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Ray Dalio inspired a new risk-parity ETF

Ray Dalio is the founder of Bridgewater Associates.

A strategy popularized by hedge-fund titan Ray Dalio is coming soon to a brokerage near you.

The RPAR Risk Parity ETF, the brainchild of a former relationship manager at Dalio’s Bridgewater Associates and an ex-Bank of America consultant to institutional investors, plans to allocate across asset classes based on risk, regulatory filings show. The fund would be the first in the U.S. to follow this quantitative approach, allotting more money to securities with lower volatility.

It’s fortuitous timing. Risk parity strategies suffered as the longest bull market in history pushed stocks to a record, but with haven assets once again proving popular as tightening monetary policy and financial conditions strengthen the case for diversified portfolios, their performance has improved. The S&P risk parity strategy has returned almost 10% over the last 12 months, more than double the S&P 500 index of U.S. stocks.

“The last few years have been challenging for risk parity, so we think actually, from that perspective, it’s a good time to launch,” said Alex Shahidi, the Los Angeles-based co-founder of Advanced Research Investment Solutions, who spent 15 years at BofA’s Merrill Lynch unit. “Long-term Treasurys and gold have done very well as equities have underperformed more recently, and that’s the diversification we’re trying to capture.”

Inflation-protected securities will likely hold the heaviest weighting in the fund, alongside smaller allocations to global equities, commodities, Treasurys and cash, according to the fund’s prospectus, which did not disclose a management fee. The fund could start trading on the NYSE under the ticker RPAR as soon as November, according to Shahidi.

Shahidi set up ARIS with Damien Bisserier, a former associate and adviser at Bridgewater, in 2014. They plan to use the new product in their client portfolios, which oversee roughly $12 billion, but they’re also keen to democratize this investing strategy.

“One of our goals was to create something that would give the typical investor access to what we think is a more sophisticated, efficient approach to managing money,” Shahidi said in a phone interview. “Kind of like Bridgewater does, but they just do it for the wealthiest institutions in the world. The idea here is to build something that would work for everybody.”

The average expense ratio among the leading 20 is nearly 40 basis points cheaper than what investors paid on average last year.
July 10

Online money manager Wealthfront added a risk-parity fund to its offerings last year, and a handful of mutual funds have also dabbled in the space. The Horizons Global Risk Parity ETF follows a similar strategy in Canada.

ARIS is working with Toroso Investments to start the fund, and is also creating an index to guide the product, which will be actively managed, with the help of EQM Indexes.

Bloomberg News