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.'

Which means for our asset as example:
  • Looking at the total return, or performance of 94.6% in the last 5 years of US Market Strategy, we see it is relatively larger, thus better in comparison to the benchmark DIA (87.9%)
  • Compared with DIA (57.6%) in the period of the last 3 years, the total return, or increase in value of 57.3% 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:
  • Looking at the annual performance (CAGR) of 14.3% in the last 5 years of US Market Strategy, we see it is relatively higher, thus better in comparison to the benchmark DIA (13.5%)
  • Looking at annual return (CAGR) in of 16.3% in the period of the last 3 years, we see it is relatively smaller, thus worse in comparison to DIA (16.4%).

Volatility:

'Volatility is a statistical measure of the dispersion of returns for a given security or market index. Volatility can either be measured by using the standard deviation or variance between returns from that same security or market index. Commonly, the higher the volatility, the riskier the security. In the securities markets, volatility is often associated with big swings in either direction. For example, when the stock market rises and falls more than one percent over a sustained period of time, it is called a 'volatile' market.'

Which means for our asset as example:
  • The volatility over 5 years of US Market Strategy is 6.3%, which is lower, thus better compared to the benchmark DIA (13.4%) in the same period.
  • Compared with DIA (13.2%) in the period of the last 3 years, the volatility of 5.8% is lower, thus better.

DownVol:

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

Which means for our asset as example:
  • The downside risk over 5 years of US Market Strategy is 7.2%, which is smaller, thus better compared to the benchmark DIA (15.1%) in the same period.
  • During the last 3 years, the downside deviation is 7%, which is smaller, thus better than the value of 15.2% from the benchmark.

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:
  • The ratio of return and volatility (Sharpe) over 5 years of US Market Strategy is 1.86, which is higher, thus better compared to the benchmark DIA (0.82) in the same period.
  • During the last 3 years, the ratio of return and volatility (Sharpe) is 2.36, which is larger, thus better than the value of 1.05 from the benchmark.

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.'

Applying this definition to our asset in some examples:
  • The downside risk / excess return profile over 5 years of US Market Strategy is 1.63, which is larger, thus better compared to the benchmark DIA (0.73) in the same period.
  • Compared with DIA (0.91) in the period of the last 3 years, the ratio of annual return and downside deviation of 1.96 is higher, thus better.

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 1.55 , which is lower, thus better compared to the benchmark DIA (4.24 ) in the same period.
  • Looking at Downside risk index in of 1.06 in the period of the last 3 years, we see it is relatively lower, thus better in comparison to DIA (4.23 ).

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.'

Using this definition on our asset we see for example:
  • The maximum drop from peak to valley over 5 years of US Market Strategy is -5.5 days, which is larger, thus better compared to the benchmark DIA (-18.1 days) in the same period.
  • During the last 3 years, the maximum drop from peak to valley is -5.5 days, which is higher, 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:
  • Looking at the maximum days under water of 183 days in the last 5 years of US Market Strategy, we see it is relatively smaller, thus better in comparison to the benchmark DIA (227 days)
  • Looking at maximum days below previous high in of 66 days in the period of the last 3 years, we see it is relatively lower, thus better in comparison to DIA (161 days).

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.'

Using this definition on our asset we see for example:
  • The average days below previous high over 5 years of US Market Strategy is 30 days, which is smaller, thus better compared to the benchmark DIA (55 days) in the same period.
  • Looking at average days under water in of 14 days in the period of the last 3 years, we see it is relatively smaller, thus better in comparison to DIA (45 days).

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 (%)

  • 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.