How’s The (All) Weather Portfolio?

In the last couple of years the phrase ‘All Weather Portfolio’ has come to be popularly associated with Ray Dalio and Bridgewater Associates. The Bridgewater portfolio is a risk parity strategy which means it tries to balance out the risk taken across multiple asset classes which means it often ends up needing to use leverage to own enough fixed income to equal the risk taken from a modest exposure to equities.

All Weather also implies a portfolio that can endure any market environment with reduced volatility thanks to broad diversification that I kind of equate to the Permanent Portfolio which was devised by Harry Browne in the 1970’s, it had equal 25% allocations to equities, long bonds, cash and gold. The big idea was that no matter what was going on, at least one of those would be going up. The track record for it is pretty good, except maybe for the last couple of years, because of how well equities and bonds did for the vast majority of the last 40 years.

I stumbled across a couple of different versions of the all weather portfolio this week. Neither has anything to do with Bridgewater, they appear to be built more along the lines of my comparison to the Permanent Portfolio’s diversification.

The first one is the Toroso All Weather Plus which we have looked at before. YTD through September 30th it is down 1.76% versus a decline of 30 basis points for its benchmark, the Solactive Neutral Index, and a gain of 10.56% for the S&P 500. For five years annualized it is up 3.60% versus 3.23% for its benchmark and 13.95% for the S&P 500. The portfolio is not an equity proxy but the numbers versus the SPX gives a little utility in showing it may not look like equities. Toroso doesn’t chart it against the S&P 500 in its report so it doesn’t provide a great understanding of what it looks like against equities. They would probably provide more info to any adviser who wanted to learn more.

I won’t name names of what they own but you should be able to find this out. At a high level it has an neutral allocation of 25% each to “prosperity” (equities), “inflation” (commodities), “deflation” (bonds) and “recession” cash. For equities it owns three broad based ETFs and two thematic ETFs. It uses to short term T-bill ETFs for cash, for deflation it owns three bond ETFs that appear to take some interest risk and for inflation it owns several different gold ETFs, a thematic ETF in the materials sector and Texas Pacific Land Trust (TPL).