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:

'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.'

Which means for our asset as example:
  • The total return, or performance over 5 years of US Market Strategy is 85.8%, which is higher, thus better compared to the benchmark DIA (37.5%) in the same period.
  • During the last 3 years, the total return, or increase in value is 41.2%, which is greater, thus better than the value of 12.4% from the benchmark.

CAGR:

'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 performance (CAGR) of 13.2% in the last 5 years of US Market Strategy, we see it is relatively higher, thus better in comparison to the benchmark DIA (6.6%)
  • Looking at annual performance (CAGR) in of 12.2% in the period of the last 3 years, we see it is relatively larger, thus better in comparison to DIA (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:
  • Compared with the benchmark DIA (18.7%) in the period of the last 5 years, the historical 30 days volatility of 8.2% of US Market Strategy is smaller, thus better.
  • Compared with DIA (21.6%) in the period of the last 3 years, the volatility of 9.1% is smaller, thus better.

DownVol:

'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:
  • Looking at the downside deviation of 5.8% in the last 5 years of US Market Strategy, we see it is relatively smaller, thus better in comparison to the benchmark DIA (13.9%)
  • Compared with DIA (16.2%) in the period of the last 3 years, the downside deviation of 6.7% is lower, thus better.

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.'

Which means for our asset as example:
  • Looking at the risk / return profile (Sharpe) of 1.31 in the last 5 years of US Market Strategy, we see it is relatively larger, thus better in comparison to the benchmark DIA (0.22)
  • Compared with DIA (0.07) in the period of the last 3 years, the risk / return profile (Sharpe) of 1.07 is greater, thus better.

Sortino:

'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.'

Applying this definition to our asset in some examples:
  • Compared with the benchmark DIA (0.29) in the period of the last 5 years, the excess return divided by the downside deviation of 1.83 of US Market Strategy is higher, thus better.
  • During the last 3 years, the downside risk / excess return profile is 1.45, which is larger, thus better than the value of 0.09 from the benchmark.

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:
  • Looking at the Ulcer Index of 1.73 in the last 5 years of US Market Strategy, we see it is relatively smaller, thus better in comparison to the benchmark DIA (5.28 )
  • Looking at Downside risk index in of 1.94 in the period of the last 3 years, we see it is relatively smaller, thus better in comparison to DIA (5.86 ).

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

MaxDuration:

'The Maximum 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. It is the length of time the account was in the Max Drawdown. A Max Drawdown measures a retrenchment from when an equity curve reaches a new high. It’s the maximum an account lost during that retrenchment. This method is applied because a valley can’t be measured until a new high occurs. Once the new high is reached, the percentage change from the old high to the bottom of the largest trough is recorded.'

Using this definition on our asset we see for example:
  • The maximum days below previous high over 5 years of US Market Strategy is 72 days, which is smaller, thus better compared to the benchmark DIA (227 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 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.'

Using this definition on our asset we see for example:
  • The average time in days below previous high water mark over 5 years of US Market Strategy is 17 days, which is smaller, thus better compared to the benchmark DIA (54 days) in the same period.
  • Looking at average time in days below previous high water mark in of 14 days in the period of the last 3 years, we see it is relatively smaller, thus better in comparison to DIA (43 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.