PP vs. Risk Parity Funds

[melveyr]

I think we all know that risk parity is a really hot buzz word right now. A bunch of funds have opened up to retail investors in the last couple years that give exposure to this strategy, and two of them have a long enough track record so that we can start looking at performance. At its core, I think the PP is a risk parity strategy and so I think it is worth comparing it to those funds. I have some charts which can be found here (they always look ugly when I paste them as an image directly into a thread):
http://www.stableinvesting.com/2013/03/ ... funds.html

I think it will be interesting to see how this play out. Harry Browne and the dead simple PP vs. a small army of quants trading futures contracts! My money is on Harry... 

[craigr]

My bet is on the simple HBPP:

1) Lower costs.
2) Simpler to setup and manage.
3) Fewer moving parts inside the asset classes.
4) No leverage.
5) Doesn't try to complicate things with dubious backwards looking volatility measures.

[cnh]

It will be interesting to see, but I think the $5M minimum on AQRIX and the 5.5% load and 1.1% ER on ABRZX are too high hurdles for most. I'm not a Vanguard shill and I know 4 years is too short a track record on which to draw solid conclusions, but since inception ABRZX appears to have performed about like VBINX, so one wonders what value the quants add.

[D1984]

so one wonders what value the quants add.

If they got paid as much as quants and fund managers typically do they certainly added value to their own bank accounts 

[craigr]

It will be interesting to see, but I think the $5M minimum on AQRIX and the 5.5% load and 1.1% ER on ABRZX are too high hurdles for most.

Yep.

High fees are perhaps the #1 indicator that a fund is going to be a dud long-term. Even if we're generous and assume active managers are going to match the market over time (which most don't), after fees are subtracted it is a guaranteed loser.

Even if we are being *extremely* generous and assume they will beat the market each year by 10% (a noble feat and very unlikely), after fees they are still almost guaranteed to lag the index equivalent.