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.

'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.'

Using this definition on our asset we see for example:- Compared with the benchmark DIA (110.8%) in the period of the last 5 years, the total return, or increase in value of 120.7% of US Market Strategy is greater, thus better.
- Compared with DIA (27.5%) in the period of the last 3 years, the total return of 47.5% is higher, thus better.

'Compound annual growth rate (CAGR) is a business and investing specific term for the geometric progression ratio that provides a constant rate of return over the time period. CAGR is not an accounting term, but it is often used to describe some element of the business, for example revenue, units delivered, registered users, etc. CAGR dampens the effect of volatility of periodic returns that can render arithmetic means irrelevant. It is particularly useful to compare growth rates from various data sets of common domain such as revenue growth of companies in the same industry.'

Applying this definition to our asset in some examples:- Compared with the benchmark DIA (16.1%) in the period of the last 5 years, the annual return (CAGR) of 17.2% of US Market Strategy is higher, thus better.
- Looking at compounded annual growth rate (CAGR) in of 13.8% in the period of the last 3 years, we see it is relatively greater, thus better in comparison to DIA (8.4%).

'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%) in the period of the last 5 years, the volatility of 8.9% of US Market Strategy is smaller, thus better.
- Looking at 30 days standard deviation in of 10.6% in the period of the last 3 years, we see it is relatively smaller, thus better in comparison to DIA (24.5%).

'Downside risk is the financial risk associated with losses. That is, it is the risk of the actual return being below the expected return, or the uncertainty about the magnitude of that difference. 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:- Compared with the benchmark DIA (14.5%) in the period of the last 5 years, the downside deviation of 6.1% of US Market Strategy is smaller, thus better.
- Compared with DIA (18%) in the period of the last 3 years, the downside deviation of 7.5% is smaller, thus better.

'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.'

Applying this definition to our asset in some examples:- Compared with the benchmark DIA (0.68) in the period of the last 5 years, the risk / return profile (Sharpe) of 1.65 of US Market Strategy is higher, thus better.
- Looking at risk / return profile (Sharpe) in of 1.07 in the period of the last 3 years, we see it is relatively higher, thus better in comparison to DIA (0.24).

'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:- Compared with the benchmark DIA (0.94) in the period of the last 5 years, the excess return divided by the downside deviation of 2.39 of US Market Strategy is greater, thus better.
- Looking at downside risk / excess return profile in of 1.51 in the period of the last 3 years, we see it is relatively larger, thus better in comparison to DIA (0.33).

'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:- The Ulcer Index over 5 years of US Market Strategy is 1.8 , which is lower, thus better compared to the benchmark DIA (6.28 ) in the same period.
- Compared with DIA (8.05 ) in the period of the last 3 years, the Ulcer Ratio of 2.28 is smaller, thus better.

'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.'

Using this definition on our asset we see for example:- Compared with the benchmark DIA (-36.7 days) in the period of the last 5 years, the maximum reduction from previous high of -15.3 days of US Market Strategy is larger, thus better.
- Compared with DIA (-36.7 days) in the period of the last 3 years, the maximum drop from peak to valley of -15.3 days is greater, thus better.

'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'

Using this definition on our asset we see for example:- Compared with the benchmark DIA (187 days) in the period of the last 5 years, the maximum time in days below previous high water mark of 81 days of US Market Strategy is lower, thus better.
- Looking at maximum time in days below previous high water mark in of 81 days in the period of the last 3 years, we see it is relatively smaller, thus better in comparison to DIA (187 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:- Looking at the average time in days below previous high water mark of 16 days in the last 5 years of US Market Strategy, we see it is relatively lower, thus better in comparison to the benchmark DIA (47 days)
- Compared with DIA (63 days) in the period of the last 3 years, the average time in days below previous high water mark of 20 days is lower, thus better.

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 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.