Ray Dalio had a dilemma. The billionaire hedge fund manager was still middle-aged but needed a plan for when he would no longer be around to manage his family’s wealth. The idea of handing over the capital to a conventional money manager, with the variable performance and high fees that entailed, was a non-starter. What was needed was a portfolio so simple that any fool could run it, but whose returns would be ‘equity-style’ (ie, approaching the returns provided by an equity-rich portfolio) yet without the attendant risks (ie, values bouncing around from year to year).
From this imperative came Dalio’s All Weather strategy, now one of the core products of Bridgewater Associates, the company Dalio founded in 1975 and which, from its base in the New England state of Connecticut, runs about $235bn (£205bn).
Taking the idea to inception involved much trial and error, and Bridgewater is coy about the strategy’s returns, as it is about disclosing the performance details of any of its funds. Back in 2009, when the All Weather plan had been active for 13 years, Bridgewater said it had generated annualised returns of 8.4 per cent with volatility – movement around its average – of about 11 per cent. From the perspective of the UK, such returns are, indeed, equity style, with the bonus that the comparative absence of volatility means that, statistically speaking, annualised losses would be worse than 2.6 per cent just one-sixth of the time. By contrast, a portfolio wholly exposed to London-listed shares, and based on returns over the same period, could expect to labour with annualised losses of over 8 per cent one month in six.