Description of World Top 4 Strategy

The World Country Top 4 Strategy is a momentum driven strategy that invests in the top four single country ETFs. It will add geographic diversity to your portfolio with significant non-U.S. equity exposure.

The strategy consists of four sub-strategies. Each sub-strategy invests in the best country ETF in a specific geographic area (i.e., Africa, Asia, Latin America, etc). These strategies are then combined to yield four country ETFs that come from different geographic segments, thus avoiding overconcentration. So even if one region is outperforming all the other areas, this strategy will still diversify among three additional top performing regions.

Like our other equity-based strategies, this strategy is hedged with a sub-strategy (HEDGE) that includes, amongst others, safe heaven assets like treasuries and gold.

Methodology & Assets

Country ETFs:

  • AFK Market Vectors Africa Index
  • ASHR Deutsche X-Trackers CSI 300 China A Shares
  • ECH iShares MSCI Chile Fund
  • EGPT Market Vectors Egypt Index
  • EIDO iShares MSCI Indonesia Index
  • EIRL iShares MSCI Ireland Capped
  • EIS iShares MSCI Israel
  • ENZL iShares MSCI New Zealand Investable Market
  • EPHE iShares MSCI Philippines
  • EPI WisdomTree India Earnings Index
  • EPOL iShares MSCI Poland Index
  • EPU iShares MSCI Peru Index
  • EWA iShares MSCI Australia Index Fund
  • EWC iShares MSCI Canada Index Fund
  • EWD iShares MSCI Sweden Index
  • EWG iShares MSCI Germany Index
  • EWH iShares MSCI Hong Kong Index Fund
  • EWI iShares MSCI Italy Index
  • EWJ iShares MSCI Japan Index Fund
  • EWK iShares MSCI Belgium Index
  • EWL iShares MSCI Switzerland
  • EWM iShares MSCI Malaysia Index Fund
  • EWN iShares MSCI Netherlands Index
  • EWO iShares MSCI Austria Index
  • EWP iShares MSCI Spain Index
  • EWQ iShares MSCI France
  • EWS iShares MSCI Singapore Index
  • EWT iShares MSCI Taiwan Index Fund
  • EWU iShares MSCI United Kingdom Index
  • EWW iShares MSCI Mexico Index Fund
  • EWY iShares MSCI South Korea Index Fund
  • EWZ iShares MSCI Brazil Index Fund
  • EZA iShares MSCI South Africa Index
  • FM iShares MSCI Frontier Markets ETF
  • FRN Guggenheim BNY Mellon Frontier Mkts
  • FXI iShares FTSE China 25 Index Fund
  • GAF SPDR S&P E.M. Middle East & Africa
  • GULF WisdomTree Middle East Dividend Index
  • GREK Global X FTSE Greece 20
  • GXG Global X Interbolsa FTSE Colombia 20
  • IDX Market Vectors Indonesia
  • MCHI iShares MSCI China Index
  • MES Market Vectors DJ Gulf States (GCC) Titans
  • NORW Global X FTSE Norway 30 ETF
  • QQQ PowerShares Nasdaq-100 Index
  • RSX Market Vectors DAXglobal Russia
  • THD iShares MSCI Thailand Index
  • TUR iShares MSCI Turkey
  • VNM Market Vectors Vietnam

Statistics of World Top 4 Strategy (YTD)

What do these metrics mean? [Read More] [Hide]

TotalReturn:

'Total return is the amount of value an investor earns from a security over a specific period, typically one year, when all distributions are reinvested. Total return is expressed as a percentage of the amount invested. For example, a total return of 20% means the security increased by 20% of its original value due to a price increase, distribution of dividends (if a stock), coupons (if a bond) or capital gains (if a fund). Total return is a strong measure of an investment’s overall performance.'

Which means for our asset as example:
  • Looking at the total return, or performance of 87.8% in the last 5 years of World Top 4 Strategy, we see it is relatively higher, thus better in comparison to the benchmark ACWI (42.4%)
  • During the last 3 years, the total return, or increase in value is 47.9%, which is larger, thus better than the value of 38.6% from the benchmark.

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.'

Which means for our asset as example:
  • Looking at the compounded annual growth rate (CAGR) of 13.4% in the last 5 years of World Top 4 Strategy, we see it is relatively larger, thus better in comparison to the benchmark ACWI (7.3%)
  • Compared with ACWI (11.5%) in the period of the last 3 years, the annual return (CAGR) of 13.9% is higher, thus better.

Volatility:

'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.'

Which means for our asset as example:
  • Looking at the 30 days standard deviation of 6.7% in the last 5 years of World Top 4 Strategy, we see it is relatively smaller, thus better in comparison to the benchmark ACWI (13.2%)
  • During the last 3 years, the 30 days standard deviation is 5.7%, which is smaller, thus better than the value of 12.3% from the benchmark.

DownVol:

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

Using this definition on our asset we see for example:
  • Looking at the downside volatility of 7.2% in the last 5 years of World Top 4 Strategy, we see it is relatively lower, thus better in comparison to the benchmark ACWI (14.5%)
  • Compared with ACWI (13.9%) in the period of the last 3 years, the downside deviation of 6.4% is lower, thus better.

Sharpe:

'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.'

Applying this definition to our asset in some examples:
  • Looking at the risk / return profile (Sharpe) of 1.65 in the last 5 years of World Top 4 Strategy, we see it is relatively greater, thus better in comparison to the benchmark ACWI (0.36)
  • Looking at ratio of return and volatility (Sharpe) in of 2 in the period of the last 3 years, we see it is relatively larger, thus better in comparison to ACWI (0.73).

Sortino:

'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:
  • Compared with the benchmark ACWI (0.33) in the period of the last 5 years, the ratio of annual return and downside deviation of 1.53 of World Top 4 Strategy is higher, thus better.
  • During the last 3 years, the excess return divided by the downside deviation is 1.78, which is greater, thus better than the value of 0.65 from the benchmark.

Ulcer:

'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.'

Using this definition on our asset we see for example:
  • Looking at the Ulcer Ratio of 2.61 in the last 5 years of World Top 4 Strategy, we see it is relatively smaller, thus worse in comparison to the benchmark ACWI (6.14 )
  • Compared with ACWI (5 ) in the period of the last 3 years, the Ulcer Index of 1.75 is smaller, thus worse.

MaxDD:

'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:
  • Looking at the maximum DrawDown of -8.2 days in the last 5 years of World Top 4 Strategy, we see it is relatively higher, thus better in comparison to the benchmark ACWI (-19.5 days)
  • Compared with ACWI (-19.5 days) in the period of the last 3 years, the maximum drop from peak to valley of -5.3 days is greater, 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:
  • Compared with the benchmark ACWI (408 days) in the period of the last 5 years, the maximum days below previous high of 206 days of World Top 4 Strategy is lower, thus better.
  • Looking at maximum days under water in of 145 days in the period of the last 3 years, we see it is relatively smaller, thus better in comparison to ACWI (288 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 under water over 5 years of World Top 4 Strategy is 44 days, which is smaller, thus better compared to the benchmark ACWI (119 days) in the same period.
  • Looking at average days below previous high in of 35 days in the period of the last 3 years, we see it is relatively lower, thus better in comparison to ACWI (72 days).

Performance of World Top 4 Strategy (YTD)

Historical returns have been extended using synthetic data.

Allocations of World Top 4 Strategy
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Allocations

Returns of World Top 4 Strategy (%)

  • "Year" returns in the table above are not equal to the sum of monthly returns due to compounding.
  • Performance results of World Top 4 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.