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.'

Which means for our asset as example:
  • The total return over 5 years of US Market Strategy is 92.1%, which is smaller, thus worse compared to the benchmark DIA (110.5%) in the same period.
  • During the last 3 years, the total return, or performance is 46.9%, which is higher, thus better than the value of 45.9% from the benchmark.

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 14% in the last 5 years of US Market Strategy, we see it is relatively lower, thus worse in comparison to the benchmark DIA (16.1%)
  • Looking at annual return (CAGR) in of 13.7% in the period of the last 3 years, we see it is relatively higher, thus better in comparison to DIA (13.4%).

Volatility:

'In finance, volatility (symbol σ) is the degree of variation of a trading price series over time as measured by the standard deviation of logarithmic returns. Historic volatility measures a time series of past market prices. Implied volatility looks forward in time, being derived from the market price of a market-traded derivative (in particular, an option). Commonly, the higher the volatility, the riskier the security.'

Using this definition on our asset we see for example:
  • Looking at the 30 days standard deviation of 9.1% in the last 5 years of US Market Strategy, we see it is relatively lower, thus better in comparison to the benchmark DIA (19.9%)
  • During the last 3 years, the volatility is 10.5%, which is lower, thus better than the value of 24% from the benchmark.

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 (14.4%) in the period of the last 5 years, the downside deviation of 6.4% of US Market Strategy is lower, thus better.
  • Compared with DIA (17.4%) in the period of the last 3 years, the downside deviation of 7.5% is smaller, thus better.

Sharpe:

'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.'

Which means for our asset as example:
  • The risk / return profile (Sharpe) over 5 years of US Market Strategy is 1.26, which is greater, thus better compared to the benchmark DIA (0.68) in the same period.
  • Compared with DIA (0.46) in the period of the last 3 years, the risk / return profile (Sharpe) of 1.06 is higher, thus better.

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.'

Using this definition on our asset we see for example:
  • Looking at the downside risk / excess return profile of 1.79 in the last 5 years of US Market Strategy, we see it is relatively higher, thus better in comparison to the benchmark DIA (0.94)
  • Looking at downside risk / excess return profile in of 1.5 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 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.'

Which means for our asset as example:
  • Compared with the benchmark DIA (6.28 ) in the period of the last 5 years, the Downside risk index of 1.98 of US Market Strategy is lower, thus better.
  • Looking at Ulcer Index in of 2.44 in the period of the last 3 years, we see it is relatively lower, thus better in comparison to DIA (7.56 ).

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:
  • The maximum DrawDown over 5 years of US Market Strategy is -15.3 days, which is higher, thus better compared to the benchmark DIA (-36.7 days) in the same period.
  • Looking at maximum reduction from previous high in of -15.3 days in the period of the last 3 years, we see it is relatively larger, thus better in comparison to DIA (-36.7 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.'

Applying this definition to our asset in some examples:
  • The maximum days below previous high over 5 years of US Market Strategy is 97 days, which is lower, thus better compared to the benchmark DIA (187 days) in the same period.
  • During the last 3 years, the maximum days below previous high is 97 days, which is smaller, thus better than the value of 187 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.'

Which means for our asset as example:
  • Looking at the average time in days below previous high water mark of 20 days in the last 5 years of US Market Strategy, we see it is relatively lower, thus better in comparison to the benchmark DIA (46 days)
  • Looking at average days below previous high in of 25 days in the period of the last 3 years, we see it is relatively lower, thus better in comparison to DIA (48 days).

Performance (YTD)

Historical returns have been extended using synthetic data.

Allocations
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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.