Bridgewater's All Weather Fund Lost 4.2% in August and is Down 3.76% YTD

Sep 4 2015 | 5:26pm ET

Bridgewater’s All Weather Fund fell 4.2% in August and is down 3.76% for the year, despite being billed as a vehicle able to generate positive returns in most economic environments.

The $80 billion long-only fund doesn’t hedge its portfolio. Instead, as a so-called risk-parity vehicle, it protects against market swings by actively allocating across global stocks, bonds and currencies. Such funds typically rebalance portfolio exposure daily based largely on volatility, making the measure an important portfolio management element.

Severe volatility on global markets this summer has been partly blamed on risk parity funds, according to a Bloomberg article. A number of financial industry stalwarts, such as Omega Advisors’ Steve Einhorn and Bank of America Merrill Lynch, have recently attributed some of the selloff’s severity to volatility traders at risk parity funds, who often employ high leverage in order to trade market movements themselves, not the underlying securities. 

Volatility control, or mechanisms that adjust leverage according to shifts in market volatility, is the risk, not risk parity itself, wrote BofAML’s Chintan Kotecha in a research note last week.

However, not everyone agrees. Roberto Croce, director of quantitative research at Salient Partners, said risk parity funds were not large contributors to the selloff. “No question we took down exposure to the stock market, but it was 5% over the course of the week,” he said in an interview with Bloomberg. The amount one day’s trading affects how much a risk parity fund rebalances is relatively small, he added.

Salient’s risk parity fund manages approximately $91 million and fell 6.5% during August.

Bridgewater is the world's largest hedge fund. It manages more than $160 billion in assets, with the All Weather Fund one of its largest portfolios.

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