Exclusive: A big Bridgewater fund is under the weather

Mon Jun 24, 2013 5:21pm EDT
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By Katya Wachtel and Jennifer Ablan

NEW YORK (Reuters) - A $70 billion portfolio managed by hedge fund titan Ray Dalio's Bridgewater Associates and widely held by many pension funds to survive stormy markets is emerging as a big loser in the recent selloff in global markets.

The Bridgewater All Weather Fund is down roughly 6 percent through this month and down 8 percent for the year, said two people familiar with the fund's performance.

The All Weather Fund is one of two big portfolios managed by Bridgewater and uses a so-called "risk parity" strategy that is supposed to make money for investors if bonds or stocks sell off, though not simultaneously.

It is a popular investment option for many pension funds and has been marketed by Bridgewater and Wall Street banks as way to hedge market turmoil.

Bridgewater created a portfolio based on two of the four basic economic scenarios: rising growth, falling growth, rising inflation, falling inflation. Different types of assets do well in each of these scenarios and the all-weather portfolio contemplates spreading its risk evenly.

But money managers familiar with the strategy said it does not perform when both stock and bond prices tumble, as global markets have experienced in recent weeks.

The plunge in the Bridgewater portfolio began soon after concern rose in late May that the Federal Reserve would begin pulling back from its easy money policies, which have included monthly purchases of $85 billion of Treasuries and agency mortgage-backed securities.

The fear the Fed will taper off its bond buying has slammed global stocks and in particular bonds, with the yield on the 10-year Treasury bond surging a full percentage point since May 2, when it closed at 1.62 percent.   Continued...