(Bloomberg) -- Amid the drubbing in stocks and bonds, risk-parity strategies haven’t fared well. Yet an ETF issuer is looking to give it a go -- but with a momentum twist.
The Advisors’ Inner Circle is planning to launch the PMV Adaptive Risk Parity ETF under the ticker ARP, according to a Thursday filing.
Risk-parity strategies look to maximize diversification across asset classes and are supposed to hold up better in times of turbulent markets. The idea is that should one asset class get hit, another might promise better returns. But this fund won’t be a straight-up play on risk parity.
A momentum strategy buys recent winners and dumps the losers. PMV’s filing says its momentum factor will be achieved by identifying trends in various asset classes.
Yet the strategy has flagged in 2022 as everything has been suffering amid the Federal Reserve’s fight to cool inflation. The price of the $1.1 billion RPAR Risk Parity ETF (ticker RPAR) has fallen roughly 32% from its November 2021 high, a record drawdown, according to data compiled by Bloomberg.
PMV’s actively managed fund would carry a 1.15% management fee, while RPAR has a 0.5% expense ratio.
Risk parity is based on the idea that there’s a negative correlation between stocks and bonds and the current environment has delivered the opposite of that, says David Donabedian, chief investment officer of CIBC Private Wealth US.
“For three quarters in a row we’ve had negative total returns for stocks and bonds,” he said. Cash has been about the only safe place to park capital in the recent rout. “Even energy, which was the star of the first half, got clobbered in the third quarter. Hedge funds struggled. Private-equity funds are getting marked down. There’s no place to hide.”