Risk Parity That Works?

The Beacon Tactical Alternatives Risk ETF (BTA) just started trading a few weeks ago and it is a variation on risk parity. Instead of  more typical asset classes like stocks, gold/commodities and bonds, the sleeves for BTA are gold, broad commodities, managed futures, digital assets but I don't see any in the fund currently and US dollar exposure which means the USDU ETF and a lot of different short term fixed income.

Part of the pitch for this fund is that it can be a "third independent return system to the classic stock/bonds mix." The fund is actively managed so the above holdings can change but the list above is easy to backtest. To create a longer backtest, I combined all the managed futures funds into KMLMsim on testfol.io and I used DBC which is the older cousin of PDBC.

Looked at as a standalone, the results are uninspiring compounding at 3.82% for almost 13 years. While those results really are meh, the replication does something interesting when paired with equities.

Risk parity has generally been difficult to implement in a mutual fund or ETF, look at how poorly RPAR has done. AQRIX is an AQR fund that used to run a risk parity strategy, it changed a while back but I think of it as still being risk parity adjacent. 

Also in the BTA literature is a mention of 50/30/20 replacing 60/40 where the 20 is alts and I think they are suggesting the 20% go to BTA. But with all that USDU and the short term debt, the fund has about 50% in fixed income or fixed income substitutes so allocating 50% to the BTA replication like we did in Portfolio 4 gets kind of close to 50/30/20. 

Portfolio 4 did better in just about every drawdown in the backtest, both fast and slow, except the tariff panic of 2025. In 14 full and partial years, Portfolio 4 outperformed VBAIX seven times so that's kind of a push but in a couple of the years that it lagged, it lagged VBAIX by a lot. In periods where managed futures and commodities both do poorly, obviously BTA as currently constituted should also be expected to struggle. 

The fund going forward could be different and like I said, it doesn't appear to me that there are any digital assets in there but if BTA uses risk weighting then the allocation to digital should be small enough that a catastrophe in something like Bitcoin wouldn't wreck the fund, it seems like potentially an asymmetric kicker if/when they actually add it. 

For now though, this seems interesting to me. It is only a month old (backtest is long enough to set some expectations) but it makes a good first impression. 

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