Investors are pulling capital from Ray Dalio's Bridgewater Associates, raising concerns for ASX investors. Bridgewater's All Weather strategy has seen several institutional investors withdraw money amid a broader move away from risk-parity products. Risk-parity strategies, which aim to balance equities and bonds to smooth out market fluctuations, have struggled in recent years due to a positive correlation between stocks and bonds and increased volatility. However, the question remains whether investors are moving out of risk-parity funds at the wrong time, as stocks reach all-time highs and inflation fades. The success of risk-parity investing relies on predicting asset correlations and risk, making it difficult to know when to switch strategies.
Australian investors face the challenge of a historically low local equity risk premium and expensive defensive stocks. The ASX 200 forward P/E has increased 14% since October, with only a modest fall in bond yields to justify the move. Defensive stocks that investors traditionally turn to for protection in a correction are either expensive or carrying elevated debt levels. The article suggests that investors must decide whether to stick with their current portfolio settings or change strategies to anticipate a possible correction. [70d992a1]
