If I am going to sink $100,000 into a single exchange-traded fund (ETF), it needs to do a lot of heavy lifting. I want exposure to most investable asset classes, and I want that exposure balanced in a way where no single asset dominates the portfolio’s fate.
That immediately rules out many Canadian asset-allocation ETFs. Most rely on a basic stock-and-bond mix, which works fine in many environments but struggles when inflation and interest rates rise together, as we saw in 2022. Instead, I look to what I already use in my own portfolio. The ETF that best fits this “own it and ignore it” test is the SPDR Bridgewater All Weather ETF (NASDAQ:ALLW).
If the name sounds familiar, it should. The strategy comes from Bridgewater Associates, the firm founded by Ray Dalio, and it mirrors the same institutional risk-parity framework used in its flagship hedge fund strategies.
Source: Getty Images
What is ALLW?
ALLW is what is known as a risk-parity ETF. Instead of allocating capital based on return expectations, it allocates based on risk contribution. The portfolio spans multiple asset classes, including global equities, nominal bonds, inflation-linked bonds, and commodities, with a meaningful allocation to gold.
Stocks are inherently more volatile, so they receive a smaller capital allocation. Bonds and inflation-linked securities are less volatile, so they receive larger allocations. To balance the risk across asset classes, ALLW uses leverage. Lower-risk assets are levered so their risk contribution is closer to that of equities.
At present, the portfolio is allocated roughly as follows: about 70% global bonds, 43% global equities, 40% inflation-linked bonds, and 35% commodities. Added together, that is roughly 188% exposure, implying total portfolio leverage of about 1.9 times. This leverage is not used to speculate but to equalize risk across assets with very different volatility profiles.
The reason behind the strategy
The logic is in the name: all weather. Different asset classes perform well in different macroeconomic environments. Stocks tend to thrive during economic expansion. Bonds often perform better during contractions. Inflation-linked bonds and commodities help when inflation rises. Deflationary shocks usually favour high-quality fixed income.
The goal here is not to maximize returns in any single scenario. It is to generate steady, resilient returns across many environments, whether the economy is expanding, slowing, inflating, or deflating. That makes this strategy particularly attractive as a set-it-and-forget holding, even for a large lump sum like $100,000.
Key things to know
There are practical considerations to digest before investing in ALLW. First, this is a U.S.-listed ETF, so Canadian investors need to convert currency. Using a low-cost brokerage with efficient FX conversion helps.
Account placement also matters. ALLW tends to distribute capital gains, which makes it better suited for an RRSP. Outside of an RRSP, those distributions are subject to 15% U.S. withholding tax.
Finally, this is not a low-cost fund. ALLW charges a 0.85% expense ratio. I am comfortable with that because comparable hedge fund strategies typically charge far more in both management and performance fees (the so-called “2-and-20”).
