Dalio's all weather Portfolio - Value Investing version
I recently thought about this idea after reading Dalio's new book. Many of you are informed with Dalio's All Weather portfolio. It has returned on average 9.6% over the past 30 years. For those who don't know its a mix of 40% long term bonds, 15% short term bonds, 30% equities, 7.5% gold, 7.5% commodities. Most of these holdings are in the form of ETFs. Would looking at the fundamentals for the equities and bonds to find price inefficiencies work as opposed to ETFs yield similar results? I may have fallen into the trap of over simplifying Dalio's allocation as Bridgewater uses algorithms to make trades for the most part. Same macro principle as Ray with the 4 economic conditions, however use a different method to invest in. Interested to hear the consensus on this idea.
Cheers
the last 30 years had the best tailwind for long bonds in modern history. this portfolio would suck major ass in a rising rate environment
And what - P/Es haven't expanded over the last 30 years, giving a major tailwind to any equity-dominated asset allocation strategy (i.e. nearly all of risk parity's alternatives)? AW does better in a rising rate environment than you think. Nominal rates are the product of real rates and breakeven inflation. Bonds go down when rates are going up - i.e. when real rates and breakeven inflation are rising; but AW also invests in assets that do well when real rates (growth) are rising and (breakeven) inflation is rising. By not concentrating the portfolio's risk in a given asset class or economic environment, AW is far less likely to suck ass in any given environment - including rising rates - than most other asset allocation strategies. Do you even backtest bro?
I just question the use of long term bonds, you have to have some opportunity cost, why not a flexible duration that extends maturities as rates get higher but keep it short-int in the meantime
But what do I know I’m just a dumb PWMer from a state school in the south
This is a misunderstanding of All Weather, the idea of All Weather is to balance assets that are structually biased to various economic environments and additionally to do so in risk balanced way. To brofessor's point they are specifically trying to balance to a rising rate environment so the returns aren't suppose to be particularly bad in a rising rate environment.
I actually thought this was levered up and didn’t hear about the gold part.
Like 60% equity 80% bonds.
I would have a lot of problems with investing with bridgewater now unless I could look under the hood a lot more and see their secret sauce.’ Their strategy they started with had a huge tailwind.
As for now I wouldn’t love the strategy. Gold is dead money now. Higher rates and stable growth....and every goldbug I’ve ever met is over 60....which means they are dying and selling.
30 year bonds will likely be low return. Equities already up and fairly priced. As far as I know I would think it’s a fairly average strategy now. But maybe they’ve improved it.
Risk Parity funds employ leverage to meet target levels of volatility. The point is that each asset is scaled to an equal risk contribution and in all weather's case they are additionally balancing to economic factors. All Weather is mostly a portfolio construction exercise and designed to be a beta portfolio. All Weather should not be confused with Pure Alpha.
When is his second book coming out?
I tried doing the same thing using US sector ETFs and global multi-asset ETFs. What I did for my basket was economically agnostic - I just rebalance between the 8 or so ETFs every 30 days and making sure that each ETF contributes the same risk to the overall portfolio.
It was purely algorithmic and suitable for people who want to have a hands-off approach. I deployed it on Google App Engine so it rebalances on its own every 30 trading days. It's simple, I just use the scipy.minimize to minimize the objective function which is the differences in risk contribution of those ETFs.
I think the answer to your question depends on the goal of the portfolio. If you just want to do marginally better than the market - then this algorithmic approach works, if you want to consistently outperform then you need concentration on several stocks, not breadth and you need to lever up.
With the former, it is easier to implement for normal people and there is less work involved, with the latter, you can have bigger returns but have more work to do poring through many securities.
Cupiditate molestiae facere saepe unde quia repellat aut. Unde molestias iure et magnam minus ab. Architecto dolor incidunt dicta eius et eligendi. Non consequatur sed earum accusantium voluptatem. Quos saepe voluptatem alias quasi aut consequatur ratione. Omnis dolores et aut ut repudiandae dicta fugit. Praesentium ut voluptatem perspiciatis qui.
Quia consectetur possimus ducimus deleniti ut. Dicta natus est dolorem voluptas consectetur nesciunt reiciendis molestiae. Maiores quaerat iure velit hic voluptate. Exercitationem ut quo et in. Magnam est rerum aspernatur libero velit voluptatem.
See All Comments - 100% Free
WSO depends on everyone being able to pitch in when they know something. Unlock with your email and get bonus: 6 financial modeling lessons free ($199 value)
or Unlock with your social account...