark SPY (5.9 )
- Looking at Ulcer Ratio in of 9.41 in the period of the last 3 years, we see it is relatively larger, thus worse in comparison to SPY (6.98 ).

'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.'

Which means for our asset as example:- Looking at the maximum drop from peak to valley of -42.7 days in the last 5 years of Leveraged Universal Investment Strategy, we see it is relatively smaller, thus worse in comparison to the benchmark SPY (-33.7 days)
- Looking at maximum DrawDown in of -42.7 days in the period of the last 3 years, we see it is relatively lower, thus worse in comparison to SPY (-33.7 days).

'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'

Applying this definition to our asset in some examples:- Compared with the benchmark SPY (187 days) in the period of the last 5 years, the maximum days under water of 265 days of Leveraged Universal Investment Strategy is higher, thus worse.
- Looking at maximum time in days below previous high water mark in of 265 days in the period of the last 3 years, we see it is relatively greater, thus worse in comparison to SPY (139 days).

'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.'

Which means for our asset as example:- Compared with the benchmark SPY (44 days) in the period of the last 5 years, the average days under water of 56 days of Leveraged Universal Investment Strategy is greater, thus worse.
- During the last 3 years, the average time in days below previous high water mark is 65 days, which is greater, thus worse than the value of 41 days from the benchmark.

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 Leveraged 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.