If you have looked at an iQUANT Model Factcard or used our Portfolio Finder lately, you probably noticed a new metric: the Ulcer Index.
While the name sounds like something you would discuss with a doctor, it is actually one of the most important tools we have added to help you manage client expectations.
What is the Ulcer Index?
Most risk tools look at how much a stock price bounces up and down. The Ulcer Index is different. It measures financial stress.
Specifically, it measures two things at once:
How deep a drop in price is.
How long it stays down before getting back to even.
Think of it as a "misery meter." It does not care about "good" volatility (prices going up). It only cares about the time your client spends in the red and how deep that hole is.
Ulcer Index vs. Max Drawdown
For years, we at iQUANT have scoffed at Max Drawdown. By itself, Max Drawdown is a bit of a "scare tactic." It only tells you the worst-case moment from a single point in history - a “black swan” event that is not repeatable. It does not tell you if the portfolio recovered in two weeks or stayed down for two years.
However, Max Drawdown has finally become relevant because it is a part of the Ulcer Index calculation. Where Max Drawdown is just a snapshot of an extreme, the Ulcer Index is the whole movie. It shows the total stress of holding an investment over time.
Why the Ulcer Index Matters for Your Clients
You will find that some iQUANT models may actually have a higher Max Drawdown than their benchmarks, yet they have a substantially smaller Ulcer Index.
How is that possible? It is because our models are designed to recover quickly. A client can handle a sharp drop if the "time underwater" is short. They struggle when the portfolio stays down for months on end.
Here are two real-world examples from our current Factcards:
The ETF Hedge Leader: iQ All Assets Risk On Risk Off (RORO) Rotation Model This model is an industry leader for a reason. Look at the stress levels compared to the market:
iQ RORO Ulcer Index: 2.52
S&P 500 Ulcer Index: 12.09
Translation: The S&P 500 has nearly five times the "misery factor" of the RORO model. While the market drags clients through long, painful recoveries, this model seeks to get them back to "even" much faster.
The Core Leader: iQ U.S. Mega Cap 10 Even for models that track closely to the S&P 500, the Ulcer Index shows a clear advantage in comfort:
iQ U.S. Mega Cap 10 Ulcer Index: 8.45
S&P 500 Ulcer Index: 13.65
These aren’t just performance brags. These can be real psychological advantages for long-term investors—especially retirees, risk-averse clients, or those who panic-sell at the worst times.
Coming Soon: Portfolio Optimizer & CAGR Ranges
We are not stopping at the Factcards. The Ulcer Index will soon be added to our Portfolio Optimizer PDF outputs.
This works perfectly with the worst-case CAGR ranges we already show on the Factcards and Optimizer reports. When you combine a predictable range of returns with a low Ulcer Index, you have a powerful way to show clients that their long-term goals do not have to come with a high cost of emotional stress.
The Bottom Line
Imagine that—an emotionless quant firm building a tool to help talk about the feeling of investing. Trust us, the irony isn’t lost on us. But sometimes, it takes a little math to make the emotional side of investing easier to manage—and that’s exactly the point.
Risk isn’t just numbers. It’s about how investors feels during the worst times. The Ulcer Index helps you quantify that feeling—and control it.