Is Ray Dalio’s All-Weather ETF Appropriate for a Long Summer?

All-season tires can be decent in winter conditions, but may not usually be best in a place like Phoenix, where summer tires shine year round. 

If the stock market had seasons, it has been (mostly) summer for a long time, and that has made a tough sell for specialty funds that are designed to handle sun, rain and the occasional blizzard. So-called risk-parity funds have struggled to get much attention since just after the 2008 financial crisis — but that may be changing. The very small category of risk-parity ETFs expanded its count by one in March, with the launch of the SPDR Bridgewater All Weather ETF (ALLW). In the long-running bull market, it’s not hard to make a case against risk-parity funds. But it’s harder to make one against Ray Dalio and his massive hedge-fund firm Bridgewater Associates. 

“It’s a little bit of a marketing angle, but you can’t really argue against the track record of Bridgewater,” said Dan Sotiroff, senior analyst on Morningstar’s passive strategies team.

New in Town

Among only four US-domiciled risk-parity ETFs on the market, the SPDR Bridgewater fund has quickly become one of the biggest. It now represents $406 million — not a bad start for an ETF that has been available for just over six months. It has returned 6.9%, significantly less than its benchmark, the MSCI ACWI IMI, which is above 12%. But the ETF may be attractive to those who are worried about market dips. The category has done well in those cases, such as the Covid-19 recession and stock market decline in 2022, Sotiroff noted. And as Bloomberg reported on Monday, quant trading is making a comeback, with some risk-parity funds up this year 15% to 19%, a particularly good showing, considering that the strategies are generally intended to replace 60/40 stock-to-bond allocations. The recent strong returns are due in part to fixed income holdings that have served the funds well, the publication noted. 

“The end goal of a risk-parity portfolio is not the same as the S&P 500,” Sotiroff said. “It’s trying to be this all-in-one, very long-term solution for an investor.” That strategy has long had to compete with target-date funds, and more recently, with ETF-based model portfolios, he said. Aside from ALLW, there are just three other risk-parity ETFs in the US, according to Morningstar Direct data:

• The $537 million RPAR Risk Parity ETF, which launched in 2019, has returned over 10% this year through August,
• The $60 million UPAR Ultra Risk Parity ETF, launched in 2022, returned 14%.
• The $47 million PMV Adaptive Risk Parity ETF (ARP), which started in 2022, returned 8%.

Fear and Loathing. The timing of ALLW’s launch was spot-on, given the worries investors had following the tariffs the Trump administration announced earlier this year. But investor sentiment has improved, at least according to CNN’s Fear & Greed index, which could mean headwinds are upcoming. “The lack of ETFs in that (risk-parity) space is a byproduct of the long-term performance of these things,” Sotiroff said. “It’s hard for people to stick with them when they see the S&P 500 going higher (and available in ETFs) that I can get for 2 basis points now.”