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.

'The total return on a portfolio of investments takes into account not only the capital appreciation on the portfolio, but also the income received on the portfolio. The income typically consists of interest, dividends, and securities lending fees. This contrasts with the price return, which takes into account only the capital gain on an investment.'

Applying this definition to our asset in some examples:- Looking at the total return, or performance of 120.7% in the last 5 years of US Market Strategy, we see it is relatively larger, thus better in comparison to the benchmark DIA (64.1%)
- During the last 3 years, the total return, or performance is 59.6%, which is larger, thus better than the value of 28.9% from the benchmark.

'The compound annual growth rate (CAGR) is a useful measure of growth over multiple time periods. It can be thought of as the growth rate that gets you from the initial investment value to the ending investment value if you assume that the investment has been compounding over the time period.'

Which means for our asset as example:- Looking at the annual return (CAGR) of 17.2% in the last 5 years of US Market Strategy, we see it is relatively larger, thus better in comparison to the benchmark DIA (10.4%)
- During the last 3 years, the annual performance (CAGR) is 16.9%, which is greater, thus better than the value of 8.8% from the benchmark.

'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.'

Applying this definition to our asset in some examples:- The 30 days standard deviation over 5 years of US Market Strategy is 8.7%, which is smaller, thus better compared to the benchmark DIA (20.1%) in the same period.
- Looking at historical 30 days volatility in of 10% in the period of the last 3 years, we see it is relatively lower, thus better in comparison to DIA (23.8%).

'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.'

Which means for our asset as example:- Compared with the benchmark DIA (14.7%) in the period of the last 5 years, the downside volatility of 6% of US Market Strategy is lower, thus better.
- Compared with DIA (17.5%) in the period of the last 3 years, the downside deviation of 7.1% is lower, thus better.

'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.'

Which means for our asset as example:- Looking at the Sharpe Ratio of 1.68 in the last 5 years of US Market Strategy, we see it is relatively larger, thus better in comparison to the benchmark DIA (0.39)
- Looking at risk / return profile (Sharpe) in of 1.43 in the period of the last 3 years, we see it is relatively greater, thus better in comparison to DIA (0.27).

'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.'

Which means for our asset as example:- Compared with the benchmark DIA (0.54) in the period of the last 5 years, the ratio of annual return and downside deviation of 2.43 of US Market Strategy is larger, thus better.
- Compared with DIA (0.36) in the period of the last 3 years, the excess return divided by the downside deviation of 2.03 is higher, thus better.

'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.'

Which means for our asset as example:- Looking at the Ulcer Index of 1.81 in the last 5 years of US Market Strategy, we see it is relatively lower, thus better in comparison to the benchmark DIA (6.48 )
- Compared with DIA (7.76 ) in the period of the last 3 years, the Downside risk index of 2.13 is smaller, thus better.

'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:- 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 greater, thus better in comparison to DIA (-36.7 days).

'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'

Which means for our asset as example:- The maximum days below previous high over 5 years of US Market Strategy is 70 days, which is lower, thus better compared to the benchmark DIA (186 days) in the same period.
- Compared with DIA (161 days) in the period of the last 3 years, the maximum days under water of 66 days is smaller, thus better.

'The Average Drawdown Duration is an extension of the Maximum Drawdown. However, this metric does not explain the drawdown in dollars or percentages, rather in days, weeks, or months. 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:- The average days under water over 5 years of US Market Strategy is 16 days, which is lower, thus better compared to the benchmark DIA (49 days) in the same period.
- During the last 3 years, the average days under water is 16 days, which is lower, thus better than the value of 48 days from the benchmark.

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.