Bank of America Crunches the Numbers on Summer's Quant Storm

A summer storm for risk parity.

Source: Bloomberg

After decades of study Ray, Bob, Greg Jensen, Dan Bernstein and others at Bridgewater created an investment strategy structured to be indifferent to shifts in discounted economic conditions. Launched in 1996, All Weather was originally created for Ray’s trust assets. It is predicated on the notion that asset classes react in understandable ways based on the relationship of their cash flows to the economic environment. By balancing assets based on these structural characteristics the impact of economic surprises can be minimized.The All Weather Story, Bridgewater Associates

Risk parity is all the rage right now, though not in the way you might think. In fact, the strategy may have just exacerbated one of the largest selloffs ever as asset managers reduced leverage and rebalanced portfolios during recent swings in the markets, according to Bank of America Merrill Lynch.

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