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 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:
  • Looking at the total return, or performance of 108.9% in the last 5 years of US Market Strategy, we see it is relatively higher, thus better in comparison to the benchmark DIA (64%)
  • Looking at total return, or performance in of 31% in the period of the last 3 years, we see it is relatively larger, thus better in comparison to DIA (29.5%).

CAGR:

'The compound annual growth rate isn't a true return rate, but rather a representational figure. It is essentially a number that describes the rate at which an investment would have grown if it had grown the same rate every year and the profits were reinvested at the end of each year. In reality, this sort of performance is unlikely. However, CAGR can be used to smooth returns so that they may be more easily understood when compared to alternative investments.'

Which means for our asset as example:
  • Looking at the compounded annual growth rate (CAGR) of 15.9% in the last 5 years of US Market Strategy, we see it is relatively greater, thus better in comparison to the benchmark DIA (10.4%)
  • During the last 3 years, the annual performance (CAGR) is 9.4%, which is larger, thus better than the value of 9% from the benchmark.

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.'

Which means for our asset as example:
  • Compared with the benchmark DIA (20.7%) in the period of the last 5 years, the historical 30 days volatility of 8.9% of US Market Strategy is lower, thus better.
  • Looking at 30 days standard deviation in of 7.1% in the period of the last 3 years, we see it is relatively lower, thus better in comparison to DIA (14.8%).

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 risk of 6.2% of US Market Strategy is smaller, thus better.
  • Compared with DIA (10.4%) in the period of the last 3 years, the downside volatility of 4.8% 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.'

Using this definition on our asset we see for example:
  • Looking at the Sharpe Ratio of 1.5 in the last 5 years of US Market Strategy, we see it is relatively greater, thus better in comparison to the benchmark DIA (0.38)
  • Compared with DIA (0.44) in the period of the last 3 years, the ratio of return and volatility (Sharpe) of 0.98 is higher, thus better.

Sortino:

'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.'

Applying this definition to our asset in some examples:
  • Compared with the benchmark DIA (0.53) in the period of the last 5 years, the downside risk / excess return profile of 2.16 of US Market Strategy is larger, thus better.
  • Looking at excess return divided by the downside deviation in of 1.45 in the period of the last 3 years, we see it is relatively greater, thus better in comparison to DIA (0.63).

Ulcer:

'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 2.76 in the last 5 years of US Market Strategy, we see it is relatively smaller, thus better in comparison to the benchmark DIA (7.69 )
  • Compared with DIA (7.05 ) in the period of the last 3 years, the Downside risk index of 2.95 is smaller, thus better.

MaxDD:

'A maximum drawdown is the maximum loss from a peak to a trough of a portfolio, before a new peak is attained. Maximum Drawdown is an indicator of downside risk over a specified time period. It can be used both as a stand-alone measure or as an input into other metrics such as 'Return over Maximum Drawdown' and the Calmar Ratio. Maximum Drawdown is expressed in percentage terms.'

Which means for our asset as example:
  • Compared with the benchmark DIA (-36.7 days) in the period of the last 5 years, the maximum DrawDown of -13.1 days of US Market Strategy is larger, thus better.
  • Compared with DIA (-20.8 days) in the period of the last 3 years, the maximum DrawDown of -9.2 days is greater, thus better.

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.'

Applying this definition to our asset in some examples:
  • Compared with the benchmark DIA (477 days) in the period of the last 5 years, the maximum days below previous high of 261 days of US Market Strategy is lower, thus better.
  • During the last 3 years, the maximum days under water is 261 days, which is lower, thus better than the value of 477 days from the benchmark.

AveDuration:

'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:
  • Looking at the average days below previous high of 49 days in the last 5 years of US Market Strategy, we see it is relatively smaller, thus better in comparison to the benchmark DIA (123 days)
  • Compared with DIA (170 days) in the period of the last 3 years, the average time in days below previous high water mark of 68 days is lower, thus better.

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.