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Value Investor Daily #65
Bridgewater to Launch Retail ETF: Bringing ‘All-Weather’ Strategy to Individual Investors
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Bridgewater to Launch Retail ETF: Bringing ‘All-Weather’ Strategy to Individual Investors
Value investing is about cutting risk.
Bridgewater Associates, founded by Ray Dalio, is preparing to launch the SPDR Bridgewater All Weather ETF.
This partnership with State Street Global Advisors makes the firm’s risk-parity approach, previously exclusive to institutions, available to individual investors. The ETF promises a diversification strategy designed to navigate all economic environments.
This ETF could change how some retail investors think about building their portfolios. Risk parity balances exposure across asset classes—stocks, bonds, and commodities—not by dollar allocation but by risk contribution.
The result is a portfolio that is less vulnerable to market swings. With inflation, rate hikes, and global uncertainty, retail investors need tools that go beyond the traditional 60/40 portfolio.
Co-CIO Karen Karniol-Tambour summarized the moment: “At Bridgewater, we see global investors increasingly focused on portfolio resiliency and desiring durable client portfolios amidst a coming investing era that is likely to be very different from the last. We believe a diversified asset allocation is a great step in preparing for the future, and we are excited to broaden access to our approach with an innovative organization like State Street Global Advisors.”
How the All-Weather Strategy Works
The All-Weather strategy was created to perform well under any economic condition by balancing risk contributions across four scenarios:
1. Rising Growth: Equities and commodities shine.
2. Falling Growth: Bonds typically outperform.
3. Rising Inflation: Commodities and inflation-protected securities excel.
4. Falling Inflation: Bonds and equities thrive.
Unlike traditional portfolios, it doesn’t allocate assets based on dollar value but on how much risk each asset contributes. This creates a smoother ride for investors over the long term.
A Practical Example
Tony Robbins popularized the approach in his book Money: Master The Game.
In it, Dalio shared an All-Weather portfolio with these allocations:
30% Stocks
40% Long-Term Bonds
15% Intermediate-Term Bonds
7.5% Commodities
7.5% Gold
In a recession where stocks might fall 20%, bonds could rise by 10%, offsetting some losses. If inflation spikes, commodities like gold may surge, balancing out underperformance in other areas. This balance ensures no single economic scenario overwhelms the portfolio. Allocation is assigned by historical volatility, theoretically leading to higher risk-adjusted returns.
Why Risk Parity Was Revolutionary
Traditional portfolios, like the common 60/40 stock-bond mix, overexpose investors to equities, making them vulnerable during stock market downturns.
Risk parity changes this by equalizing the risk in each asset class. When Dalio first imagined it in 1976, it was a breakthrough in investment thinking.
The insight eventually led to the launch of the All-Weather Strategy at Bridgewater in 1996, which became the world’s largest hedge fund.
Addressing the Criticisms
Risk parity strategies aren’t without challenges. In 2022, synchronized declines in stocks and bonds hurt risk parity portfolios, as rapid interest rate hikes amplified bond losses.
Also, Bridgewater will not actively manage the fund but indirectly influence it through a model, while State Street will manage the day-to-day operations.
The strategy outperformed the stock market from 2006 to 2016 but has lagged since then. But that’s what it’s designed to do—underperform in great markets and overperform in tough times. If there’s a protracted recession, it could outperform again.
PortfolioVisualizer
How Value Investors Can Use This ETF
Value investors prioritizing long-term capital preservation can integrate the All-Weather ETF to reduce portfolio volatility.
Current volatility of the strategy is 40% than the S&P 500, and has been for most of the last decade.
Portfolios Lab
Also, you can simply learn from it and use the strategy in your own portfolio.
If, for example, you wanted to buy the Magnificent 7, instead of buying the same amount of each, you would buy more of the less volatile ones. This means you would have over 19% in Microsoft and only 8.5% in Tesla.
Portfolio Visualizer
What’s Next?
The SPDR Bridgewater All Weather ETF is awaiting regulatory approval and could launch within months. While details like expense ratios and tickers are still pending, early reports suggest the ETF will target annualized volatility of 10%-12%.
It will invest in a mix of U.S. and international equities, bonds, commodities, and inflation-protected securities. Bridgewater’s move into the retail space represents a broader trend of hedge funds seeking to democratize institutional-grade strategies.
Final Takeaway
The SPDR Bridgewater All Weather ETF represents a milestone in retail investing. By making its risk-parity approach accessible, Bridgewater is empowering individual investors to navigate unpredictable markets with a tool previously reserved for institutions.
For value investors, this ETF is more than an opportunity—it’s a framework for rethinking portfolio construction.
As markets evolve, the need for antifragile portfolios has never been greater. The All Weather ETF answers this call, offering retail investors a proven strategy (and mental model) to weather any storm.
What do you think, would you use the All-Weather ETF and/or use risk parity principles as part of your portfolio strategy?
Thank you for reading today!
Happy Investing,
Value Investor Daily
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