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A New Way to Balance Risk

AQR founder Cliff Asness explains risk parity.


Risk parity is one of the new ideas to reach mutual funds. Invesco uses the approach in its Balanced-Risk Allocation (ABRZX) and Balanced-Risk Target Date funds. AQR just launched the AQR Risk Parity fund. Its aim is to balance out risk among a number of factors based on recent volatility in those factors.

Its backers say this is a big improvement on the classic 60/40 balanced fund while critics say that it is needlessly complex. GMO's Ben Inker authored a critique; click here to read a portion of it.

What follows is the transcript of Morningstar's question-and-answer session with AQR founder Cliff Asness, in which he explains and defends risk parity.

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Russel Kinnel does not own shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.