Trending
One of the important and nifty things about exchange traded funds is that the industry has democratized access to a variety of strategies, including those employed by hedge funds.
That includes both hedge fund tactics and asset classes those market participants tap into that were previously hard to reach for ordinary investors. One area where ETF issuers haven’t made significant strides is bring funds to market based on a strategy pioneered by an identified, specific hedge fund.
That could be changing thanks to the debut of the SPDR® Bridgewater® All Weather® ETF (ALLW). As advisors know, the Bridgewater being referenced is Ray Dalio’s hedge fund – the largest such investment vehicle in the world.
Advisors also know that the phrase “all weather” is frequently bandied about in the world of finance, but it’s Bridgewater that truly brought it to life in terms of portfolio construction and management.
ALLW Specs
Not surprisingly, ALLW is an actively managed ETF and it employs a multi-asset approach as it attempts to beat the MSCI ACWI IMI Index. In a way, it’s an ETF of a model portfolio.
“The model portfolio provided by Bridgewater allocates assets based on Bridgewater’s views of cause-effect relationships—specifically how those asset classes react to shifts in growth and inflation,” according to a statement. “Based on Bridgewater’s investment recommendations, SSGA Funds Management. Inc., ALLW’s investment adviser, purchases and sells investments for ALLW.”
ALLW’s debut portfolio is comprised of 68.15% global nominal bonds, 43.41% global equities, 36.40% commodities futures and 31.10% inflation-linked bonds. The new ETF charges 0.85% per year, or $85 on a $10,000 investment – pricey relative to traditional ETFs, but a much better deal than the 2/20 scheme levied by most hedge funds.
So while ALLW may not be “cheap” in the ETF sense that so many advisors and investors have grown accustomed to, the new ETF is arguably a bargain when it comes to the diversification it provides – diversification that’s difficult to mimic.
Speaking of ALLW Diversification…
Bridgewater’s all weather strategy is rooted in diversification, which is particularly important when considering many investors think they’re adequately spreading their bets around when in reality they aren’t. As State Street points out, stocks drive about 90% of the risk in a standard 60/40 portfolio. ALLW can ameliorate that scenario.
“In short, the different reactions of different assets offers the key to constructing a more reliable portfolio,” observes State Street. “And by combining assets with opposing relationships to growth and inflation, investors can potentially mitigate portfolio volatility while seeking to capture the risk premiums of assets over the long term.”
Plus, at a time when equity market turbulence is creeping higher and there is little sign of relief coming from the Federal Reserve in the form of rate cuts, ALLW could prove to be a well-timed new ETF.
“As the economic growth and inflation winds change, take comfort in the fact that ALLW is built to be as steady as possible no matter how quick or severe the shifts,” concludes State Street. “By allocating risk equally to different growth and inflation environments, ALLW is designed to smooth out volatility driven by growth or inflation surprises and let time do what it does best — reward the patience and discipline of a long-term investor with reliable returns.”
Related: Financially Confident: How Women Are Taking Charge of Their Retirement Future