All Weather Fund

What is an 'All Weather Fund'

An all weather fund is a fund that tends to perform reasonably well during both favorable and unfavorable economic and market conditions. All weather funds typically have flexible investment strategies that allow them to diversify across asset classes and utilize alternative techniques, such as sector rotation or macro hedging, in order to manage for varying market changes.

BREAKING DOWN 'All Weather Fund'

All weather funds use various investing strategies to achieve capital gains in all types of investing environments. Bridgewater is one hedge fund manager known for its all weather investing strategy. Numerous other funds also qualify because of the broad nature of the strategies included in the universe.

Balanced Funds

A balanced fund can be an all weather fund option. Take for example a simple balanced fund with a 60% equity and 40% fixed income portfolio allocation. Actively managing the equity portion of the fund to take advantage of varying market conditions while maintaining steady returns for investors from fixed income investments provides for balanced allocations that produce positive performance in all market conditions.

Funds without specified allocations often tend to perform even better in all types of market conditions because of their flexibility to adjust asset allocations. These funds often make asset allocation bets according to their views on domestic or global risk. Global risk allocation funds are a unique category because they adjust portfolio allocations by asset class to mitigate and offset losses in the high risk equity market with greater allocations to high yielding fixed income investments. Inversely, the reverse allocation is used when equity markets are trending higher. The flexibility to make asset class adjustments is a significant advantage that allows the fund to perform well in all types of markets.

The AllianceBernstein Global Risk Allocation Fund provides one example of a flexible global risk allocation product. In 2017 the Fund gained 12.06%. Since inception the Fund reports an annual return of 6.92%.

All Weather Strategies

All weather strategies also have the flexibility to deploy unique alternative techniques.


One strategy commonly used to produce gains in all market environments is a long/short strategy. These funds have the latitude to take both long and short positions. This allows them to buy investments they believe have upside potential and sell short securities they expect to depreciate in value. These funds have the flexibility to overweight long positions in times of market gains and overweight short positions in times of market losses.

Market Neutral

A market neutral strategy is another alternative technique that uses long/short positions. This varies from a typical long/short strategy since it seeks to benefit from paired trading that exploits potential arbitrage between matched securities. It achieves all weather market neutral gains because its strategy involves taking targeted pairs trade positions that lock in gains through the movement of paired securities.

Other Alternatives

There are also numerous other strategies that have proven to be effective in obtaining capital appreciation through all types of markets. Sector rotation and macro hedging are two strategies investors often look to for all weather returns. Both offer flexible investment strategies with the latitude to shift from different areas of the market rather than being constrained to a single sub-asset class.

Sector rotation strategies will rotate in and out of sectors that offer high growth potential or that have historical reputations for performance in certain types of markets. Inflation trades, technology, and other innovative sectors generally offer the highest potential returns in expanding economies. Inversely, in contracting markets, consumer staples and other highly relied upon sectors offer some safety.

Macro hedging is another flexible strategy that combines the theories of both sector rotation and long/short investing. Macro hedging strategies will seek to be invested in market driven sectors while also using long and short trades to take advantage of specific market catalysts.

The Bridgewater All Weather Strategy

Ray Dalio developed Bridgewater’s All Weather Strategy in the 1970s after observing market changes and potential return scenarios surrounding the political turmoil from Richard Nixon’s presidency.

Since the 1970s Bridgewater has been one of the most popularly referenced all weather strategies offering the potential to gain from all aspects of security price movements in the market. (See also: 4 Factors Ray Dalio Uses to Construct his All-Weather Portfolio.)

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