Head of Asia Pacific, Grant Wilson on RISK PARITY: It has been presented as an alternative to the classic 60/40 allocation b/w equities & bonds. (Thread 1/8). Originally featured as an opinion piece in @FinancialReview
2/8: Risk Parity equalizes contributions to risk from different asset classes in portfolio. Typically targets #volatility for portfolio as whole, in range of 10-15%. Equity, bonds, & other sector allocations derived based on measures of expected return/risk/correlation.
3/8: Risk parity has become synonymous with an ‘all weather’ portfolio. In March, #COVID19 roiled financial markets & we saw the short-comings of this slogan.
4/8: Early on, risk parity functioned, w/ sharp decline in equity prices, counterbalanced by lower bond yields. 10yr US yield reached historic intraday low of 0.32%. From there things went wrong. $SPX fell a further 13% through Mar 18, yet bond yields reversed higher, to 1.19%.
5/8: This was worst-case for risk parity - involved drawdowns on both sides of book. Fed came to the rescue w/ unlimited #QE Mar 23, restoring market functioning & liquidity - effectively bailing out the risk parity sector.
6/8: There has been some recovery in risk parity performance (owing to rally in equities/credit), but **our view is that risk parity is beyond being retooled. It is fundamentally broken now**.
7/8: 1). levered bond component. w/ nominal yields so low, portfolio protection limited. 2). Real yields now deeply neg - capital may be preserved nominal terms but inflated away in real terms. 3). Structural decline in FI vol & breakdown in realised correlation b/w equity/debt.
8/8: Time to Exit: Sheer weight of money & influence that underpins risk parity ensures that it will not go away gently. We expect more rejigging/rebranding & are wary. *We think it is time to exit risk parity in full, & return when its basic precepts are restored by the market*

• • •

Missing some Tweet in this thread? You can try to force a refresh

Keep Current with Exante Data

Exante Data Profile picture

Stay in touch and get notified when new unrolls are available from this author!

Read all threads

This Thread may be Removed Anytime!


Twitter may remove this content at anytime! Save it as PDF for later use!

Try unrolling a thread yourself!

how to unroll video
  1. Follow @ThreadReaderApp to mention us!

  2. From a Twitter thread mention us with a keyword "unroll"
@threadreaderapp unroll

Practice here first or read more on our help page!

More from @ExanteData

6 Aug
#ThursdayThoughts : Today marks 4 months since **MAX Global #Lockdown** (Thread). It was achieved on April 6 when 76% of global cities had #traffic congestion down 40% y/y or more. Now, only 12% of cities have congestion down 40%. #COVID__19 #pandemiclife #OOTT
*Side-by-Side Comparison*: Top 30 Global Cities w/ Most Depressed #Traffic Congestion. April 6 (Max lockdown) & today’s release. Apr 6th (left) Smoothed data showed #Philippines & #Malaysia cities top 2. US - 7 cities. #India - 4. #Wuhan #Paris #Istanbul #Moscow included. #OOTT
Now, (chart on right): #SaudiArabia is in focus w/ 2 cities in top 3: #Riyadh & #Jeddah . #Cairo is top in smoothed data. #Honolulu (US) is still in the top. US has 15 cities included now. #Manila & #kualalumpur still included. #COVID__19 #SocialDistancing #OOTT #Transportation
Read 5 tweets
30 Jul
*Peak hoarding* Thread - analysis by Sr. Advisor @Brad_Setser. Mar: financial stress re: #COVID19 shock generated unprecedented foreign outflows from Treasury market & unprecedented inflows into US banks. Interbank claims on US banks & non-bank deposits at US banks rose.
Official investors were on net pulling funds out of Treasury market & increasing deposits in US banks (including at Fed). Apr - little chg. *May TIC data*: firm evidence of normalization. Interbank flows into US reversed, generating modest outflows in short-term banking data.
X-border bank claims on US banks are about $200 billion below their peaks in latest data. A portion of Mar inflow in US banks reversed – but even so, foreign deposits & broader claims on US banks remain historically elevated. Image
Read 8 tweets
1 Jul
Backgrounder on #COVID19 Hospitalization Data (thread)
Exante started to track #hospitalization data around the time of the #COVID19 outbreak in #Italy. Hospitalization data are not as skewed by fluctuations in amount of testing done. The challenge w/ hospitalization data is that countries & various US states report it differently.
Types of #hospitalization data: 1). *Cumulative hospitalizations*: All people who have ever been in hospital for #COVID19, including: those currently in hospital, those discharged, and those that died. From cumulative hospitalizations, one can calculate new hospitalizations.
Read 7 tweets
23 Jun
One big puzzle currently in COVID projections is why some states have much higher 'hospitalization rates' than others.

Brief THREAD on Texas, versus the rest...
It is no surprise that hospitalization rates (those in hospital relative to active recorded cases) are coming down fast in states with aggressive testing and a moderating outbreak, such as NY:
But the hospitalization rate is also coming down in states like Florida, which has seen positivity ratios go up (higher hit ratios when testing, signalling an unrecorded outbreak)
Read 4 tweets
11 Jun
All US states are at least partially open. Investor focus is on risk of 2nd wave #COVID19 in states seeing rising case growth & increasing hospital pressure. CDC data through June 9 confirms recent growth of #COVID19 hospitalization trends in #Arizona & #Texas
Read 5 tweets
12 May
Lot of good discussion from @Brad_Setser @PMehrling @michaelxpettis @adam_tooze on a recent @TheEconomist article on the rise of the $rmb as a reserve currency. At Exante we track this closely. We have seen modest CB purchases of RMB driven mostly by the SNB in early 2020... 1/5
...but COFER data, which is a much broader sample than the reserve managers tracked above, shows net RMB sales by reserve managers in Q4. The first quarter of sales since joining the SDR... 2/5
...overall the RMB share of global reserves has been flat since about mid-2018 at 2.6% (excluding Chinese reserves from the global total)... 3/5
Read 5 tweets

Did Thread Reader help you today?

Support us! We are indie developers!

This site is made by just two indie developers on a laptop doing marketing, support and development! Read more about the story.

Become a Premium Member ($3/month or $30/year) and get exclusive features!

Become Premium

Too expensive? Make a small donation by buying us coffee ($5) or help with server cost ($10)

Donate via Paypal Become our Patreon

Thank you for your support!

Follow Us on Twitter!