Rau Dalio head of Bridgewater Associates denies claims tht the risk parity strategy that it pioneered was responsible for large market swings that occurred in August 2015.
FT Sept 16, 2015
In ts paper, Bridgewater said the exact strategy pursued by risk parity funds varied, but indicated that other volatility-targeting strategies and investment vehicles were a more likely culprit for the turmoil than risk parity. It also stressed that its All Weather fund did not adjust allocations according to spurts in volatility. “We also understand that some managers tend to sell assets when prices fall and buy them when prices rise because they believe that changes in volatility will persist, and volatility tends to rise when prices fall,” the paper said. “We do the opposite because we want to rebalance to achieve a constant strategic asset allocation mix.”
AllianceBernstein wrote in a report before the turmoil that it was concerned at the industry’s potential to fan the flames of a broader downturn. “Should correlations turn positive, with stocks and bonds declining at the same time, the risk contribution of each one would rise. Managers would then have to sell both to maintain their risk targets. In other words, selling begets selling,” the AllianceBernstein report said
5 year chart below..note moves in fall of 2015 and again at the beginning of 2016....and how with a longer term view they were basically "noise"
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