Description

The U.S. Market Strategy was designed as an alternative to our Universal Investment Strategy which allocates between SPY (S&P 500 ETF) and TLT (U.S. Treasuries ETF). The equity component of this new strategy switches between SPY (S&P500), QQQ (Nasdaq 100), DIA (Dow 30) and SPLV (S&P 500 low volatility) so it can take advantage of different market conditions. The addition of SPLV provides a good defensive option in times of high market volatility. 

In addition to U.S. equities, the strategy utilizes a hedge strategy that switches between TLT, TIP, UUP and GLD.

The strategy's backtests performed substantially better than a simple SPY-TLT investment. All of the component ETFs are very liquid with small spreads making them easy to trade with negligible costs. 

 

Statistics (YTD)

What do these metrics mean? [Read More] [Hide]

TotalReturn:

'Total return, when measuring performance, is the actual rate of return of an investment or a pool of investments over a given evaluation period. Total return includes interest, capital gains, dividends and distributions realized over a given period of time. Total return accounts for two categories of return: income including interest paid by fixed-income investments, distributions or dividends and capital appreciation, representing the change in the market price of an asset.'

Using this definition on our asset we see for example:
  • Looking at the total return, or performance of 108% in the last 5 years of US Market Strategy, we see it is relatively larger, thus better in comparison to the benchmark DIA (69.5%)
  • Compared with DIA (27.4%) in the period of the last 3 years, the total return of 33.6% is greater, thus better.

CAGR:

'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 compounded annual growth rate (CAGR) over 5 years of US Market Strategy is 15.8%, which is larger, thus better compared to the benchmark DIA (11.1%) in the same period.
  • Looking at annual performance (CAGR) in of 10.2% in the period of the last 3 years, we see it is relatively greater, thus better in comparison to DIA (8.5%).

Volatility:

'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:
  • The historical 30 days volatility over 5 years of US Market Strategy is 8.9%, which is lower, thus better compared to the benchmark DIA (20.7%) in the same period.
  • Looking at historical 30 days volatility in of 6.9% in the period of the last 3 years, we see it is relatively lower, thus better in comparison to DIA (14.7%).

DownVol:

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

Applying this definition to our asset in some examples:
  • Compared with the benchmark DIA (14.9%) in the period of the last 5 years, the downside deviation of 6.2% of US Market Strategy is smaller, thus better.
  • Compared with DIA (10.3%) in the period of the last 3 years, the downside deviation of 4.6% is lower, thus better.

Sharpe:

'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.'

Which means for our asset as example:
  • Looking at the risk / return profile (Sharpe) of 1.49 in the last 5 years of US Market Strategy, we see it is relatively greater, thus better in comparison to the benchmark DIA (0.42)
  • Looking at risk / return profile (Sharpe) in of 1.11 in the period of the last 3 years, we see it is relatively greater, thus better in comparison to DIA (0.41).

Sortino:

'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:
  • The ratio of annual return and downside deviation over 5 years of US Market Strategy is 2.14, which is greater, thus better compared to the benchmark DIA (0.58) in the same period.
  • Compared with DIA (0.58) in the period of the last 3 years, the downside risk / excess return profile of 1.65 is higher, thus better.

Ulcer:

'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 Index of 2.76 in the last 5 years of US Market Strategy, we see it is relatively lower, thus better in comparison to the benchmark DIA (7.68 )
  • Looking at Ulcer Index in of 2.94 in the period of the last 3 years, we see it is relatively lower, thus better in comparison to DIA (7.05 ).

MaxDD:

'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.'

Which means for our asset as example:
  • Looking at the maximum reduction from previous high of -13.1 days in the last 5 years of US Market Strategy, we see it is relatively greater, thus better in comparison to the benchmark DIA (-36.7 days)
  • Looking at maximum DrawDown in of -9.2 days in the period of the last 3 years, we see it is relatively greater, thus better in comparison to DIA (-20.8 days).

MaxDuration:

'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) in days.'

Which means for our asset as example:
  • The maximum time in days below previous high water mark over 5 years of US Market Strategy is 261 days, which is smaller, thus better compared to the benchmark DIA (477 days) in the same period.
  • Looking at maximum days below previous high in of 261 days in the period of the last 3 years, we see it is relatively lower, thus better in comparison to DIA (477 days).

AveDuration:

'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.'

Using this definition on our asset we see for example:
  • The average days under water over 5 years of US Market Strategy is 49 days, which is lower, thus better compared to the benchmark DIA (124 days) in the same period.
  • Looking at average time in days below previous high water mark in of 68 days in the period of the last 3 years, we see it is relatively lower, thus better in comparison to DIA (170 days).

Performance (YTD)

Historical returns have been extended using synthetic data.

Allocations ()

Allocations

Returns (%)

  • Note that yearly returns do not equal the sum of monthly returns due to compounding.
  • Performance results of US Market 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.