NEW YORK ( TheStreet) - The markets may be rallying, but plenty of investors worry that stocks could sink again. To reach cautious shareholders, fund companies have been introducing a new breed of low-risk funds.

Known as risk-parity funds, they are designed to avoid big losses -- even in the kind of turmoil that prevailed during the credit crisis. The portfolios hold broad collections of assets. Among the new funds are AQR Risk Parity ( AQRIX), Invesco Balanced-Risk Allocation ( ABRYX), and Managers AMG FQ Global Essentials ( MMAVX).

The risk-parity funds aim to serve as alternatives to traditional portfolios that have 60% of assets in equities and 40% in bonds. Long embraced by pensions and financial advisors, the 60-40 portfolios have been viewed as all-weather investments. But during the downturn of 2008, the classic portfolios lost around 18% and left investors furious.

Proponents of the risk-parity funds say that 60-40 portfolios lost money in the downturn because they rely too heavily on stocks. During 2008, the Barclays Capital aggregate bond index returned about 8%, but gains that size did little to protect investors in a year when the S&P 500 lost 37%.

While the classic portfolios only have 60% of assets in equities, the equities account for 90% of the risk, as indicated by standard deviation, a measure of how much investments bounce up and down. To make sure that investors are never swamped, no one asset should account for a preponderance of the risk, say risk-parity proponents. "Every asset in the portfolio should matter, but nothing should matter too much," says Michael Mendelson, an AQR portfolio manager.

To illustrate how investors can diversify the sources of risk, Invesco cites a theoretical risk-parity portfolio that includes stocks, bonds, and commodities. The mix should provide protection because the assets do not typically all rise and fall at once. In order to prevent one holding from swamping the portfolio, the risks of all the assets must be balanced. While high-risk stocks should only account for 20% of assets, low- risk bonds can be 60%. Commodities, which are high risk, can account for 20%.

Though they agree about the need to balance the risk levels of portfolio holdings, the new risk-parity funds all follow different strategies to achieve the goal. Managers AMG varies its stocks holdings to account for changes in risk.

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