Ray Dalio’s all seeing reputation takes a hit
There are storm clouds on the horizon at Ray Dalio’s $150 billion Bridgewater Associates.
Yeah, excuse the weather imagery but it’s hard to resist given the sudden sharp reversal of fortunes with Bridgewater’s $70 billon All Weather portfolio. As Jenn Ablan and Katya Wachtel first reported, the portfolio that Dalio has long marketed to pension funds as an innovative investment strategy for navigating storm markets, isn’t doing so well in this stormy market.
The fund, as of last Friday, was down 6% for the month and down 8% for the year.
Bridgewater’s other big portfolio, Pure Alpha, which has about $80 billion in assets, also is suffering of late but not as much. The Pure Alpha II portfolio was down 1.12 percent as of June 18. But it’s the plunge at All Weather that’s the big story given how long and hard Dalio has worked to spread the religion of the portfolio’s risk parity strategy as a way for pensions to protect themselves from a sharp sell-off in stocks or bonds.
On Bridgewater’s website there are whole sections devoted to telling the story of the All Weather strategy and white papers on using risk parity to construct an investment portfolio.
The firm, in its own words, describes All Weather as a strategy and approach to asset allocation that “leverages up low risk assets and deleverages high risk assets so the expected returns and risks of all the assets in the portfolio are roughly the same.” The thinking here is that stocks are inherently more risky than bonds so the strategy implies putting more risk into credit assets and less into equities.
Over time the strategy has performed well—up 14.7% last year and up 34% over the past three years. The trouble is the strategy hasn’t performed well in this current market storm when stock and bonds both sold off in response to the fear on Wall Street that the Fed was about to step-off the gas when it comes to its easy money policies that have juiced the markets up. Indeed, going into this year, Dalio was a firm believer in the camp that the easy money policies would continue for a good long while and that the last place investors wanted to be was in cash or sitting on the sidelines.
Now 8% down isn’t critical and its possible that things may soon right themselves—stock have been moving up the last few days. And Dalio certainly has a good deal of good will with the pensions that invest with Bridgewater.
But the unsteady performance of All Weather is reminder that no money manager gets it right all the time and that when you position yourself as a guru, you should expect to take more heat when things wrong.
It’s worth noting that while other risk parity portfolios are suffering the past month, not all are doing as badly as All Weather. The publicly traded $1.2 billion AQR Risky Parity Fund is down 4.89% for the month, but still up 1.48% for the year.