The S&P 500® lost 4.6% in the first quarter of 2022, with the market shaken by high inflation, the new variant of COVID-19 and geopolitical tensions in Europe. The S&P Risk Parity Indices, designed to offer diversified risk exposure across asset classes, stood the test and outperformed equities, as well as other active and passive risk parity benchmarks.
The S&P Risk Parity Index – 10% Target Volatility led the pack, with a quarterly return of -0.66%, followed by the S&P Risk Parity 2.0 Index – 10% Target Volatility (-2.77%). Both S&P Risk Parity Indices outperformed the HFR Risk Parity Index (-4.93%), which measures the weighted average return of risk parity active funds, and the Wilshire Risk Parity Index (-4.49%).
S&P Dow Jones Indices has two variations of risk parity index series, with several methodological differences between the two. The S&P Risk Parity Index Series, launched in 2018,1 was the first transparent, rules-based, tradable index series in the risk parity marketplace. Then in 2021, we launched the S&P Risk Parity 2.0 Indices, which are designed to offer a hedge against inflation risk for fixed income securities through a distinct TIPS allocation, while the S&P Risk Parity Indices tend to allocate more to commodities. In the past quarter, rising commodity prices helped the S&P Risk Parity Indices’ performance relative to S&P Risk Parity 2.0 Indices. For a complete comparison of these two index methodologies, please refer to my previous blog.
Risk factors such as inflation, geopolitical tensions, COVID-19 and rising rates will likely continue to be top of mind for market participants in the coming months. The S&P Risk Parity Index Series may help diversify and reduce risk exposure in the current market environment.
1 The S&P Risk Parity Index Series were relaunched in April 2020 to align the roll schedule of underlying securities with existing S&P DJI indices.The posts on this blog are opinions, not advice. Please read our Disclaimers.