Los Angeles-based investment manager Advanced Research Investment Solutions (ARIS) has introduced its first ETF with the launch of the RPAR Risk Parity ETF (RPAR US) on NYSE Arca.
Alex Shahidi, co-Founder of Advanced Research Investment Solutions.
The fund provides multi-asset exposure through a risk parity strategy that seeks to generate positive returns during periods of economic growth, safeguard capital during periods of economic contraction, and preserve real rates of return during periods of heightened inflation.
Risk parity theory states that optimal diversification is achieved through portfolio allocations that target a balanced contribution of risk from each asset class.
The approach tends to favour allocations across several global asset classes with the aim of reducing total portfolio variability under a variety of economic conditions.
Global risk parity portfolios have historically displayed low correlations to stocks and bonds, highlighting the potential appeal of the fund as a satellite addition to a core-satellite portfolio.
The fund is based on the proprietary, in-house Advanced Research Risk Parity Index which leverages the experience of ARIS co-founders Alex Shahidi and Damien Bisserier. The latter was formerly a senior investment associate at Bridgewater Associates, a leading exponent of risk parity hedge fund strategies.
The index provides exposure to four asset classes – equities (including US, international developed, and emerging markets), Treasuries (Bills and long-duration Treasuries), Treasury Inflation-Protected Securities, and commodities (gold and commodity producer equities). Target weights are determined by examining the long-term historical volatilities of the asset classes as well as the correlations between them.
ARIS notes that at the time of the fund’s launch, the index’s target allocations were roughly 25% to equities, 15% to Treasuries, 35% to TIPS, and 25% to commodities. Index rebalancing occurs on a quarterly basis.
The fund distributes income on a quarterly basis and comes with a net expense ratio of 0.50%.
Shahidi commented, “When we look at a typical new client or prospective client’s portfolio, we see the same mistakes repeatedly: overexposure to equity markets and bonds that are highly correlated to equities. Looking into the characteristics that different assets exhibit, it becomes clear that many investors are simply not well-diversified. With RPAR, we are excited to deliver a better diversification solution to our clients and investors.”
Bisserier added, “The current political and economic environment is unprecedented in many ways, exposing more traditional equity-concentrated portfolios to significant risk of loss. It has always been our aim to help clients achieve their investment goals while substantially minimizing any losses they may experience in a downturn, and we see RPAR as a core part of pursuing these objectives.”