RPAR ETF: What’s Under The Hood? Composition + Backtest + Opinion (VIDEO)

RPAR ETF: What’s Under The Hood? Composition + Backtest + Opinion (VIDEO)

By: Corey Philip
Updated: January 22, 2022

Note scratch & links from video are below.  Grammar may not be correct.


Overview RPAR

  • from fact Sheet: https://www.rparetf.com/rpar/fact-sheet

  • The fund description instantly reminds me of Ray Dalio’s All Weather fund.   Harry Browne’s Permanent Portfolio is also similar.

  • A risk parity fund with 1.6B AUM (notably high for a small fund issuer), 0.51% Expense Ratio.

  • Risk parity strategy

What Is Risk Parity

  • Weights asset classes according historic volatility in return to achieve desired risk/return for the entire portfolio.  With volatility / risk ‘controlled’  these strategies typically use leverage to increase returns.

Portfolio Composition

https://www.rparetf.com/rpar/IntrotoRPARRiskParityETF

https://www.rparetf.com/rpar/investment-case

  • Adds some leverage (20% for PAR)

  • Uses uses Commodity producer equities instead of commodities

BackTest Against A 40/60 Portfolio and Ray Dalio All Weather portfolio

  • All observances over back test period of 2007 - 2022

  • Less Drawdown than 40/60 portfolio

  • About the same sharp ratio (0.67) as 40/60 portfolio

  • All Weather portfolio gets more exposure to US STocks

  • RPAR Allocation has a ‘flat period’ from 2013-2019

How You Could Replicate RPAR With ETFs With 40% Less Fee?

  • VT .08%

  • GNR

  • SGOL

  • TMF

  • LTPZ

What I Think About The Portfolio

  • Stocks only get 25% of the fund.  They have the highest real return over time of any asset class

  • It has a high allocation to treasuries at a time when yields are low and  interest rates are set to raise

  • Using commodity producers seems to defeat the purpose of allocating to commodities as the producers are more closely correlated with the stock market

  • High market tracking variation.  Flat from 2013-2018

  • I don’t really feel the fee is worth it for what they bring to the table .51%

  • Risk parity strategies like this take a big hair cut off the upside.  It’s like going on a 5 mile hike but carry enough gear for 10 days

  • It’s a classic asset class diversification risk parity strategy (with leverage).  It works for a risk adverse investor but consider risk return profile I think most investors would be just as well served with a simple 40/60 portfolio

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Corey Philip

Founder of a home service / specialty trade contracting company (think patio's and deck) with a focus on customer experience. Quantitative investor. Data driven marketer. Runner.

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