Hedge fund data provider HFR has launched what it says is the first range of investable indices tracking the performance of risk parity funds.
The company has today opened six indices tracking groups of risk parity funds split by three target levels of volatility: 10%, 12%, and 15%.
Each of the three volatility targets has two indices, one for all qualifying risk parity funds and one tracking those over $500m (€429m) in size. The indices are equally weighted at launch and rebalanced annually.
There are 25 risk parity funds in the indices, with the lowest volatility group having the most funds (12, with six over $500m). Collectively the underlying funds manage roughly $110bn.
Kenneth Heinz, president of HFR, said the indices had been developed “in close conjunction” with the managers of the underlying funds as well as with institutional investors.
“Institutional investors and risk parity managers have embraced the use of volatility targets and the implementation of institutional asset thresholds as index construction features, as these will help to solidify the broad global acceptance of HFR risk parity benchmarks in this significant area of investor allocation,” Heinz added.
The risk parity approach allocates assets so that the contribution of each asset class to portfolio risk is equal. Managers target a specific level of risk while aiming to maintain diversification and performance.
| Volatility level | AUM group | Index name | 3yr ann. performance | Number of funds |
|---|---|---|---|---|
| 15 | All | HFR Risk Parity Vol 15 Index | 3.66% | 6 |
| 15 | $500m+ | HFR Risk Parity Vol 15 Institutional Index | 3.87% | 5 |
| 12 | All | HFR Risk Parity Vol 12 Index | 2.33% | 7 |
| 12 | $500m+ | HFR Risk Parity Vol 12 Institutional Index | 3.03% | 3 |
| 10 | All | HFR Risk Parity Vol 10 Index | 3.52% | 12 |
| 10 | $500m+ | HFR Risk Parity Vol 10 Institutional Index | 3.85% | 6 |
Source: HFR. Data correct to 31 July 2017.
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