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, 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.'

Applying this definition to our asset in some examples:- The total return, or increase in value over 5 years of US Market Strategy is 89.9%, which is greater, thus better compared to the benchmark DIA (48%) in the same period.
- During the last 3 years, the total return, or performance is 58.7%, which is lower, thus worse than the value of 76.6% from the benchmark.

'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:- The annual return (CAGR) over 5 years of US Market Strategy is 13.7%, which is higher, thus better compared to the benchmark DIA (8.2%) in the same period.
- During the last 3 years, the annual performance (CAGR) is 16.6%, which is smaller, thus worse than the value of 20.9% from the benchmark.

'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.'

Which means for our asset as example:- The historical 30 days volatility over 5 years of US Market Strategy is 9%, which is smaller, thus better compared to the benchmark DIA (21.5%) in the same period.
- Compared with DIA (20.2%) in the period of the last 3 years, the 30 days standard deviation of 9% is smaller, thus better.

'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:- The downside volatility over 5 years of US Market Strategy is 6.4%, which is smaller, thus better compared to the benchmark DIA (15.5%) in the same period.
- Looking at downside deviation in of 5.9% in the period of the last 3 years, we see it is relatively lower, thus better in comparison to DIA (13%).

'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.'

Using this definition on our asset we see for example:- Looking at the ratio of return and volatility (Sharpe) of 1.24 in the last 5 years of US Market Strategy, we see it is relatively larger, thus better in comparison to the benchmark DIA (0.26)
- Compared with DIA (0.91) in the period of the last 3 years, the ratio of return and volatility (Sharpe) of 1.57 is greater, thus better.

'The Sortino ratio measures the risk-adjusted return of an investment asset, portfolio, or strategy. It is a modification of the Sharpe ratio but penalizes only those returns falling below a user-specified target or required rate of return, while the Sharpe ratio penalizes both upside and downside volatility equally. Though both ratios measure an investment's risk-adjusted return, they do so in significantly different ways that will frequently lead to differing conclusions as to the true nature of the investment's return-generating efficiency. The Sortino ratio is used as a way to compare the risk-adjusted performance of programs with differing risk and return profiles. In general, risk-adjusted returns seek to normalize the risk across programs and then see which has the higher return unit per risk.'

Applying this definition to our asset in some examples:- Looking at the downside risk / excess return profile of 1.76 in the last 5 years of US Market Strategy, we see it is relatively larger, thus better in comparison to the benchmark DIA (0.37)
- Compared with DIA (1.41) in the period of the last 3 years, the downside risk / excess return profile of 2.38 is larger, thus better.

'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 (7.78 ) in the period of the last 5 years, the Ulcer Index of 2.82 of US Market Strategy is smaller, thus better.
- Looking at Ulcer Ratio in of 3.11 in the period of the last 3 years, we see it is relatively smaller, thus better in comparison to DIA (6.84 ).

'Maximum drawdown is defined as the peak-to-trough decline of an investment during a specific period. It is usually quoted as a percentage of the peak value. The maximum drawdown can be calculated based on absolute returns, in order to identify strategies that suffer less during market downturns, such as low-volatility strategies. However, the maximum drawdown can also be calculated based on returns relative to a benchmark index, for identifying strategies that show steady outperformance over time.'

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 -13.1 days of US Market Strategy is larger, thus better.
- Looking at maximum reduction from previous high in of -9.2 days in the period of the last 3 years, we see it is relatively greater, thus better in comparison to DIA (-20.8 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'

Using this definition on our asset we see for example:- Compared with the benchmark DIA (304 days) in the period of the last 5 years, the maximum time in days below previous high water mark of 231 days of US Market Strategy is lower, thus better.
- Compared with DIA (304 days) in the period of the last 3 years, the maximum days below previous high of 231 days is lower, 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.'

Using this definition on our asset we see for example:- Looking at the average days below previous high of 43 days in the last 5 years of US Market Strategy, we see it is relatively lower, thus better in comparison to the benchmark DIA (71 days)
- Looking at average time in days below previous high water mark in of 57 days in the period of the last 3 years, we see it is relatively lower, thus better in comparison to DIA (76 days).

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.