“Something For Nothing” All-Weather Funds Disappoint In Post-Election Era

Variously marketed as “all-weather”, “all-season”, or “bulletproof”, the so-called “risk-parity” strategies of some of the world’s largest hedge funds have been anything but ‘stable’ since the election as the combination of leverage and bond losses have crushed the gains from an exuberant equity market.
Promise people something for nothing and you are going to attract a lot of attention. Stumble in the process and the critics will be quick to pounce.
As The Wall Street Journal reports, the weeks since the election have been rough for one of the most polarizing investment strategies out there: risk parity.
The strategy – which simply put, involves using diversification – and sometimes borrowed money (leverage) – to find an (historically-optimized) balance between risk and return.
Bridgewater’s variant of this strategy, for example, has historically used borrowed money to invest about $1.50 for each dollar in assets, often putting the leverage in historically less-volatile bonds. The goal is stocklike returns with less volatility.

This post was published at Zero Hedge on Dec 31, 2016.