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  • Jonathan Poyer

Is All-Weather a Reasonable Set-Up for a Portfolio? What Is All-Weather?




I have been reading more and more about "all-weather" portfolios in the news. I assume that the hedge funds are in serious asset raising mode or they are feeling macro pressures and thus upping the marketing budgets to get this "story" out there. But the idea of "all-weather" sounds pretty good. So let us try to understand what it means:


I take its origination to be tied to Ray Dalio and the concept has a simple premise: a portfolio that is built to do well regardless of market conditions. This is mostly done through diversification that can perform consistently during periods of economic growth or stagnation. Dalio developed a passive investing strategy that is designed to help investors during four types of events:

  • Bear market periods when economic growth begins to slow down

  • Deflationary periods marked by falling prices

  • Inflationary periods marked by rising prices

  • Bull market periods when the economy is growing

Dalio believes (basically) that surprises drive price movements and the all-weather portfolio is a tool to help provide insulation from those surprises.


An analogy I have heard from an insider that I like:


An all-weather approach is an asset allocation methodology that aims to diversify investment styles to give exposure to sunny and rainy times. The goal of this diversification is to shield investors from the pitfalls of long only equity investing, as when it rains…it pours. You need to diversify with umbrellas. Alternatives are the umbrella.


(The MLM Index is a passive index of returns to futures investing and provides pure systematic trend following exposure.)


Balanced funds and risk parity funds generally try and combine stocks and bonds, hoping bonds diversify. Last year that got into trouble as bonds were also falling. Inflation can hurt that type of portfolio construction.


So what is the pitch? Disciplined rebalancing between uncorrelated, independent assets. Many other alternatives like private credit and real estate funds advisors are pitched are often stocks in drag – they get hurt when stocks and the economy gets hurt. Alternatives can be uncorrelated most of the time and have been negatively correlated in crisis.



Increased exposure to asset classes not found in a typical portfolio, such as commodities and currencies, is designed to help investors prepare for potential inflationary periods like the 1910s, 1940s, and 1970s, or potential recessions like 2008. Through times of higher inflation, commodity exposures - such as oil, heating oil, wheat, cattle, soybeans, natural gas, etc. - can be beneficial. Bonds can struggle during times of high inflation and rising rates.


It seems like in the short-term, inflation is going to be an important consideration for portfolios especially as interest rates fluctuate and a clear direction remains up in the air. An all-weather portfolio can be an interesting solution during these interesting macro-times. The diversification idea has always been an emphasis of investing. Adding non-correlating assets that can provide alpha during a crisis is important. The question for many is the timeframe for analysis and evaluation - and the added "complexity" of explaining to investors why a diversified portfolio does not keep up during strong bull markets.

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