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Alternative Market Briefing

S&P Dow Jones Indices launches index family for Risk Parity Strategy

Thursday, August 09, 2018

Matthias Knab, Opalesque:

S&P Dow Jones Indices today announced the launch of the S&P Risk Parity Indices, its first index family designed to replicate a multi-asset risk parity strategy. Delivering an alternative for market participants, the S&P Risk Parity Indices index portfolios are comprised of futures contracts of three asset classes - equity, fixed income and commodities - and use each's long-term realized volatility to measure risk. Each index has a target volatility and allocates weights to the asset classes based on a calculation of measured risk and the application of a leverage factor to achieve the defined target volatility.

The index family includes three indices:

  • S&P Risk Parity Index - 10% Target Volatility
  • S&P Risk Parity Index - 12% Target Volatility
  • S&P Risk Parity Index - 15% Target Volatility

S&P DJI said that comparing the S&P Risk Parity historical performance to a hypothetical traditional 60/40 equity/bond portfolio for the period from January 2003 until May 2018, the S&P Risk Parity Indices delivered reduced downside compared with the traditional 60/40 portfolio during almost every major market shock event since the end of 2003. There was notable performance variance during the global financial crisis, the Europe/Greece debt crisis in 2010, and the downgrade of U.S. debt in 2011.

Historically, the S&P Risk Parity Indices delivered smoother performance and reduced drawdowns over the long run. Regardless of the vo......................

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