Inspired by Ray Dalio, last year’s success story is down 5% and in the news for other wrong reasons

The Wealthfront Risk Parity Fund launched early last year. It quickly mopped up $860 million in assets. But now, controversy surrounds its future.

Wealthfront now has more than $10 billion under management. The firm modeled its Risk Parity Fund after Ray Dalio’s core strategy. The fund diversifies portfolios in order to neutralize large price swings in any particular asset.

Wealthfront Risk Parity Fund: Underperformance, high costs

Counting from inception, the Risk Parity Fund is down 5%. But this year, the fund is up 11%, well above the 9% return from the S&P risk parity index.

Investors are still grumbling the underperformance. They’re also upset about the opaque, high-cost structure.  Wealthfront claims the fees for the product is 0.25%, the lowest in the industry for a risk parity product. However, that figure can move higher when one includes transaction costs (such as total-return swaps).

Robo-advisory is another sore point

Many higher net worth investors expressed shock and anger at one discovery. Wealthfront’s robo-advisory automatically invested 20% into the Risk Parity product if an account value exceeded $100,000. To opt-out, investors had to log-in and decline the investment.

In general, robo-advisors have advantages like digital convenience, low fees, and better transparency. However, Wealthfront Risk Parity Fund raises new questions about the promises of those latter features.