Tuesday, 21 October 2014
Last updated 11 hours ago
Aug 20 2013 | 11:31am ET
With the Federal Reserve mulling how and when to begin to cut back on its bond-buying program, Bridgewater Associates had an unsettling realization: It's famed risk-parity strategy was altogether too risky.
The hedge-fund giant spent months researching the issue, and found that its All Weather strategy was too vulnerable to interest-rate volatility, it told clients last month. So it began to sell Treasuries and Treasury Inflation Protected Securities to mitigate that risk, eventually cutting its holdings of highly-rate-sensitive assets by $37 billion, Bloomberg News reports.
The moves didn't save All Weather from an 8.4% loss in the second quarter, almost all of it due to declines in inflation-linked debt. But the moves, which primarily occurred prior to rates beginning to rise in May, save the fund from a further 1.5% loss.
The changes to All Weather's model are the first major alterations to the strategy since its debut in 1996.
Paradoxically, it was All Weather's outperformance between 2010 and 2012 that prompted the changes. The strategy aims to return between 5% and 7% above cash per year—but averaged returns of 16% over the past three. Bridgewater began to do research earlier this year on why the fund was doing so much better than expected, finding that the model did not properly account for the interest-rate-sensitivity of many assets.
Sep 22 2014 | 4:15pm ET
"I tell people that everybody likes good news and so if you have good performance that’s wonderful,” explains Mike McKitish of Peddie School's endowment, “but it’s the people that want to talk about the bad news or where they drifted and how they came back and how they stayed to their discipline…” that he wants to hear from. Read more…
Sep 30 2014 | 9:29am ET
The crisp Autumnal days of October are upon us, and so are a few of the hedge fund industry’s favorite charitable events. If you have never been to Rocktoberfest, well, you are missing out. And for a quieter evening of sipping and socializing, stop by HFC’s Wine Soiree. Read more…
Most traders agree that proper risk management is the key to successful trading. However, many traders depend on the deeply flawed measure of standard deviation as a benchmark of risk. Here we put it ...