Bridgewater's $70 billion 'All Weather Fund' up 4.1 percent in October: sources

NEW YORK (Reuters) - The $70 billion Bridgewater All Weather Fund, managed by hedge fund titan Ray Dalio, was up 4.1 percent in October, but still down 3.4 percent through the first 10 months of the year, two people familiar with the fund’s performance said on Tuesday.

The All Weather Fund is one of two big portfolios managed by Bridgewater Associates and uses a “risk parity” strategy that is supposed to make money for investors if bonds or stocks sell off, though not simultaneously.

For October, all three major stock indexes posted their biggest percentage increases since October 2011, with the S&P 500 rising 8.3 percent, led by energy and materials.

Bridgewater has been in the spotlight after Leon Cooperman and Steve Einhorn of Omega Advisors accused risk parity strategies of contributing to wider market volatility and forced selling that drove stocks down 10 percent in five sessions near the end of August. Dalio said in a letter soon after that, “All Weather is a strategic asset allocation mix, not an active strategy.”

Risk-parity managers allocate on an equal-risk-weighted basis to major asset classes that they believe will offer distinctive portfolio characteristics under different economic regimes. Risk-parity funds typically invest in at least global stocks, bonds, and inflation-hedging assets such as commodities.

In most cases, because the risk approach leads to a high nominal allocation to bonds, the managers use leverage to increase the volatility to a desired level and therefore improve the expected return of the portfolio.

Meanwhile, Bridgewater’s Pure Alpha II Fund was up 3.3 percent in October for a year-to-date total return of 7.4 percent, the sources said. Pure Alpha, including Pure Alpha Major Markets, has $81 billion in assets under management.

Pure Alpha employs a traditional hedge fund strategy that actively bets on the direction of various securities, including stocks, bonds, commodities and currencies, by predicting macroeconomic trends.

Reporting By Jennifer Ablan and Lawrence Delevingne; Editing by Tiffany Wu and Grant McCool