S&P Dow sets up Risk Parity indexes with 10%-15% target volatility

By Susanna Moon

Chicago, Aug. 9 – S&P Dow Jones Indices said it has rolled out three S&P Risk Parity indexes that are intended to replicate a multi-asset risk parity strategy.

S&P Dow Jones worked with MSR Indices, part of MSR Investments to construct the S&P Risk Parity Index - 10% Target Volatility, the S&P Risk Parity Index - 12% Target Volatility and the S&P Risk Parity Index - 15% Target Volatility, according to the announcement.

The S&P Risk Parity indexes comprise futures contracts of three asset classes – equity, fixed income and commodities – and use long-term realized volatility to measure risk.

Weighting for the asset classes will be based on a calculation of measured risk and the application of a leverage factor to achieve the defined target volatility, the release said.

“Through the S&P Risk Parity Indices, risk parity funds and its managers for the first time can compare performance to a benchmark that embodies the risk/return and asset allocation characteristics of this frequently-used strategy,” Vinit Srivastava, managing director, S&P Dow Jones Indices, said in the release.

“This is a new development for risk parity market participants, as they are now empowered with information to measure their fund managers against a relative benchmark and, due to its bottom-up design, have the opportunity for index-based access to risk parity.”

Added Michael Rulle, founder and chief executive officer, MSR Investments: “Before the S&P Risk Parity Indices, many investment companies used a traditional benchmark of a 60/40 portfolio of stocks and bonds, respectively, to measure the relative performance of risk parity funds.”

“Unfortunately, many of those standard benchmarks reflect neither the construction nor the risk/return expectations from the strategy. MSR Indices believes that the design of this index family adheres to the strategy’s core meaning and offers a new and investable choice for those participating in this style of investing,” Rulle said.

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