Morningstar's John Rekenthaler reflects on the "carnage" in risk parity funds, which typically have more bonds than stocks in order to avoid the higher risk in equities and still maintain a good return. Risk parity mutual funds are down 6.75 percent on average for the year to date, according to Morningstar data.

He waxed on a reader's comment that the new allocation of risk parity should be called "historical volatility parity" because some risk parity providers blend assets solely based on historical data. Rekenthaler doesn't believe that using historical data will make any difference, however:

I suspect that some (and perhaps many) modify the initial data to create "forward-looking estimates," thereby eliminating the charge that their investment approach only looks backward. I don't think that changes the outcome, though. No matter how risk is defined, it seems that risk parity will have more bonds and fewer stocks than does a standard asset allocation.

If you want to read the whole column, please click here. 

Edited by: Casey Quinlan


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