Description of US Market Strategy

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 of US Market Strategy (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.'

Applying this definition to our asset in some examples:
  • Looking at the total return, or increase in value of 69.3% in the last 5 years of US Market Strategy, we see it is relatively lower, thus worse in comparison to the benchmark DIA (77.5%)
  • Compared with DIA (59.9%) in the period of the last 3 years, the total return of 26.5% is lower, thus worse.

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.'

Using this definition on our asset we see for example:
  • Compared with the benchmark DIA (12.2%) in the period of the last 5 years, the compounded annual growth rate (CAGR) of 11.1% of US Market Strategy is smaller, thus worse.
  • Compared with DIA (17%) in the period of the last 3 years, the compounded annual growth rate (CAGR) of 8.2% is lower, thus worse.

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:
  • The historical 30 days volatility over 5 years of US Market Strategy is 7%, which is lower, thus better compared to the benchmark DIA (13.7%) in the same period.
  • Compared with DIA (13.1%) in the period of the last 3 years, the historical 30 days volatility of 6.4% is lower, thus better.

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 (15.2%) in the period of the last 5 years, the downside deviation of 7.8% of US Market Strategy is lower, thus better.
  • Looking at downside volatility in of 7.5% in the period of the last 3 years, we see it is relatively smaller, thus better in comparison to DIA (14.9%).

Sharpe:

'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.'

Which means for our asset as example:
  • Looking at the risk / return profile (Sharpe) of 1.24 in the last 5 years of US Market Strategy, we see it is relatively higher, thus better in comparison to the benchmark DIA (0.71)
  • During the last 3 years, the ratio of return and volatility (Sharpe) is 0.89, which is lower, thus worse than the value of 1.1 from the benchmark.

Sortino:

'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:
  • Compared with the benchmark DIA (0.64) in the period of the last 5 years, the downside risk / excess return profile of 1.11 of US Market Strategy is greater, thus better.
  • Looking at excess return divided by the downside deviation in of 0.76 in the period of the last 3 years, we see it is relatively lower, thus worse in comparison to DIA (0.97).

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.'

Which means for our asset as example:
  • The Ulcer Ratio over 5 years of US Market Strategy is 1.7 , which is smaller, thus better compared to the benchmark DIA (4.28 ) in the same period.
  • During the last 3 years, the Downside risk index is 1.78 , which is smaller, thus better than the value of 4.22 from the benchmark.

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.'

Applying this definition to our asset in some examples:
  • Compared with the benchmark DIA (-18.1 days) in the period of the last 5 years, the maximum drop from peak to valley of -6.9 days of US Market Strategy is larger, thus better.
  • During the last 3 years, the maximum reduction from previous high is -6.9 days, which is greater, thus better than the value of -18.1 days from the benchmark.

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:
  • Compared with the benchmark DIA (227 days) in the period of the last 5 years, the maximum days below previous high of 132 days of US Market Strategy is smaller, thus better.
  • Compared with DIA (161 days) in the period of the last 3 years, the maximum days below previous high of 94 days is lower, thus better.

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.'

Which means for our asset as example:
  • Compared with the benchmark DIA (53 days) in the period of the last 5 years, the average days under water of 28 days of US Market Strategy is lower, thus better.
  • Compared with DIA (43 days) in the period of the last 3 years, the average days under water of 25 days is lower, thus better.

Performance of US Market Strategy (YTD)

Historical returns have been extended using synthetic data.

Allocations of US Market Strategy
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Allocations

Returns of US Market Strategy (%)

  • "Year" returns in the table above are not equal to 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.