A sub-strategy for the U.S. Sector strategy.

See the main US Sector strategy for a detailed asset description.

'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.'

Using this definition on our asset we see for example:- Compared with the benchmark SPY (66.6%) in the period of the last 5 years, the total return of 63.9% of US sectors low volatility is smaller, thus worse.
- Looking at total return in of 20.6% in the period of the last 3 years, we see it is relatively lower, thus worse in comparison to SPY (36.1%).

'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.'

Using this definition on our asset we see for example:- Compared with the benchmark SPY (10.8%) in the period of the last 5 years, the annual return (CAGR) of 10.4% of US sectors low volatility is lower, thus worse.
- Compared with SPY (10.8%) in the period of the last 3 years, the annual return (CAGR) of 6.5% is lower, thus worse.

'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 historical 30 days volatility over 5 years of US sectors low volatility is 16.8%, which is smaller, thus better compared to the benchmark SPY (19%) in the same period.
- During the last 3 years, the historical 30 days volatility is 19.1%, which is lower, thus better than the value of 22% from the benchmark.

'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:- The downside volatility over 5 years of US sectors low volatility is 11.9%, which is lower, thus better compared to the benchmark SPY (13.9%) in the same period.
- During the last 3 years, the downside deviation is 13.6%, which is lower, thus better than the value of 16.2% from the benchmark.

'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.'

Which means for our asset as example:- Compared with the benchmark SPY (0.43) in the period of the last 5 years, the Sharpe Ratio of 0.47 of US sectors low volatility is higher, thus better.
- During the last 3 years, the risk / return profile (Sharpe) is 0.21, which is lower, thus worse than the value of 0.38 from the benchmark.

'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 SPY (0.59) in the period of the last 5 years, the excess return divided by the downside deviation of 0.66 of US sectors low volatility is larger, thus better.
- Looking at downside risk / excess return profile in of 0.29 in the period of the last 3 years, we see it is relatively lower, thus worse in comparison to SPY (0.52).

'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.'

Applying this definition to our asset in some examples:- Compared with the benchmark SPY (5.9 ) in the period of the last 5 years, the Ulcer Index of 4.94 of US sectors low volatility is lower, thus better.
- Looking at Downside risk index in of 5.69 in the period of the last 3 years, we see it is relatively lower, thus better in comparison to SPY (6.98 ).

'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.'

Which means for our asset as example:- The maximum DrawDown over 5 years of US sectors low volatility is -24.5 days, which is larger, thus better compared to the benchmark SPY (-33.7 days) in the same period.
- Compared with SPY (-33.7 days) in the period of the last 3 years, the maximum DrawDown of -24.5 days is larger, thus better.

'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:- Compared with the benchmark SPY (187 days) in the period of the last 5 years, the maximum days below previous high of 196 days of US sectors low volatility is greater, thus worse.
- Compared with SPY (139 days) in the period of the last 3 years, the maximum time in days below previous high water mark of 196 days is higher, thus worse.

'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:- The average days below previous high over 5 years of US sectors low volatility is 48 days, which is greater, thus worse compared to the benchmark SPY (44 days) in the same period.
- During the last 3 years, the average time in days below previous high water mark is 52 days, which is higher, thus worse than the value of 41 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 sectors low volatility 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.