Ray Dalio’s Bridgewater Associates, one of the world’s biggest hedge fund firms, had a largely lackluster year when it came to the performance of its two main portfolios.
The firm’s Pure Alpha fund, with $80 billion in assets, rose 5.25 percent in 2013. But Bridgewater’s All Weather fund, with $70 billion in assets, ended the year down 3.9 percent, said a person briefed on the numbers but not authorized to discuss them.
In theory, an investor who allocated an equal amount of dollars to the two Bridgewater funds ended last year with a roughly flat return.
Bridgewater’s performance is underwhelming in comparison to the American stock market. The broader market in 2013 posted its best gains since the 1990s, with the benchmark Standard & Poor’s 500-stock index rising 30 percent.
The performance of the two Bridgewater portfolios also lagged far behind hedge fund peers, which on average, posted a 9 percent gain last year.
The All Weather fund, which invests heavily in bonds, including Treasury inflation-protected securities, or TIPS, underperformed the Barclays Aggregate Index, a widely followed bond index, which ended the year down 2.03 percent.
The fund also fared slightly worse than a Bank of America index, which tracks the total returns on all United States government bonds and which fell 3.2 percent.
The rough year for Bridgewater is a blow to Mr. Dalio’s reputation as one of Wall Street’s most savvy money managers and whose views on global economic trends are closely monitored. The firm’s funds rank as some of the largest in the $2.2 trillion hedge fund industry and are a favorite investment for many public and corporate pensions and sovereign wealth funds.
One reason Bridgewater has managed to attract so much money from institutional investors is the firm’s history of producing steady, although not necessarily spectacular, performance in its main portfolios. Including last year, Pure Alpha has generated an average 14.4 percent return for investors in each of the last five years, while the All Weather fund has returned an average of 12.4 percent over the same time period.
Last year proved particularly challenging for Bridgewater’s All Weather fund, which is supposed to perform best when there is a sharp sell-off in either stocks or bonds. The fund help popularize the so-called risk-parity trade, which uses a combination of investments in bonds and stocks to try to adjust for a variety of economic scenarios such as rising or falling inflation, and rising or falling growth.
A number of risk-parity funds like All Weather were caught off guard by a sudden rise in Treasury yields last summer. Treasury yields began to rise last May after speculation began that the Federal Reserve would soon scale back its monthly purchases of United States Treasury’s and mortgage-backed securities. The Fed began slowly scaling back its purchases, which are intended to stoke economic growth, last month.
Last year also was a particularly rough one for TIPS and other inflation-protected securities. TIPS tend to perform poorly when Treasury yields rise and inflation is low. Last year iShares TIPS, an exchange traded fund that tracks the inflation-protected securities market, fell about 9 percent last year.
In the coming weeks, Mr. Dalio is expected to release to investors his widely followed year-end investor letter, a lengthy dossier that not only will take a look at 2013 but also offer his outlook for 2014.
