This trading strategy, that goes long or short on futures contracts for a variety of assets depending on their momentum, has some promise as a unique, uncorrelated asset stream with a positive expected return. Here’s a primer that considers whether managed futures have a place in RP portfolios.
A pillar of Risk Parity portfolios, Long-term Treasury Bonds provide positive expected return, some income, and most importantly, negative correlation with equity funds. To invest in them, I use low-cost, no-frills VGLT, though alternatives such as TLT and EDV are also great choices.
The mainstay of many portfolios, VTI is my choice in the test portfolios when you want just one, all-around equities fund. With an ultra low expense ratio and over 4000 companies inside, this does the job of capturing the equity risk premium in the stock market.
RP portfolios are all about having multiple, dissimilar asset classes to create a portfolio that can weather any economic environment. The environment now is all about inflation. This got me thinking… how are the supposed inflation hedges faring?
For Commodities, I use PDBC (Invesco Optimized Yield Diversified Commodity Strategy ETF) as my preferred vehicle in the test portfolios, and also hold it in real life. Features: largest "broad basket" commodity fund, decent expense ratio, high dividends. Better for tax-advantaged accounts.
