Ray Dalio is a legend in the investing world. He founded Bridgewater Associates in 1975, one of the largest traditional hedge funds, managing close to $172 billion in assets. As one might expect, Dalio has done quite well and now has an estimated net worth of $14 billion, according to Forbes magazine.
Over the years, he has also developed what he calls an “All Weather” strategy that he believes can steer steer investors through the darkest of storms. Dalio recently teamed up with State Street to bring this strategy to the masses through the SPDR Bridgewater All Weather ETF(NASDAQ: ALLW).
With the market getting hammered as of late, is this the right place to put your money to weather the storm?
Dalio and his team developed the All Weather strategy after over 25 years of studying history, markets, and working with clients. Some of the key events that led Dalio and his team to form this strategy were President Richard Nixon’s decision to break away from the Bretton Woods system that linked the U.S. dollar to gold, and working with McDonald’s to help the fast food giant hedge its exposure to chicken prices.
Initially, Dalio created the strategy for his family’s trust and did not envision it becoming a wide-scale investment product. But the ultimate goal was to develop a strategy that will be able to stand the test of time long after Dalio is gone. The All Weather fund brings together investment approaches from four different strategies, all of which can do well in a certain environment.
One of these approaches might thrive when inflation rises, while the other does well when inflation falls. One might do well when growth rises, while the other does well when growth misses expectations. While the strategy has some variations, it might typically look like this:
30% equities, typically by holding the broader benchmark S&P 500
40% U.S. Treasury bonds with maturities of 20 years or more
15% U.S. Treasury bonds with maturities of seven to 10 years
7.5% gold
7.5% commodities
Image source: Getty Images.
The Bridgewater ETF is actively managed, which means it can change a good deal more than a passively managed one and also has higher associated fees. As of April 3, 37% of the fund was invested in a U.S. government money market fund, while 13% of the fund was invested in an S&P 500 ETF. Another 5% of the fund was in Treasury bills, while 4% was invested in an emerging markets ETF. The fund also has exposure to a number of different currencies and some Gold futures.
Because the fund is actively managed and stocks have been getting crushed, the fund may have adapted to prepare for more of a risk-off environment, but a lot of the pieces in the All Weather strategy are still present.
There are varying assessments of how the strategy has performed long term, but by and large the strategy seems to perform well when stocks do not. Data from OfDollarsandData blog, which is run by Nick Maggiulli, chief operating officer of Ritholtz Wealth Management, showed that the All Weather strategy outperformed in the 1970s, a decade filled with stagflation, and in the first decade of the 2000s, which included both the dot-com bubble and the Great Recession.
Over the last five years, Fortune magazine reported that investors have been frustrated with the strategy’s performance, which makes sense considering what a strong run it had been for stocks. Essentially, this indicates that the All Weather strategy works best in times of duress. Given the uncertainty surrounding Trump’s tariffs and their broader impact, the All Weather strategy could certainly be set to outperform.
However, I think it’s really all about one’s investing horizon. If you’re closer to retirement and want to preserve the value of your funds, then the All Weather strategy could be the right pick. However, if you have a longer investing horizon and can afford to stomach some of the near-term volatility that is likely to continue, then you may not want such a conservative strategy.
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Bram Berkowitz has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
