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RPAR Risk Parity ETF: Buy This Dip

Dec. 21, 2021 7:02 PM ETRPAR Risk Parity ETF (RPAR)45 Comments


  • Seeking alpha? I would much rather seek beta, which is why the Risk Parity ETF is one of my favorite funds to own.
  • If history serves as a guide, the recent dip in RPAR's price suggests that the ETF could recover in the next few months and deliver solid returns.
  • Not only will RPAR probably perform decently in a 2022 marked by uncertainty, but I think that the current price is very attractive.
  • Looking for a helping hand in the market? Members of Storm-Resistant Growth get exclusive ideas and guidance to navigate any climate. Learn More »
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Although I am publishing this article on Seeking Alpha, I have always been a much bigger fan of seeking beta — i.e., capturing the gains inherent in holding risk assets vs. trying to "beat the market." This is why the Risk Parity ETF (

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This article was written by

DM Martins Research profile picture

Daniel Martins is a Napa, California-based analyst and founder of independent research firm DM Martins Research. The firm's work is centered around building more efficient, easily replicable portfolios that are properly risk-balanced for growth with less downside risk.

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Daniel is the founder and portfolio manager at DM Martins Capital Management LLC. He is a former equity research professional at FBR Capital Markets and Telsey Advisory in New York City and finance analyst at macro hedge fund Bridgewater Associates, where he developed most of his investment management skills earlier in his career. Daniel is also an equity research instructor for Wall Street Prep.

He holds an MBA in Financial Instruments and Markets from New York University's Stern School of Business.

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On Seeking Alpha, DM Martins Research partners with EPB Macro Research, and has collaborated with Risk Research, Inc.

DM Martins Research also manages a small team of writers and editors who publish content on several TheStreet.com channels, including Apple Maven (thestreet.com/apple) and Wall Street Memes (thestreet.com/memestocks).

Analyst’s Disclosure: I/we have a beneficial long position in the shares of RPAR, SPY either through stock ownership, options, or other derivatives. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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Comments (45)

Lake OZ boater profile picture
With the recent volatility in the stock market, many investors seem to be realizing they have over-estimated their risk tolerance. Lots of concerns showing up in the forums about stocks and bonds losing value at the same time.

From observations starting in the 1950s, data suggests a strong factor affecting stock-bond correlations is inflation. Higher rates of inflation seem to turn the correlation between stocks and bonds positive at times, but during periods of low inflation the correlation has been mostly been negative. It is unusual for the positive correlation to persist longer than a couple of months though.

For a more in depth discussion, see this investor note by Vanguard titled: "Inflation, diversification, and the 60/40 portfolio"

@D.M. Martins Research Hi DM, curious to know your thoughts about RPAR and how you expect it to perform in the current market conditions
DM Martins Research profile picture
@pieter1985 Hi there! Well, the answer is certainly "more poorly than its historical average". Inflation, rising rates and market panic are rarely good news for any positive beta ETF, fund, stock, etc.

That said, I would take a step back here. What assumptions do we need to make to invest in RPAR vs, say, a growth stock fund like ARKK (just as an example)? On the latter, one needs to believe that high growth and high valuation will recover from this funk eventually. That's an ok assumption. But on the former, one must only assume that the value of risk assets rises over time. I'm much more comfortable with that assumption. This is why I think that RPAR will generally be a very good choice: it doesn't need much to perform well, and corrections have historically been (1) short lived and (2) followed by normalization and rallies.

So, if you ask me where RPAR will be in a month or two, I have little conviction. But if the question is about 3-5 years out or longer, I bet the ETF will do just fine. Even in this current macro environment (think inflation and rising rates), the fund should still benefit from being long inflation-linked bonds, commodity-producing equity and international stocks that tend to be more exposed to sectors like banking, for example.

Hope this helps.
@DM Martins Research Thanks DM. Really appreciate it. I invested quite a lot of my savings in RPAR at $25.23. Am not panicking and my goal is to hold for 3 years or so. I am also looking forward to the guidance the team will provide in February.
Robert.from.Ct profile picture
Please update your thoughts on this fund during the recent sell off in stocks.
Lake OZ boater profile picture


Recall is designed to offer a more risk-balanced approach than the traditional 60/40 which is equity heavy. Obviously VBIAX has a higher equity allocation than RPAR.

From January 1, 2022, here are the total returns.

RPAR: (-3.12%)

VBIAX: (-4.89%)


Good interview here with the fund managers of RPAR outlining their risk-parity strategy :

(15:23) www.youtube.com/...
@LakeOZ boater Thanks. I have also listened to their investor pitch on their website. It's a great concept but not really holding up in the current environment where both equities and bonds are falling in price. Would like to know more about how RPAR can remain afloat in this environment
Lake OZ boater profile picture
@pieter1985 I am sorry to say your measurement period is not realistic for a long-term investment. There are often periods when stocks and bonds fall together. For your consideration, here's some history...

"The correlation of returns of stocks and bonds is time varying. From 1926 through 2021, using Ken French’s Data Library, the monthly correlation of the S&P 500 Index to long-term (20-year) Treasury bonds has been close to zero (0.06). A zero correlation means that when stock returns are higher (lower) than their historical average, bond returns are just as likely to be higher or lower than their historical average. Thus, it has been close to a coin toss whether long-term Treasury bonds will provide higher (lower) returns than their historical average when the S&P 500 does so. And correlations are time varying."

"In 2021, while VOO (Vanguard’s S&P 500 ETF) returned 28.8 percent, VGLT (Vanguard’s Long-Term Treasury ETF) lost 5.0 percent. On the other hand, in 2008 the S&P 500 lost 37 percent, while long-term Treasury bonds returned almost 26 percent. Investors should also be aware that they can both produce negative returns at the same time. There have been five years when both the S&P 500 Index and long-term Treasury bonds produced negative returns (1931, 1969, 1973, 1977 and 2018). The worst of those years was 1969, when the S&P 500 lost 8.5 percent and long-term Treasury bonds lost 5.1 percent. There have now been 21 years when the S&P 500 produced a positive return and long-term bonds produced negative returns. And finally, there have been 18 years when the S&P 500 produced negative returns and long-term bonds produced positive returns."


Forewarned is forearmed.

FWIW...I would estimate that the blended modified duration of the portfolio is somewhere in the 25 years range. If your investment horizon* is shorter, you may be over-invested. You might consider shifting some of the money to investments with shorter durations, like short-term bond funds and/or CDs.
*Here's an example of a LONG-TERM investing horizon of today's 50 year...

He/she wants to retire at 65. Their family history suggests they could live to age 90. What is his/her investing horizon?

(90-65) / 2 + (65-50) = 27.5 years

RPAR would be a good choice for this investor. On the other hand, if you need to draw from this bucket of money over the next 3 years to fund your retirement spending, what is that investing horizon?

3 years / 2 = 1.5 years . RPAR is not a good fit because the modified duration does not match your investing horizon.
Lake OZ boater profile picture
@DM Martins Research Thanks for a timely reminder on RPAR during the Santa Claus rally. It's about (-2.7%) off its recent 52 week high.


Really appreciate all your hard work and excellent articles throughout the year. They're always well done and insightful. Best wishes in the New Year for continuing success.

Disclosure: I bought some RPAR today.
DM Martins Research profile picture
@LakeOZ boater Same to you! Good luck with the investments!
TaiPan profile picture
@LakeOZ boater

And while you’re tossing bouquets, here’s mine for you. Your comments are always polite and informative. You are a real student of the game of investing, and a real gentleman (very few of us left in the world).
Lake OZ boater profile picture
@TaiPan Thanks so much! You made my day! Hang in there, we knew this was overdue!
Is there a reason you've come around to prefer RPAR to SWAN? I'm playing around with the idea of owning leveraged funds like UPRO/TQQQ and a low volatility etf(s) and rebalancing frequently.
@fiiyah Nice call on VIXY, btw!
Lake OZ boater profile picture
@fiiyah What is your portfolio strategy? Have you tried a portfolio optimizer tool?

Here are the results of three optimization strategies when deciding allocations among the (four) 4 ETFs you mention. The tool considers weightings from 0% to 100%.

1. Minimize volatility - optimize the portfolio to have minimum risk
UPRO: 16.3%
TQQQ: 14.7%
RPAR: 34.6%
SWAN: 34.4%

2.Maximize quadratic utility - this optimization maximizes return while penalizing risk

UPRO: 32.5%
TQQQ: 47.9%
RPAR: 9.4%
SWAN: 10.2%

3.Maximize Sharpe ratio - find the portfolio with the highest Sharpe ratio, also known as tangency portfolio

UPRO: 33.4%
TQQQ: 59.1%
RPAR: 3.1%
SWAN: 4.4%


PortfolioVisualizer.com has a similar optimization tool with a few other strategies.

@LakeOZ boater Could you please explain "quadratic utility"? I can't seem to find a good explanation. But those are very cool tools, I'm going to play around with them, thanks! I'm still probably 25 years from retirement so at this point I'm still in "maximizing returns" mode. So I'm less interested in avoiding volatility and more interested in how best to utilize volatility. I like the idea of having a high volatility/high return product like TQQQ and a low volatility product, so when TQQQ plunges you can build off that.
TaiPan profile picture
Thanks for putting RPAR on my watch list.

It makes common sense that if the investor includes a greater percentage of low-volatility lower-return assets in a portfolio, that portfolio should provide a lower return but with a lower volatility as the payoff. The question is, does the investor get enough payoff in lowered volatility to compensate him/her for the decreased return?

Since most investors like it when the portfolio spikes up (that’s not risk, that’s happiness), and hate it when the portfolio plunges (that is risk), therefore the Sortino ratio is a better measure than the Sharpe of risk-adjusted return.

RPAR and SPY had the same total return in December 2019 – 2020: both returned 17.75% for the year. But SPY’s volatility was much higher than RPAR’s that year, so you’d expect SPY’s Sortino for the year to be lower, and it was: 1.10 for RPAR versus .90 for SPY. RPAR’s Sortino was 22% higher than SPY’s.

But in December 2020 to 2021, RPAR’s total return was 8.42% versus SPY’s 29.84%, and volatility seemed similar (eyeballing a price chart). RPAR’s Sortino for the year was 1.64 versus SPY’s 3.21. So SPY’s Sortino was ~95% better than RPAR’s.

My Sortino calculator only gives a rolling year over year figure, not for the entire period, so let’s be different and get an overall Sortino for the two years by adding the Sortino ratios for 2019-2020 and the 2020-2021 years. RPAR’s total Sortino was 2.74 compared with SPY’s 4.11, so SPY’s overall Sortino was 50% better. And RPAR’s total return for the two years was 12.76% annualized versus SPY’s 23.27%.

All this is to say that the investor “pays” too much in lost profit to get the decrease in volatility that RPAR provides. Only if reducing risk is the overwhelming consideration for an investor should he/she consider RPAR, and in this case RPAR is a decent candidate.
DM Martins Research profile picture
@TaiPan hi! All great comments.
If someone were to argue that we are living in a new normal in which stocks return 15%, maybe even 20% per year consistently, then RPAR will likely be a consistent underperformer. But I’m suspicious that 2020 and 2021 have been outliers for stocks — careful with recency bias. Should equities go back to producing some 9-11% gains per year over the long run, then I don’t think that RPAR should trail but too much.
In any case, the hardest thing about investing, in my view, is producing superior risk-adjusted returns. If you can get that, then you can use leverage to achieve your desired return (at higher risk, obviously) through options or margin, for example. Again, unless we live in a new normal in which stocks offer Sharpe ratios of 1.0 to 1.5 consistently, RPAR will probably be a more efficient way to invest.
Having said the above… I can always be wrong. We’ll find out.
TaiPan profile picture
@DM Martins Research

True, we are living in interesting times!

I think it is safe to assume that equities will return to more normal, historical returns. I agree with you on this. But we are also entering a period when interest rates will (finally) be rising, and that will put downward pressure on the fixed-income components of the RPAR portfolio, no?
Lake OZ boater profile picture
@TaiPan Don't forget bonds have two types of risk, i.e. 1. Interest rate risk, and 2. Re-investment risk. What is re-investment risk?

This refers to the possibility that an investor will be unable to re-invest cash flows received from their fund (interest payments) at a rate comparable to their current rate of return. This new rate is called the re-investment rate.

Interest rate risk and re-investment risk move in opposite directions. The effects of these two components are neutralized when your bond portfolio's overall (average) duration matches your investing time horizon.

It is reasonable to have estimates for stock and bond returns when building a financial plan. Interest rate forecasting is just as difficult as stock picking. There just aren't many good interest rate forecasters.

Here are the SPIVA Mid-Year: "Active" BOND Funds vs. Their Index Benchmarks report cards for the last 15 Years (7/1/2006 - 6/30/2021)

Category-------------% of 'active' bond funds that UNDER-performed

Gov't Long---------------------63.5%

Gov't Inter'm-------------------79.6%

Gov't Short---------------------94.5%

If interest rate forecasting were easy, the majority of those "active" bonds would outperform the indexes.

And they are run by Ivy league finance grads and Ph.D.'s in economics who do this as their full-time jobs, and are highly incentivized to "outperform" the benchmarks. I'm a part-timer, and I realized long ago it's silly to think that my interest rate forecasts will do any better.

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