Risk Parity in a Rising Rates Regime

Salient Capital Advisors

Roberto Croce, Rusty Guinn

Research

15 Pages

Salient examines how risk parity strategies have historically performed during sharply rising interest rate environments and whether today’s lower starting yields change the outcome. Using 1971 through 1982 simulations, it argues adaptive portfolio construction and diversification may matter more than bond exposure alone.

Key Takeaways

Historical Resilience: From 1971 through 1981, the modeled risk parity strategy returned 235% versus 118% for a 60/40 portfolio despite 10 Year Treasury yields rising from 6.24% to 15.32%.
Lower Yield Test: With starting Treasury yields reduced to 1.6%, cumulative returns narrowed to 65% for risk parity versus 61% for 60/40, suggesting competitive results even in a tougher scenario.
Momentum Advantage: Adding a momentum allocation increased cumulative returns to 285%, compared with 65% for standard risk parity and 61% for the counterfactual 60/40 portfolio.
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