Storied US-based hedge fund, Bridgewater, is to join the active exchange-traded fund (ETF) herd in a deal inked with State Street Global Advisors last week.
Under the agreement, State Street will front an ETF version of the Bridgewater ‘All Weather’ strategy in a first for the world’s largest hedge fund founded by Ray Dalio.
The product partnership with State Street opens up the historically institutional-only hedge fund to mass-market retail investors.
In a statement, Karen Karniol-Tambour, Bridgewater co-chief investment officer, said: “We believe a diversified asset allocation is a great step in preparing for the future, and we are excited to broaden access to our approach with an innovative organization like State Street Global Advisors [SSGA].”
According to disclosure statements, Bridgewater as a sub-adviser to the ETF, supplying SSGA with a daily model portfolio built to match the “proprietary All Weather asset allocation approach”.
“The model portfolio is specific to the Fund,” the disclosure document says. “Based on Bridgewater’s investment recommendations, SSGA FM purchases and sells securities and/or instruments for the Fund. SSGA FM seeks to implement Bridgewater’s investment recommendations, but may change the Fund’s investment allocation at any time.”
The All Weather fund follows the ‘risk parity’ investment style pioneered by Bridgewater that allocates between various asset classes according to the manager’s macro-economic modelling.
“Bridgewater does not vary the weights of investments in the model portfolio based on any tactical view of how particular investments will perform, but rather attempts to balance the risk of the model portfolio based on its understanding of the relationship between asset classes and economic environments,” the disclosure says.
However, the manager can “vary the allocations across and within asset classes based on its assessment of market conditions and evolutions in its understanding of how to best achieve balance to growth and inflation. The model portfolio typically targets an annualized volatility level for the portfolio ranging between 10%-12%.”
Hedge fund and other active managers have been queuing up to launch ETFs in recent years after rule changes eased the product creation process in the US.
Morningstar says in a report published this October that more than 300 active ETFs launched in the US during the first three-quarters of this year.
“Active ETFs took in roughly [US]$190 billion in assets in the first nine months of the year, with the top 20 ETFs gobbling up 40% of the take. Two of J.P. Morgan’s popular equity-income products land in the top 10,” the Morningstar note says. “BlackRock US Equity Factor Rotation ETF DYNF has taken off this year, with more than $10 billion in inflows. It tries to outperform the US equity market by tilting toward factors, such as value, growth, momentum, or quality, that it thinks will be in favor.”
State Street is the third-largest ETF issuer in the world with about US$1.4 trillion under management behind BlackRock and Vanguard on US$3.1 trillion and just under US$3 trillion, respectively.
Bridgewater manages approximately $700 million for the NZ Superannuation Fund in the firm’s Pure Alpha II global macro fund.