The "ETF-ization" of major hedge funds continues: Bridgewater's "All Weather ETF" is coming
State Street is collaborating with Bridgewater to launch an ETF, allowing retail investors the opportunity to participate in strategies that were previously only available to institutional investors. Bridgewater will use its "All Weather" strategy for secondary management of the ETF, providing a daily model portfolio for the product, with the goal of controlling the annualized volatility level between 10% and 12%
Bridgewater's renowned "All-Weather" strategy is now expected to be accessible to retail investors.
On November 19th, according to a filing submitted to the U.S. Securities and Exchange Commission, State Street Global Advisors is collaborating with hedge fund Bridgewater to launch an ETF, allowing retail investors the opportunity to participate in strategies that were previously only available to institutional investors.
If approved by regulators, the Bridgewater fund will use its "All-Weather" strategy to provide secondary management for the ETF, offering a daily model portfolio for the product. In other words, Bridgewater will not directly manage the ETF but will participate through a model delivery approach.
Todd Sohn, an ETF strategist at Strategas, stated that although Bridgewater is only participating indirectly, this is currently the closest way for the public to access this strategy.
This is also the latest example of hedge funds expanding into the ETF space. Due to ease of trading, tax advantages, and generally lower fees, ETFs have developed into a global market valued at $14 trillion.
This move also expands State Street's alternative investment lineup. In September of this year, the company partnered with Apollo Global Management to apply for a private credit ETF aimed at providing retail investors access to the private credit market.
Targeting an annualized volatility control between 10% and 12%
According to the filing, by adopting Bridgewater's strategic asset allocation approach, the SPDR Bridgewater All-Weather ETF aims to generate stable returns across different economic environments through a diversified investment portfolio of stocks, bonds, commodities, and other assets. The strategy utilizes leverage to weight assets based on expected volatility, targeting an annualized volatility level between 10% and 12%.
The fund's fees and code have not yet been disclosed. Bridgewater's co-CIO Karen Karniol-Tambour and senior investment associate Christopher Ward are responsible for creating the model portfolio, while a team led by James Kramer at State Street Global Advisors will manage the fund's daily operations.
The All-Weather Strategy was proposed by Bridgewater founder Ray Dalio, and this strategy began to take shape around 1996, gradually being adopted by Bridgewater and other investors in the following years.
The All-Weather Strategy is a risk parity strategy that allocates assets based on the volatility of different assets. Its core idea is to balance risk and achieve stable returns through careful selection and allocation of different asset classes, thereby addressing market uncertainties and changes in various economic environments. It does not pursue short-term high returns but aims for long-term stable growth through a diversified asset portfolio, minimizing risk and volatility.
Anna Paglia, Chief Business Officer at State Street Global Advisors, stated that Bridgewater is known for its 40-year history, providing resilient and diversified portfolios and insights to many mature global institutional investors, "Our strategic relationship will now bring this portfolio construction expertise to retail investors." However, in recent years, investor interest in such diversification strategies has waned, as they have consistently underperformed the market. Since the beginning of this year, the S&P Risk Parity Index, targeting a 12% volatility, has risen by 3%, while the Bloomberg Index, which employs a classic 60/40 stock-bond allocation, has increased by 11%, and the S&P 500 Index has risen by about 24%.
In this market context, Bridgewater Associates has also faced significant capital outflows. According to the Financial Times, as of the end of August, assets managed by Bridgewater amounted to $100 billion, far below its historical peak of $160 billion. Its flagship Pure Alpha fund suffered substantial losses in 2022 and 2023.
Source: Er Taofang Yanjiuyuan, original title: "The 'ETF-ization' of Major Hedge Funds Continues: Bridgewater's 'All-Weather ETF' is Coming"