(Bloomberg) -- Wealthfront Inc. is closing its risk parity fund after years of poor performance, marking the end of an uphill battle to offer the sophisticated strategy to the masses.
The digital wealth management firm said in a Monday filing that the Wealthfront Risk Parity Fund will be liquidated and dissolved on or about January 3. The product, which has almost $1.3 billion in assets, will no longer pursue its stated investment objective and will begin liquidating its portfolio “as soon as is reasonable,” the filing said.
The announcement marks the final chapter for the mutual fund, which has been a magnet for criticism since it was announced in 2018. The idea was to mimic the diversified investment style made famous by the billionaire hedge fund manager Ray Dalio.
Risk parity strategies can vary, but the overall idea is to invest across assets based on how volatile each is, often using leverage to optimize returns relative to the risks taken. But the investing style, in one form or another, has often disappointed in recent years, and Wealthfront’s version has performed particularly badly.
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Since inception, the Wealthfront Risk Parity Fund has delivered a loss of 2.2%, according to data compiled by Bloomberg, while the S&P Risk Parity Index gained more than 50%. That compares with a return of about 126% for the S&P 500 Index.
A spokesperson for Palo Alto, California-based Wealthfront said the closure of the risk parity fund was part of a larger update of the firm’s recommended asset allocations, which it conducts intermittently based on new market data.
“That fund’s performance has been terrible,” Jeffrey Ptak, chief ratings officer at Morningstar Research Services, said by email. “Probably an example of trying to extrapolate performance of a strategy in one environment (which was pretty benign if you were rebalancing into bonds and were borrowing as rates were grinding lower) to another (which has been far less benign in those ways).”
Wealthfront is one of the best-known of a breed of young money managers often dubbed robo-advisers for their use of technology to offer simple investing solutions to the masses. The company has grown to command $75 billion in assets, largely through positioning itself as a user-friendly, low-cost place to make investments.
The firm’s risk parity offering was its first proprietary mutual fund, and it attracted controversy from the start because it automatically opted users into the fund, rather than allowing them to join of their own volition. Just months after its launch, a backlash from investors prompted Wealthfront to slash fees for the product in half.
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Risk party flourished following the 2008 financial crisis as investors sought a way to protect themselves from the next big cataclysm. But its defensive appeal has lost some of its shine as US stocks have marched ever higher in the past decade, and after it struggled to deliver on its promise during several market shocks that rippled across assets.
