The most famous hedge fund strategy, available for everyone to buy, let's get to know the Bridgewater All Weather ETF!

Bridgewater's renowned "All Weather" strategy has finally stepped down from its pedestal and entered the ETF market!

Last week, State Street officially launched the SPDR Bridgewater All Weather ETF (ALLW) in collaboration with Bridgewater, which means that strategies previously only available to institutional investors can now also be accessed by retail investors through ETFs.

This ETF is managed by State Street Global Advisors, with Bridgewater serving as a sub-advisor providing daily model portfolios, aiming to generate stable returns across different economic environments through a diversified investment portfolio of stocks, bonds, commodities, and other assets.

In recent years, interest in risk parity strategies has cooled, as the long-standing bull market in U.S. stocks has led most investors to prefer heavy allocations in equities, resulting in significant capital outflows from Bridgewater.

The launch of ALLW coincides with global markets facing macroeconomic turmoil, amid concerns over Trump’s tariffs, fears of a U.S. recession, and a major shift in Europe, making it a timely moment for the All Weather strategy to demonstrate its value.

This week, U.S. stocks experienced a "Black Monday," with the S&P 500 index falling 2.69% amid recession fears triggered by Trump, marking its worst single-day performance since December 18, 2024, while the Nasdaq plummeted 4%, recording its largest drop in two years. On that day, ALLW only declined by 1.04%, showcasing its risk-resilient capabilities.

As Bridgewater stated in its latest white paper: “No matter how much you have made in the stock market in the past, moderate diversification can provide a buffer during market pullbacks.”

In the midst of macroeconomic turmoil, the "All Weather" strategy shines again

The core strategy of ALLW adheres to the principles of the "All Weather" strategy, with Bridgewater managing the ETF on a secondary basis, providing daily model portfolios for the product. This means that Bridgewater does not directly manage the ETF but participates through model delivery.

Karen Karniol-Tambour, Co-Chief Investment Officer of Bridgewater, and Senior Investment Associate Christopher Ward are responsible for creating the model portfolios. A team led by James Kramer, Global Investment Advisor at State Street, will handle the daily management of the fund.

The ETF's strategy utilizes leverage to weight assets based on expected volatility, aiming to keep the annualized volatility level between 10% and 12%.

According to public information, the total leverage of the ALLW product is currently about 1.8 times, with equity positions making up approximately one-quarter of the total holdings, including stocks from the U.S., Europe, China, and other regions. Other assets include nominal bonds, inflation-linked bonds, and commodities.

The annual fee rate for this ETF is 0.85%, which is more economical compared to traditional actively managed funds, but higher than index ETF rates As one of the largest hedge funds in the world, Bridgewater manages approximately $140 billion in assets, and its "All Weather Strategy" can be said to be the most famous representative of risk parity investing.

Proposed by Bridgewater founder Ray Dalio, this strategy began to take shape around 1996 and was gradually adopted by Bridgewater and other investors in the following years.

The core idea of this strategy is risk parity, which means that different asset classes perform differently at various stages of the economic cycle, and the investment portfolio should diversify risk rather than just diversify capital.

Dalio believes that the main variables affecting market performance are economic growth and inflation levels. The different combinations of these two factors create four economic environments (growth above expectations, growth below expectations, inflation above expectations, and inflation below expectations), and different asset classes perform differently in these various economic environments.

Unlike the traditional 60/40 stock-bond portfolio, where most of the risk comes from stocks, the All Weather Strategy adjusts the leverage levels of different assets to ensure that each asset class contributes roughly equally to the overall portfolio's risk, aiming to balance assets so that the portfolio can achieve stable growth in any market environment.

ALLW has withstood the market test just days after its launch.

Since its listing on March 6, ALLW has slightly declined by 0.68%, while the S&P 500 index has dropped by 3.7% during the same period. In this week's "Black Monday," the S&P 500 index fell by 2.69%, marking its worst single-day performance since December 18, 2024, while the Nasdaq plummeted by 4%, the largest drop in two years. On that day, ALLW only fell by 1.04%, demonstrating its risk-resilient capability.

In terms of similar strategies, the S&P Risk Parity Index has risen by 4.5% this year, significantly outperforming the Bloomberg 60% Stock/40% Bond Index, which has increased by 2.2%. Meanwhile, the S&P 500 index has dropped over 5%.

The Rise of Active ETFs, ALLW is Timely

The launch of ALLW not only brings the All Weather Strategy to the public but also reaffirms a trend: the U.S. ETF market is shifting from simple index replication to more active and refined strategies.

As introduced in the book "The First Lesson of Global ETF Investment," with a large amount of capital flowing from active funds to ETFs and index funds, more and more traditional actively managed funds have decided to "if you can't beat them, join them," by packaging mature active management capabilities into the "new bottle" of ETFs, igniting a battle to reclaim lost ground.

The most prominent representative of this trend is Cathie Wood, known as "Wood Sister," who embraced ETFs as early as 2014, capitalizing on the tech stock bull market. Her ARK Innovation ETF (ARKK) surpassed PIMCO's MINT in 2020 to become the largest active ETF, driving the explosive growth of active ETFs Major institutions on Wall Street have also joined the fray, combining traditional active management capabilities with the low cost and high efficiency characteristics of ETFs to develop a series of innovative products, among which the most dazzling is JP Morgan's JEPI.

Before Bridgewater, many "old players" in the closed-end fund sector had already faced the surging wave of ETFs and chose to actively seek change by "packaging" traditional strategies into ETFs.

The emergence of ALLW comes at the right time, as it not only aligns with the booming trend of active ETFs but also provides ordinary investors with an excellent opportunity to access professional hedge fund strategies against the backdrop of a turbulent global macro environment and increasing market uncertainty.

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The market has risks, and investment requires caution. This article does not constitute personal investment advice and does not take into account the specific investment goals, financial situation, or needs of individual users. Users should consider whether any opinions, views, or conclusions in this article are suitable for their specific circumstances. Investing based on this is at your own risk