A high-profile proponent of risk parity strategies has warned that a change in stock-bond correlations – a growing possibility as central banks exit quantitative easing – presents the biggest threat to this popular investment approach.
Steep rate hikes by the US Federal Reserve, for example, as it ends a decade of loose monetary policy, could threaten the offsetting effect of fixed-income and equity positions that underpins risk parity investing, said Kasper Ahrndt Lorenzen, chief investment
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