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Delivering Alpha: Bridgewater Is Long On Equities, Bonds

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Speaking at the Delivering Alpha conference today, Bridgewater’s David McCormick discussed the all-weather strategy for investment, which is designed to perform well under all forms of economic weather, including the troubled times the economy has been experiencing.

Bridgewater Associates delivering alpha

Delivering Alpha on the all-weather strategy

McCormick disclosed at the Delivering Alpha conference that Bridgewater is long on both equities and bonds, even in the wake of the major U.S. Treasury sell-off recently. He also said the fund’s portfolio includes gold, although he did not disclose what percentage of the portfolio was invested in gold.

In McCormick’s view, the bond sell-off was overdone. It was triggered by worries about when the Federal Reserve would start tapering its bond-buying program. Currently the U.S. central bank buys $85 billion in bonds every month. Ben Bernanke attempted to calm those fears last week and again today by emphasizing that the Fed would continue its easy money policy for some time. Much of today’s Congressional testimony focused on the downside risks to the U.S. economy.

All-weather strategy underperforming this year

One of the questions posed by interviewers at the Delivering Alpha conference was why the all-weather strategy has been underperforming this year compared to other strategies. McCormick emphasized that the strategy is meant to perform well in all weather, which means that it has performed about as they expected.

He said investors who are holding risky assets may see risk premiums come in, which would make those strategies perform better than the all-weather strategy. McCormick said Bridgewater’s strategy in going long on both equities and bonds covers all the bases. In other words, if one performs well and the other slumps a bit, then the net result is still a positive gain. He said the key is to balance assets and risks so that the net result will be positive.

McCormick discusses Dodd-Frank at Delivering Alpha

Delivering Alpha interviewers also asked McCormick briefly about the Dodd-Frank Act and his views on it. He said it’s too early to know what the pros and cons of it are, but that we do know that we’re safer than we were. For example, we know that banks are better capitalized now than they were previously.

However, he also pointed to “an excessive amount of regulation” and said that not even half of Dodd-Frank has been implemented. As a result, there’s a lot of uncertainty in the markets.

When asked about the biggest risks he sees, his answer was that the biggest risks are those that we don’t see. He said there are signs of deleveraging happening, and perhaps the biggest risk is that policy makers get things wrong. In his view, the highest risk of this happening is currently in Europe.

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