A drawdown is the peak-to-trough decline during a specific recorded period of an investment, fund or commodity. A drawdown is usually quoted as the percentage between the peek and the trough.

A maximum drawdown (MDD) is the maximum loss from a peak to a trough of a portfolio, before a new peak is attained. Maximum Drawdown (MDD) is an indicator of downside risk over a specified time period. It can be used as a stand-alone measure or as an input into other metrics such as “Return over Maximum Drawdown” and Calmar Ratio. Maximum Drawdown is expressed in percentage terms and computed as: (Trough Value – Peak Value) ÷ Peak Value

A fund or money manager’s largest cumulative percentage decline in net asset value. It is defined as the percentage decline from the fund’s highest net asset value (peak) to the lowest net asset value (trough) after the peak. Funds that have been in existence for long periods of time may have a number of peak-to-valley drawdowns over various time periods.

While declines in a fund’s net asset value are inevitable, investors monitor the length of time it takes for the fund to recoup those losses. The shorter the recovery period, the better the fund’s performance. The caveat here, however, is that the recovery from the drawdown should not be achieved by the fund manager taking on a significantly greater degree of risk to get a boost in performance.

A peak is the highest point between the end of an economic expansion and the start of a contraction in a business cycle. The peak of the cycle refers to the last month before several key economic indicators, such as employment and new housing starts, begin to fall. It is at this point that real GDP spending in an economy is its highest level.

A trough is the stage of the economy’s business cycle that marks the end of a period of declining business activity and the transition to expansion.

We offer a report that looks at your portfolio thru a Drawdown Lens. This report pulls the historical data of your existing holdings and converts it into an easy  to read graph that shows the “Max Drawdown” history of your portfolio.

After seeing the drawdown report, most people tell us that they had never seen their portfolio in this manner and never realized the amount of risk they were taking. If you are looking for a different way to help manage portfolio risk, this free report is a great place to start.