'All Weather' Fund Is Getting Spanked
"The Bridgewater All Weather Fund is down roughly 6 percent through this month and down 8 percent for the year, said two people familiar with the fund's performance."
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"Bridgewater created a portfolio based on two of the four basic economic scenarios: rising growth, falling growth, rising inflation, falling inflation. Different types of assets do well in each of these scenarios and the all-weather portfolio contemplates spreading its risk evenly."
Any thoughts monkeys? Personally I've always been a big believer in the risk parity movement, not of high steady returns over long periods of time but as a stable portfolio for risk-averse investors. PIMCO doesn't seem to be in much better shape with it's Total Return Fund 5.39% down since the end of April.
In theory, the portfolio should go back to normal with time and balance again but do you guys think Ray expected such a hit for his All Weather Fund?
all macro shops getting hit hard...lot of them go by principle stocks up, bonds down etc...past few weeks both stocks and bonds (even more so) have been getting killed...
Risk parity, as a portfolio construction methodology, has its issues, some of them quite serious. I wouldn't be surprised that, occasionally, the methodology flaws manifest themselves in pretty hefty and unpleasant ways. We could be observing one such occasion.
he's overweight brazil. i'd keep my equity exposure to the US.
He's also the leading buyer of TIPS.
I don't think disinflation is necessarily good for equities, it really depends.
I don't know to what extent Bridgewater's 4 economic scenario preparation really drives things. A lot of their solid returns can be explained from a levered up position in bonds.
There's a good AQR white paper on why portfolios that overweight bonds have tended to do better, historically (risk adjusted returns for low volatility assets are higher). However, I think this pond has been overfished. Many, many funds followed Bridgewater into levering up low beta stocks and low yield bonds. Bridgewater has loaded up on what are now fashionable assets, bid up to high prices, and they have nowhere to go but down. Oh yeah, and they're still levered up, so the downside is going to sting even more.
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