The End of The Golden Era for Risk Parity

Investors will face muted returns for the next decade

Katina Stefanova, CEO & CIO, Marto Capital
Originally published in the June | July 2020 issue

Risk Parity was dealt a heavy blow underperforming a more traditional 60/40 diversified portfolio allocation since January 2020. While BlackRock’s 60/40 Target Allocation Fund fell by 18% from peak-to-trough, the S&P Risk Parity Index fell by 28% during the same time.

This is particularly disappointing because Risk Parity has been promoted as the all-weather, long-only asset allocation portfolio for both institutional investors and retail investors. Risk parity managers claim that the strategy performs well in all major macroeconomic shocks such as inflation, deflation, upward growth and fall in growth. So why is it performing so abysmally now?

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