As volatility intensifies in China's markets, macro hedge strategies built on multi-asset allocation are once again showcasing their relative defensive strength.

According to a US media report on Tuesday, July 18, Bridgewater China's All-Weather Enhanced strategy, which oversees over RMB 60 billion in assets, experienced a drawdown in July. However, it managed to maintain a positive return for the year as of the end of July. Meanwhile, macro hedge funds tracked by PaiPaiWang recorded notably smaller declines compared to the broader stock market.

The report cited a letter from Bridgewater China to its investors, stating that as of July 31, the All-Weather Enhanced strategy posted a pre-fee loss of 2.8% in July, yet still gained approximately 3% year-to-date. In comparison, Wenjing Private Fund, managed by former Bridgewater employees, fell 4.4% in July but remained up 12% for the year. The Xiaohongzhang Fund under Hangzhou Boli Erxiang dropped 1% in July, while still delivering a 10.6% return year-to-date.

Looking at the broader industry, the 309 macro hedge funds tracked by PaiPaiWang averaged a 3.5% decline in July but still recorded a 1.9% gain for the year. In contrast, Chinese hedge funds overall posted an average loss of 7.3% in July, making the relative resilience of macro strategies even more pronounced.

Bridgewater China's 2.8% July Drawdown, Yet Positive Year-to-Date Returns

The key takeaway from Bridgewater China's recent performance lies not in avoiding losses entirely, but in controlling the magnitude of the drawdown.

According to the investor letter, the All-Weather Enhanced strategy lost 2.8% before fees in July, but remained up approximately 3% for the year through the end of July. Since its inception in July 2023, the strategy has achieved an annualized return of 26.3%, with a maximum drawdown of 9.9%.

What's more noteworthy is that Bridgewater China had already delivered a strong annual performance prior to this period.

In 2025, Bridgewater China's onshore funds generated a full-year return of approximately 45%, marking their best performance in five years. As previously reported, the firm's onshore All-Weather Enhanced fund posted a pre-fee return of roughly 44.5% in 2025, with the systematic All-Weather portfolio contributing 25.8% and active management adding around 17%. This performance significantly outpaced the CSI 300 Index's gain of approximately 18% over the same period.

Therefore, despite market fluctuations this year, Bridgewater China's All-Weather strategy has managed to sustain positive returns, further highlighting how its multi-asset allocation framework helps control portfolio volatility.

Diversified Allocation Provides a "Safety Buffer"

At the core of Bridgewater's All-Weather strategy lies risk parity—a method of combining different asset classes such as stocks, bonds, and commodities to prevent the portfolio from becoming overly reliant on any single asset.

Bridgewater China stated in its investor letter that the All-Weather Enhanced fund effectively cushioned against sharp swings in individual asset classes through multi-asset allocation. In July, the fund benefited from gains in bond investments, while rising prices of certain commodities also made a positive contribution.

This is precisely what distinguishes macro funds from single-asset strategies: when one asset class underperforms, returns from other assets can help offset the losses to a certain degree.

Data from PaiPaiWang shows that the 309 macro hedge funds averaged a 3.5% decline in July yet maintained a 1.9% gain for the year, performing significantly better than the overall Chinese hedge fund landscape.

However, macro funds are not inherently low-volatility, and strategy differences across products remain substantial. Funds that rely entirely on discretionary judgment may experience significant interim drawdowns. For instance, Shanghai Banxia's Balanced Macro Fund rose 11% in July but was still down 14% for the year. Meanwhile, Shanghai Jiuzi Investment's Macro Hedge No. 1 Fund suffered a 44% decline in July.

Beyond Systematic Allocation: Active Management Also Contributes Returns

Bridgewater China's performance is not solely driven by mechanical asset allocation.

According to the investor letter, in the second quarter ending June 30, the team's active management contributed 2.4% in returns, while the systematic All-Weather portfolio declined 0.5%, resulting in an overall quarterly return of 2.3%.

This indicates that beyond its multi-asset risk parity framework, Bridgewater China also leverages fund managers' active judgment to capture macroeconomic opportunities.

Wenjing Private Fund's performance reflects a similar approach. Its quarterly investor letter revealed that macro allocation strategies contributed 3.6% in the second quarter, while quantitative strategies added another 3.5%.

For macro funds, this combination of "systematic risk diversification plus active opportunity capture" allows them to spread risk across different assets while dynamically adjusting to changing macroeconomic conditions.

Following periods of significant market volatility, the core advantage of macro strategies is once again drawing attention: the objective is not to completely avoid losses, but to keep portfolio drawdowns as contained as possible when individual assets or markets experience sharp fluctuations—while preserving the capacity to participate in the next market cycle.