There’s been lots of noise about Ray Dalio’s All Weather fund’s losses this year, but this really should come as no surprise to investors and readers of this blog. An environment of declining values in foreign equities, commodities, real estate, and bonds results it poor performance for buy and hold and risk parity funds especially.
I’ve done a bunch of posts on risk parity here on the blog over the years, and even a few presentations I recorded from speeches in years past (Dynamic Risk Parity Part I & Dynamic Risk Parity Part II). While talking about risk parity is like talking religion or politics, you can design a simple risk parity allocation with something like:
15% Stocks (Large cap, small cap, foreign developed, foreign emerging)
70% Bonds (US Gov, Corporates)
15% Real Assets (Commodities and Gold, REITs)
This would then need to be leveraged about 1.5X to get to similar volatility as a 60/40 portfolio.
Historically this has added about 200 bps over a simple 60/40 portfolio for similar vol and drawdowns. Anyways, please watch the videos for a much deeper look into the strategies with historical performance, etc.
Below are a few public risk parity mutual funds – all are expensive with fees over 1% for a simple buy and hold portfolio that one could replicate with ETFs quite easily. Global X has had a Risk Parity ETF filed for awhile but I imagine it has been held up at the SEC due to the need to use futures/leverage.
Salient Risk Parity SRPAX
AQR Risk Parity AQRNX
RPG Risk Parity DRPAX
Putnam Dynamic Risk Allocation PDREX
Invesco Balanced-Risk Allocation ABRYX