Jettison QSPIX?

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ilan1h
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Jettison QSPIX?

Post by ilan1h »

Please advise regarding QSPIX. I purchased this several years ago based on advice on this forum from Larry Swedroe. This is a liquid alternative fund designed to be part of an overall portfolio. It's beta is very low and it is designed to reduce the fat tail risk at either end of the returns curve. In essence, it seems to act in a similar fashion as bonds do to cushion the gyrations in the portfolio. Overall it seems to have done that by zigging when the market is zagging. It has an ER of 2.33% (by far the largest ER I pay on anything that I own). Overall it has lost substantially since I purchased it but I fully understand that this is completely expected and it simply doing what it is paid to do. My concern is whether or not it is worth going this route. My muni bond funds and BND also seem to zig when the market zags, and when combined with my stock funds they act as a very reasonable buffer to gyrations in the portfolio. Furthermore, their ER is essentially 10X less than QSPIX and they are far easier to wrap one's brains around (QSPIX is an incredibly complicated beast to understand). I don't regret the "experiment" of adding this to my portfolio but am reluctant to expand it's use by adding more of it. In general I have tried to keep a 50/50 mix of bonds to stocks and could theoretically decrease the bond component by adding more liquid alternatives if I understood it better. Would be very happy to hear alternative opinions on this alternative investment. One side note: when I purchase CA munis or BND I inherently trust the institutions behind them; QSPIX...not so much.
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whodidntante
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Re: Jettison QSPIX?

Post by whodidntante »

Has your investing thesis changed? Have you lost confidence in the strategy and the benefits of holding the fund, and did you understand it in the first place? It doesn't matter if Larry Swedroe understands it, because you're the one who needs the conviction to hold the fund through a period of underperformance.
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Re: Jettison QSPIX?

Post by DaufuskieNate »

I own this fund and will maintain its position in my asset allocation going forward.

You have alluded to the fact that you find this fund difficult to understand and that you don't trust AQR. Frankly, if I felt this way about either one of these concerns it would cause me to take a pass. The best way to understand this fund is to read Expected Returns by Antti Ilmanen. As for the trust factor with AQR, that's up to you to decide whether you can get comfortable with them or not.
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Re: Jettison QSPIX?

Post by tarheel »

Couple of things - with fee waivers and reimbursements the ER is 1.61% for QSPIX.

I have owned QSPIX for a few years at 7.5% allocation in my portfolio. I look at it as a 3rd dimension of returns, nearly uncorrelated to stocks or bonds. I am up overall with my position, although was up significantly more before. I believe in the approach and understand it well enough to my satisfaction.
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Re: Jettison QSPIX?

Post by nisiprius »

1) What percentage of your portfolio is it?

2) Have you actually lost money in it yet, or has it just made you less money than you hoped?

3) If you had not bought it, would would that money have been invested in, and how would it have done?

Personally, I wouldn't have even considered purchasing this fund because it is Just Not My Thing. (I suspect "alternatives" are a crock.) But you must think otherwise or you wouldn't have bought it in the first place.

However, if I had purchased it I would have written down
  • What I expected from it
  • How long I expected to hold it
  • What is my "exit strategy," i.e. what is the situation under which I would sell it
Deciding these things on the fly without having written them down is a recipe for hasty and impulsive decisions. If you didn't write them down, try to go back in your mind to the point where you bought the fund and reconstruct them, and write them down now.

I believe that our natural tendency is to make portfolio changes far too often. Therefore, I believe in cultivating a bias toward "staying the course" in order to counter that tendency. That means staying the course even when I have serious doubts about whether my portfolio is the very best it can possibly be. It takes a lot to convince me to add something new. Having added it, it takes a lot to convince me to dump it. (Call it inertia or pigheadedness if you like--I personally call it "hysteresis.")

What has Larry Swedroe said, and what have the fans of this fund in this forum said, about the appropriate holding period for a fund like this?

If you look at the actual record of how it has actually done so far (blue) it has done about the same as the benchmark Morningstar chose for it (green), or the Vanguard LifeStrategy Conservative Growth fund (yellow, a Bogleheadish traditional portfolio with about a 40/60 allocation). It has also far outperformed the other funds in the category Morningstar put it in ("multialternatives," orange). Whether its behavior is sufficiently different from that of traditional stocks and bonds for it to give it much of diversification boost is dubious, but I'm too lazy to check that out.

Source

Image

It seems to me that very likely this fund has done nothing much for your portfolio, one way or the other. That is, it probably hasn't helped a lot, but you probably don't have anything to complain about, either.

If you have a strong conviction that you want alternatives, this seems like a good fund of its kind. If you believe in AQR's strategy of a long-short, leveraged portfolio of "stocks of major developed markets, country indices, bond futures, interest rate futures, currencies and commodities" and believe AQR is a firm that can execute this strategy well, then consider sticking it out.

If you now realize that you never had much conviction in these assets or this strategy, bought it on someone's say so, it's just sitting in your portfolio festering... and you have a chance to get rid of it without an actual loss, then consider dumping it.
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Re: Jettison QSPIX?

Post by aristotelian »

Personally I do not believe in going down with a sinking ship just because you thought something was a good idea at the time. If you would not buy the fund today with free cash, then you should not stay in it out of inertia. Going forward, commit to an IPS and stick with it.

For transparency, I do not believe in alternatives. I don't worry about non-correlated returns because I have a long timeframe on the risk side of my portfolio.
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Re: Jettison QSPIX?

Post by Dialectical Investor »

aristotelian wrote: Sun Jan 20, 2019 3:46 pm Personally I do not believe in going down with a sinking ship just because you thought something was a good idea at the time. If you would not buy the fund today with free cash, then you should not stay in it out of inertia. Going forward, commit to an IPS and stick with it.
The last part confuses the situation. If you have an IPS, you can still re-evaluate your plan and change it if you want. Imagine if the OP put QSPIX in his/her IPS before purchasing it. No need to commit to going down with the ship if they think that is what's going to happen.
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Re: Jettison QSPIX?

Post by stlutz »

Keep in mind that QSPIX can go up when both stocks and bonds go down. Whether that would happen is a coin toss, but there is no necessary reason that QSPIX would go down if everything else went down.

My personal complaint about QSPIX is that is it doesn't intrinsically produce a positive return. Bonds pay interest; stocks earn money and pay dividends. QSPIX is a trading strategy betting that what worked in long-term historical backtests will work in the future. Those strategies might work or they might not, but there isn't something intrinsic to the investment that will cause the return to be positive.

When in doubt, I always vote for no change. But if you really don't believe in the investment and your belief is not driven by recent performance, then definitely make a change.
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Re: Jettison QSPIX?

Post by nedsaid »

ilan1h wrote: Sun Jan 20, 2019 1:54 pm Please advise regarding QSPIX. I purchased this several years ago based on advice on this forum from Larry Swedroe. This is a liquid alternative fund designed to be part of an overall portfolio. It's beta is very low and it is designed to reduce the fat tail risk at either end of the returns curve. In essence, it seems to act in a similar fashion as bonds do to cushion the gyrations in the portfolio. Overall it seems to have done that by zigging when the market is zagging. It has an ER of 2.33% (by far the largest ER I pay on anything that I own). Overall it has lost substantially since I purchased it but I fully understand that this is completely expected and it simply doing what it is paid to do. My concern is whether or not it is worth going this route. My muni bond funds and BND also seem to zig when the market zags, and when combined with my stock funds they act as a very reasonable buffer to gyrations in the portfolio. Furthermore, their ER is essentially 10X less than QSPIX and they are far easier to wrap one's brains around (QSPIX is an incredibly complicated beast to understand). I don't regret the "experiment" of adding this to my portfolio but am reluctant to expand it's use by adding more of it. In general I have tried to keep a 50/50 mix of bonds to stocks and could theoretically decrease the bond component by adding more liquid alternatives if I understood it better. Would be very happy to hear alternative opinions on this alternative investment. One side note: when I purchase CA munis or BND I inherently trust the institutions behind them; QSPIX...not so much.
Sounds to me like a person in dire need of an Investment Policy Statement. As the late great American philosopher Yogi Berra once said, "If you don't know where you are going, how are you going to know when you get there?" You need to do some soul searching and determine what it is that you really believe about investing. What happens if you sell and QSPIX starts performing well again? Buy it back?

As for me, I have looked at Alternatives and have passed. A few reasons. First, I don't fully understand how these things work. Second, I have limited access to such funds. Third, I do blanch a bit when I look at expenses. Fourth, the performance from such funds have not been impressive. Fifth, I don't want to hire an advisor just to gain access and thus acquire another layer of fees.
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Re: Jettison QSPIX?

Post by grok87 »

ilan1h wrote: Sun Jan 20, 2019 1:54 pm Please advise regarding QSPIX. I purchased this several years ago based on advice on this forum from Larry Swedroe. This is a liquid alternative fund designed to be part of an overall portfolio. It's beta is very low and it is designed to reduce the fat tail risk at either end of the returns curve. In essence, it seems to act in a similar fashion as bonds do to cushion the gyrations in the portfolio. Overall it seems to have done that by zigging when the market is zagging. It has an ER of 2.33% (by far the largest ER I pay on anything that I own). Overall it has lost substantially since I purchased it but I fully understand that this is completely expected and it simply doing what it is paid to do. My concern is whether or not it is worth going this route. My muni bond funds and BND also seem to zig when the market zags, and when combined with my stock funds they act as a very reasonable buffer to gyrations in the portfolio. Furthermore, their ER is essentially 10X less than QSPIX and they are far easier to wrap one's brains around (QSPIX is an incredibly complicated beast to understand). I don't regret the "experiment" of adding this to my portfolio but am reluctant to expand it's use by adding more of it. In general I have tried to keep a 50/50 mix of bonds to stocks and could theoretically decrease the bond component by adding more liquid alternatives if I understood it better. Would be very happy to hear alternative opinions on this alternative investment. One side note: when I purchase CA munis or BND I inherently trust the institutions behind them; QSPIX...not so much.
as per its fact sheet
https://funds.aqr.com/our-funds/alterna ... ative-fund
qspix is leveraged 9.35:1. That means if you give them $1 they make $9 worth of bets, say roughly $5 long and $4 short. If their average bet loses 11% they will be bust. is that the sort of vehicle you thought you were investing in

QSPIX is in fact so heavily leveraged that it was too rich for some investors blood and they rolled out a less leveraged version QSLIX. That one is only levered 4.5:1
https://funds.aqr.com/our-funds/alterna ... fund#qslix
see the fact sheet.
so that fund makes $4.5 dollars worth of bets when you give them $1. If that funds average bet loses 22% then the fund will be bust.

then there is vanguards competing fund VASFX
that is leveraged 1.75:1
see this link
http://portfolios.morningstar.com/fund/ ... ture=en_US
so if VASFX's average bet loses 57% then VASFX will be bust.

cheers,
grok
RIP Mr. Bogle.
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Re: Jettison QSPIX?

Post by abuss368 »

You may need to look at your overall investment portfolio. I would consider a few total market index funds and then stay the course.

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Re: Jettison QSPIX?

Post by willthrill81 »

Dialectical Investor wrote: Sun Jan 20, 2019 4:24 pm
aristotelian wrote: Sun Jan 20, 2019 3:46 pm Personally I do not believe in going down with a sinking ship just because you thought something was a good idea at the time. If you would not buy the fund today with free cash, then you should not stay in it out of inertia. Going forward, commit to an IPS and stick with it.
The last part confuses the situation. If you have an IPS, you can still re-evaluate your plan and change it if you want. Imagine if the OP put QSPIX in his/her IPS before purchasing it. No need to commit to going down with the ship if they think that is what's going to happen.
I agree. Having an IPS doesn't forbid you from ever reevaluating your approach.

The OP's problem is a common one with factor investing and 'alternatives': sooner or later, they will underperform the broad stock market that forms the core of many investors' portfolios, and this underperformance can go on for years, as in a decade or more. If one lacks the conviction to stick with such a strategy, they may be better off avoiding it altogether.
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Re: Jettison QSPIX?

Post by typical.investor »

ilan1h wrote: Sun Jan 20, 2019 1:54 pm In essence, it seems to act in a similar fashion as bonds do to cushion the gyrations in the portfolio.

In general I have tried to keep a 50/50 mix of bonds to stocks and could theoretically decrease the bond component by adding more liquid alternatives if I understood it better.

Would be very happy to hear alternative opinions on this alternative investment. One side note: when I purchase CA munis or BND I inherently trust the institutions behind them; QSPIX...not so much.
I would prefer simpler bonds over a highly leveraged complex portfolio that doesn't have a long track record, but also believe strongly in staying the course.

In any case, let me ask the question:

Are Factors Better and More Diversifying Than Asset Classes? https://alphaarchitect.com/2018/02/23/a ... -think-so/
Factor strategies have been statistically uncorrelated to each other and asset classes....We can see the average cross-correlation is near zero. But this does not mean they are fundamentally uncorrelated to asset classes and therefore to most portfolios.
asset class performance is reliable in different economic environments of rising/falling Growth and Inflation
We think factor strategy returns are also biased to perform in certain environments for similar fundamental reasons.
Here, all strategies except Value, outperformed when inflation was falling. Value was neutral to shifts in inflation and most diversifying to equities. This means Momentum, Quality, and Low Volatility are correlated to equities when inflation is the biggest driver of markets. Said another way, these same strategies have a bond-like nature and perform best with falling rates.
Single factor strategies can go through long stretches of underperformance as we have shown. Combining multiple, uncorrelated factors into a single portfolio is being done with the aim of delivering returns more consistently. But we have shown that many of these strategies have similar biases to economic environments. Momentum, Low Volatility, and Quality strategies have all performed best when bonds do well. Combining all of these factors together should create a portfolio that behaves like Treasury bonds.
So I'm not convinced that QSPIX is really worth the cost/risk if it's not something truly different to the economic environment. If factors are correlated to inflation, then maybe something like Vanguard's Hedged International bonds would do the trick. After all, they provide US like bond returns but diversify by not having the same timing of rate hikes as the US.

Selling due to a period of underperformance is just plain wrong though.
Last edited by typical.investor on Sun Jan 20, 2019 10:36 pm, edited 1 time in total.
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Re: Jettison QSPIX?

Post by ilan1h »

I may have been a little harsh when I suggested that I don't "trust" AQR. I'm sure that they're very nice and well-meaning but, frankly, even after reading extensively about them I simply don't understand it. I look at it the following way: there are two hypothetical approaches to achieving market returns (1) High returns with signficant upsides and downsides on an ongoing basis ie:fat tails on either side of the returns curve (2)Lower expected returns with thinner tails. Strategy #2 is what helps me sleep better at night. I have been able to achieve strategy #2 by investing at least 50% of my net worth in Calif munis and BND. I have a very high degree of confidence in the state of CA, the U.S.A and Vanguard. Therefore, I sleep fairly easily with VCADX and BND comprising a full 50% of my assets. AQR is going for the same end goal ie: an anti beta approach that thins the negative tail a bit more efficiently with somewhat less risk than bonds. They describe themselves as market diversifiers who don't rely on asset allocation as much as style diversification ("carry, trend, momentum, volatility and liquidity"). The people who run the bond funds that I invest in do not really have to be geniuses to attain the stated goals of the funds. AQR, OTOH, requires a much higher alpha (20X plus ER) and an approach that's so complicated it would take me a year to understand it. Despite my initial enthusiasm for AQR I think I'll stick with the dullards that run the bond funds. A 50/50 mix of stocks to bonds has not had a losing 5 year period since the great depression.
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Re: Jettison QSPIX?

Post by grok87 »

ilan1h wrote: Sun Jan 20, 2019 7:44 pm A 50/50 mix of stocks to bonds has not had a losing 5 year period since the great depression.
so i'm not trying to talk you into staying with QSPIX.
the above statement may be true in nominal terms. But arguably it is real returns that matter.
put another way, there were probably years in the 70s/80s when both stocks and bonds did poorly. the 50/50 may have squeaked out an above zero nominal return. but given the very high inflation of that period the real return may have been rather negative.

in unconventional success swensen argues for tips and real estate as assets worth adding to the conventional stock/bond mix in part because of the risk of periods like the stagflationary 70s/80s
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Re: Jettison QSPIX?

Post by nisiprius »

grok87 wrote: Sun Jan 20, 2019 7:55 pm...in unconventional success swensen argues for tips and real estate as assets worth adding to the conventional stock/bond mix in part because of the risk of periods like the stagflationary 70s/80s...
Neither of which is contained in QSPIX. Just saying.
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Re: Jettison QSPIX?

Post by willthrill81 »

grok87 wrote: Sun Jan 20, 2019 7:55 pm
ilan1h wrote: Sun Jan 20, 2019 7:44 pm A 50/50 mix of stocks to bonds has not had a losing 5 year period since the great depression.
so i'm not trying to talk you into staying with QSPIX.
the above statement may be true in nominal terms. But arguably it is real returns that matter.
put another way, there were probably years in the 70s/80s when both stocks and bonds did poorly. the 50/50 may have squeaked out an above zero nominal return. but given the very high inflation of that period the real return may have been rather negative.
Yep. A 50/50 mix of TSM and ITT from 1977-1981 had a real CAGR of -2.27%.
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Re: Jettison QSPIX?

Post by grok87 »

nisiprius wrote: Sun Jan 20, 2019 9:06 pm
grok87 wrote: Sun Jan 20, 2019 7:55 pm...in unconventional success swensen argues for tips and real estate as assets worth adding to the conventional stock/bond mix in part because of the risk of periods like the stagflationary 70s/80s...
Neither of which is contained in QSPIX. Just saying.
agree.
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Re: Jettison QSPIX?

Post by grok87 »

willthrill81 wrote: Sun Jan 20, 2019 9:37 pm
grok87 wrote: Sun Jan 20, 2019 7:55 pm
ilan1h wrote: Sun Jan 20, 2019 7:44 pm A 50/50 mix of stocks to bonds has not had a losing 5 year period since the great depression.
so i'm not trying to talk you into staying with QSPIX.
the above statement may be true in nominal terms. But arguably it is real returns that matter.
put another way, there were probably years in the 70s/80s when both stocks and bonds did poorly. the 50/50 may have squeaked out an above zero nominal return. but given the very high inflation of that period the real return may have been rather negative.
Yep. A 50/50 mix of TSM and ITT from 1977-1981 had a real CAGR of -2.27%.
thanks
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Re: Jettison QSPIX?

Post by nedsaid »

grok87 wrote: Sun Jan 20, 2019 7:55 pm
ilan1h wrote: Sun Jan 20, 2019 7:44 pm A 50/50 mix of stocks to bonds has not had a losing 5 year period since the great depression.
so i'm not trying to talk you into staying with QSPIX.
the above statement may be true in nominal terms. But arguably it is real returns that matter.
put another way, there were probably years in the 70s/80s when both stocks and bonds did poorly. the 50/50 may have squeaked out an above zero nominal return. but given the very high inflation of that period the real return may have been rather negative.

in unconventional success swensen argues for tips and real estate as assets worth adding to the conventional stock/bond mix in part because of the risk of periods like the stagflationary 70s/80s
Thank you. I have kept TIPS and REITs in my portfolio as inflation insurance and to hedge against a return of stagflation. I have stayed with these asset classes after many Bogleheads gave up on them.
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Re: Jettison QSPIX?

Post by matjen »

ilan1h wrote: Sun Jan 20, 2019 1:54 pm Please advise regarding QSPIX. I purchased this several years ago based on advice on this forum from Larry Swedroe... Overall it has lost substantially since I purchased it but I fully understand that this is completely expected and it simply doing what it is paid to do.
OP, I'm not sure it is possible to have bought QSPIX several years ago and be down substantially. Do not trust the return figure that your brokerage provides. For instance, my last purchase of QSPIX came on 1/10/17. Fidelity shows me being down -7.46% (for this particular holding in this particular account). However, when I open up the actual purchase history/lots of the holding it reveals that I invested X amount of dollars and then had two more auto reinvestments during this period. I am actually up a tiny bit on this two year position. So be sure to account for that.
Last edited by matjen on Mon Jan 21, 2019 7:01 pm, edited 1 time in total.
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Re: Jettison QSPIX?

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I removed an off-topic post and reply. As a reminder, see: General Etiquette
We expect this forum to be a place where people can feel comfortable asking questions and where debates and discussions are conducted in civil tones.

At all times we must conduct ourselves in a respectful manner to other posters.
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Re: Jettison QSPIX?

Post by bluquark »

Investments like QSPIX are in an interesting spot in that their pitch is low volatility, diversification and lack of correlation. Basically a tool for risk-averse investors, but they are so new and untested that few risk-averse investors really want to touch it. In 50 years the good "alt" strategies (if any) will have shown their ability to withstand various crises and secular markets and produce the expected uncorrelated returns. They will finally be standard portfolio tools for everyone, and their popularity should also reduce their ER thanks to competition and economies of scale.

In our investing lifetime, alt holders will remain guinea pigs, who have to live in fear of unknown unknowns damaging the investment that is supposed to protect them from some known unknowns. Maybe some of them will prove to have been the right choice in the end but it seems very challenging to convince oneself of it.
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Re: Jettison QSPIX?

Post by ilan1h »

[/quote]

OP, I'm not sure it is possible to have bought QSPIX several years ago and be down substantially. Do not trust the return figure that your brokerage provides. For instance, my last purchase of QSPIX came on 1/10/17. Fidelity shows me being down -7.46% (for this particular holding in this particular account). However, when I open up the actual purchase history/lots of the holding it reveals that I invested X amount of dollars and then had two more auto reinvestments during this period. I am actually up a tiny bit on this two year position. So be sure to account for that.
[/quote]
Unless I'm misunderstanding, the position has declined roughly 18% in the last 12 months (from 11 to 9). It is down 12.5% for the year. I'm not enjoying this ride as much as my bond funds. My bond funds have the disadvantage of slow growth when the market is booming, but they've save my hide many times when the market is collapsing. I was grateful for those bonds during the 2008-2009 decline when they very effectively buffered a 50% decline in the market. I like the safe side of my investments to act safe!
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Re: Jettison QSPIX?

Post by matjen »

You are misunderstanding OP because you are forgetting about dividends.

https://seekingalpha.com/symbol/QSPIX/dividends/history

There is no doubt that QSPIX has had a tough year. No argument there. But if you have owned it for 2 years (not to mention four or whatever "several years" may mean to you as you stated in your original post) then you are near bonds but go out a few years and you are beating bonds. One of my positions is two years old and I am up a few dollars because the dividend reinvestment. I am not "substantially" down. I was down last year but not overall.

This all depends on how your account is set up but with an expensive to trade fund like QSPIX I like to auto-reinvest dividends. You may have those dividends just showing up as cash in a sweep account. Either way they were paid out. Look back at how many shares and how much money you initially invested in QSPIX. Now look at the account balance. My initial buy of QSPIX in this account was at 9.86/share and today QSPIX is at 9.16 but I am still up a smidgen because I have a bunch more shares from dividends. I made up the share price loss in volume as they say. :wink:

Having said that, QSPIX is not a pure bond substitute and surely not as safe as treasuries. No argument there either but it sounds to me like you really don't understand it it so it pains me to say sell. :happy Generally speaking I think it is poor decision making to buy things for a few years and sell when they have a rough year but I don't think this is right for you.
Last edited by matjen on Mon Jan 21, 2019 8:54 pm, edited 1 time in total.
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Re: Jettison QSPIX?

Post by SlowMovingInvestor »

One thing I noticed is that QSPIX is closed to new investors at Fidelity. I'm not sure if there is any other way for retail investors to get it without an advisor for reasonable minimums.

So anyone jettisoning QSPIX may not be able to get back in if they change their mind.
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Re: Jettison QSPIX?

Post by Ketawa »

SlowMovingInvestor wrote: Mon Jan 21, 2019 8:49 pm One thing I noticed is that QSPIX is closed to new investors at Fidelity. I'm not sure if there is any other way for retail investors to get it without an advisor for reasonable minimums.

So anyone jettisoning QSPIX may not be able to get back in if they change their mind.
QSPIX is closed to all new investors.
Bitzer
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Re: Jettison QSPIX?

Post by Bitzer »

Well, QSPIX has been down approximately 7.5% since the previous post was written. I'm trying to stay the course, as they say, and hold this fund through a complete investment cycle. Does anyone know what a complete investment cycle is for this fund? Thanks!
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ilan1h
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Re: Jettison QSPIX?

Post by ilan1h »

My Vanguard account shows that I am down 20% on my QSPIX since investment in 2014 (cost basis compared to current market value). My dividends are all re-invested so this is not an issue of dividends being swept to other cash accounts as suggested by a previous post. When compared to other diversifiers this has been an unusual loss. Fortunately, this is only a small part of my overall portfolio.
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Re: Jettison QSPIX?

Post by AlphaLess »

Since the fantastic quant melt-down of 2018 Dec, QSPIX and other similar funds continue their march towards the bottom.

I think it is a very nicely constructed portfolio if you want to lose your money on a consistent basis.

There are several principles why I think in the long-term QSPIX and similar things won't work:
- hedge-fund managers paradox,
- the front-runnable nature of something like QSPIX,
- 2.x% fee.
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Re: Jettison QSPIX?

Post by nisiprius »

ilan1h wrote: Sun Jan 20, 2019 1:54 pm..In essence, it seems to act in a similar fashion as bonds do to cushion the gyrations in the portfolio. Overall it seems to have done that by zigging when the market is zagging...
But has it actually done that, so far? In fact, has it been any better than bonds? If so, in what way?

Since inception of QSPIX, its correlation with stocks has been +0.10%. What that it means is that sometimes it zigged when the market zagged, and sometimes it sometimes it zagged when the market zagged. Low correlation, to be sure--essentially zero correlation--but that's a far cry from the negative correlation implied by your phrase.

Compared to plain old Vanguard Total Bond, we see that Total Bond has had considerably higher return, considerably lower standard deviation, and it actually did have a slight touch negative correlation, although--as the leveraged ETF fans will point out--not enough to do much good.

Source

Image

It may be pointed out that QSPIX also had near-zero correlation with VBTLX, independent of both, raising the question of whether, while lackluster in itself, it might still improve a portfolio limited to traditional securities.

Let's use Vanguard LifeStrategy Moderate as an example of a 60/40 portfolio using only traditional securities, and compare what would have been the effects of using it for 80% of the portfolio, and either QSPIX or VBTLX for the other 20%.

Source

Image
Image

Compared to the blue line (100% LifeStrategy Conservative, VSMGX), using QSPIX (red line) didn't do any serious damage, but it made the maximum drawdown worse, and it didn't improve the Sharpe ratio. It improved the Sortino ratio microscopically.

In contrast, adding Total Bond (to the allocation already inside LifeStrategy Conservative) (yellow line) mitigated the maximum drawdown and improved both the Sharpe and Sortino ratios.

If you like, QSPIX was "bond-like," but I'm darned if I see anything it did that Total Bond didn't do better.

That's past results, over less than six years, during a period that is "all the same market." We won't have a fair test until we've seen other parts of the business cycle. So far, the low correlation has been there, but in my quick reality check, "portfolio improvement through low correlation" was not evident.
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Re: Jettison QSPIX?

Post by HomerJ »

nisiprius wrote: Sun Dec 15, 2019 2:29 pmIf you like, QSPIX was "bond-like," but I'm darned if I see anything it did that Total Bond didn't do better.
It made Cliff Asness and two of his partners billionaires from the fees (not from the returns). That was its purpose, and it worked perfectly.
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Re: Jettison QSPIX?

Post by aristotelian »

whodidntante wrote: Sun Jan 20, 2019 2:06 pm Has your investing thesis changed? Have you lost confidence in the strategy and the benefits of holding the fund, and did you understand it in the first place? It doesn't matter if Larry Swedroe understands it, because you're the one who needs the conviction to hold the fund through a period of underperformance.
Lol, staying the course only works if your thesis is sound. I think he is wondering if he has a bad thesis.
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Re: Jettison QSPIX?

Post by typical.investor »

Bitzer wrote: Thu Dec 12, 2019 11:34 pm Well, QSPIX has been down approximately 7.5% since the previous post was written. I'm trying to stay the course, as they say, and hold this fund through a complete investment cycle. Does anyone know what a complete investment cycle is for this fund? Thanks!
Is there a cycle? Per AQR it always does well.
Opportunity To Perform In Rising And Falling Markets

By investing long and short, the Fund seeks to be market neutral with low correlation to equity and bond markets, and aims to provide positive absolute returns in both rising and falling markets.
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Re: Jettison QSPIX?

Post by marcopolo »

typical.investor wrote: Sun Dec 15, 2019 6:56 pm
Bitzer wrote: Thu Dec 12, 2019 11:34 pm Well, QSPIX has been down approximately 7.5% since the previous post was written. I'm trying to stay the course, as they say, and hold this fund through a complete investment cycle. Does anyone know what a complete investment cycle is for this fund? Thanks!
Is there a cycle? Per AQR it always does well.
Opportunity To Perform In Rising And Falling Markets

By investing long and short, the Fund seeks to be market neutral with low correlation to equity and bond markets, and aims to provide positive absolute returns in both rising and falling markets.

Don't forget the free lunch of "equity like returns with bond like volatility".
Once in a while you get shown the light, in the strangest of places if you look at it right.
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Re: Jettison QSPIX?

Post by skeptical »

AlphaLess wrote: Sun Dec 15, 2019 1:33 pm Since the fantastic quant melt-down of 2018 Dec, QSPIX and other similar funds continue their march towards the bottom.

I think it is a very nicely constructed portfolio if you want to lose your money on a consistent basis.

There are several principles why I think in the long-term QSPIX and similar things won't work:
- hedge-fund managers paradox,
- the front-runnable nature of something like QSPIX,
- 2.x% fee.
+1 This goes beyond QSPIX, as it is not really "QSPIX and other similar funds". Most of these "alternatives" are not similar, they all use very different strategies so their sources of return should not only be market independent, but also independent form each other, yet they all seem to be doing poorly. You would think some of them would be behaving differently if they were uncorrelated with each other.

A number of years ago it was managed futures, now it multifactor, a few years from now it will be something different.

Problem is, even if you understand, believe in, and truly want to invest in these type of funds, the chances that a specific one will even exist in 20 years is pretty low, so how can you invest with a long term horizon ?
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Re: Jettison QSPIX?

Post by tarheel »

Factor premia have been subpar for the last five or so years, so it is not surprising QSPIX has underperformed.

If poor performance of QSPIX over a five year period is something that would concern you, you probably shouldn't own the fund in the first place.
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Re: Jettison QSPIX?

Post by HomerJ »

tarheel wrote: Sun Dec 15, 2019 8:33 pm Factor premia have been subpar for the last five or so years, so it is not surprising QSPIX has underperformed.

If poor performance of QSPIX over a five year period is something that would concern you, you probably shouldn't own the fund in the first place.
They claimed they would make money all the time.
By investing long and short, the Fund seeks to be market neutral with low correlation to equity and bond markets, and aims to provide positive absolute returns in both rising and falling markets.
Positive absolute returns in ALL markets.
A Goldman Sachs associate provided a variety of detailed explanations, but then offered a caveat, “If I’m being dead-### honest, though, nobody knows what’s really going on.”
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Re: Jettison QSPIX?

Post by Ketawa »

HomerJ wrote: Sun Dec 15, 2019 8:34 pm They claimed they would make money all the time.
By investing long and short, the Fund seeks to be market neutral with low correlation to equity and bond markets, and aims to provide positive absolute returns in both rising and falling markets.
Positive absolute returns in ALL markets.
Key word: "aims". Only the fund's detractors are claiming that AQR promised good returns all the time.
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Re: Jettison QSPIX?

Post by AlphaLess »

Ketawa wrote: Sun Dec 15, 2019 8:47 pm
HomerJ wrote: Sun Dec 15, 2019 8:34 pm They claimed they would make money all the time.
By investing long and short, the Fund seeks to be market neutral with low correlation to equity and bond markets, and aims to provide positive absolute returns in both rising and falling markets.
Positive absolute returns in ALL markets.
Key word: "aims". Only the fund's detractors are claiming that AQR promised good returns all the time.
There is a different way to look at it. Presumably, before AQR launched the fund for real, they had some simulation results. In these simulation results, they have some variation for 1-Yr, 3-YR, 5-YR returns, and worst possible outcomes for those.

If the last 5 year performance is so bad that it exceeds the pre-go-live expectations, then this is definitely not working.
And it is time to jettison.
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Re: Jettison QSPIX?

Post by HomerJ »

Ketawa wrote: Sun Dec 15, 2019 8:47 pm
HomerJ wrote: Sun Dec 15, 2019 8:34 pm They claimed they would make money all the time.
By investing long and short, the Fund seeks to be market neutral with low correlation to equity and bond markets, and aims to provide positive absolute returns in both rising and falling markets.
Positive absolute returns in ALL markets.
Key word: "aims". Only the fund's detractors are claiming that AQR promised good returns all the time.
Absolute POSITIVE returns in BOTH rising and falling markets.

Yep, it says "aims"... But he keeps the billions in fees no matter if they succeed or fail.
Last edited by HomerJ on Mon Dec 16, 2019 12:47 am, edited 1 time in total.
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Re: Jettison QSPIX?

Post by typical.investor »

tarheel wrote: Sun Dec 15, 2019 8:33 pm Factor premia have been subpar for the last five or so years, so it is not surprising QSPIX has underperformed.

If poor performance of QSPIX over a five year period is something that would concern you, you probably shouldn't own the fund in the first place.
So if factor returns explains the performance, why do you need the fund?

There are many funds providing factor exposure at a fraction of the cost.

If poor factor returns coincide with a downturn, will you really be reducing left tail risk? Seems treasuries would do a better job!
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Re: Jettison QSPIX?

Post by tarheel »

HomerJ wrote: Sun Dec 15, 2019 9:18 pm
Ketawa wrote: Sun Dec 15, 2019 8:47 pm
HomerJ wrote: Sun Dec 15, 2019 8:34 pm They claimed they would make money all the time.
By investing long and short, the Fund seeks to be market neutral with low correlation to equity and bond markets, and aims to provide positive absolute returns in both rising and falling markets.
Positive absolute returns in ALL markets.
Key word: "aims". Only the fund's detractors are claiming that AQR promised good returns all the time.
Absolute POSITIVE returns in BOTH rising and falling markets.

Yep, it says "aims"... But he keeps the billions in fees no matter if they succeed or fail.
If you actually believe there are investments that "make money all the time", or that AQR even promised such a thing, I have a bridge I'd like to sell you.
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Re: Jettison QSPIX?

Post by tarheel »

typical.investor wrote: Sun Dec 15, 2019 9:55 pm
tarheel wrote: Sun Dec 15, 2019 8:33 pm Factor premia have been subpar for the last five or so years, so it is not surprising QSPIX has underperformed.

If poor performance of QSPIX over a five year period is something that would concern you, you probably shouldn't own the fund in the first place.
So if factor returns explains the performance, why do you need the fund?

There are many funds providing factor exposure at a fraction of the cost.

If poor factor returns coincide with a downturn, will you really be reducing left tail risk? Seems treasuries would do a better job!
I would suggest reading more about the strategies behind QSPIX if you are interested in understanding the fund.
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nedsaid
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Re: Jettison QSPIX?

Post by nedsaid »

As a matter of disclosure, I do own two Liquid Alt Funds through a managed account that I am test driving at American Century Investments. They are a Market Neutral Value Fund and an Alternative Income Fund. They are 1.5% of my retirement portfolio and haven't done much, my first experience with Liquid Alts. It is instructive that American Century is closing three of its five Liquid Alt funds and its 130/30 Long/Short Stock Fund. I own the two such funds that will remain open past January 2020.

So hard to say if you should sell your AQR Style Premia Fund (QSPIX) or not. My feeling about these funds is pretty neutral. A lot of its disappointing performance is due to the fact that Value has been underperforming Growth for a decade now, 2018 in particular was a bad year for Value. The fund has other factor bets across several asset classes but this hasn't cancelled out Value's underperformance. The ideas behind such funds look great on paper but something has been lost in the implementation.
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Re: Jettison QSPIX?

Post by greg24 »

It is absolutely crazy that a highly-leveraged fund, with a 2.3% or 1.67% or whatever the expense ratio is, is recommended on this board.

It goes against absolutely everything that this board represents.

Larry Swedroe has used his indexing background to sell a narrative, and many people have not only bought the narrative, but sing the narrative to others.

SELL THIS INVESTMENT.
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Re: Jettison QSPIX?

Post by ilan1h »

I should have sold this fund a long time ago. I never really understood it but bought it as a "diversifer". I bought it in 2018 at 11 and it now about 8. According to Schwab it has lost 25%. It carries a high ER (I think about 2.3%) and I don't really understand anything about what it does. I bought it based on a recommendation but I regret doing so. Everything else in my portfolio are index funds and fairly simple to understand. This one was bought on a whim and has already lost about 50K. Furthermore, it is eating up valuable space in a tax free account. I am thinking of selling it and replacing it with an old fashioned easy to understand bond fund such as VBTLX (Vang total bond fund) which I own in other accounts. One of the things that concerns me about this fund is that it's very difficult to find out anything about it. Even an extensive google search yields next to nothing of interest.
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Re: Jettison QSPIX?

Post by Chicken Little »

I'm following this and the other thread (39/41 funds down) from the sidelines, don't own any AQR.

Hard to imagine these funds can't perform well under different circumstances. If different circumstances are around the corner, you'll be selling right before you need it?

Tough spot to be in.

Good luck.
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Re: Jettison QSPIX?

Post by Wiggums »

ilan1h wrote: Sun Jan 12, 2020 2:46 am I should have sold this fund a long time ago. I never really understood it but bought it as a "diversifer". I bought it in 2018 at 11 and it now about 8. According to Schwab it has lost 25%. It carries a high ER (I think about 2.3%) and I don't really understand anything about what it does. I bought it based on a recommendation but I regret doing so. Everything else in my portfolio are index funds and fairly simple to understand. This one was bought on a whim and has already lost about 50K. Furthermore, it is eating up valuable space in a tax free account. I am thinking of selling it and replacing it with an old fashioned easy to understand bond fund such as VBTLX (Vang total bond fund) which I own in other accounts. One of the things that concerns me about this fund is that it's very difficult to find out anything about it. Even an extensive google search yields next to nothing of interest.
The ER alone would have scared me away. I also notice that the fund inception date was oct 2013. Unfortunately you bought in at the peak and the fund has been going down since then. I don’t know anything about this fund, and you are right, google searches does not help much. Selling it because you don’t understand it makes sense.

I don’t give up easily on my investments. it’s a small portion of your portfolio, why not ignore the balance and hold it a few years? The market conditions are working against this fund right now.
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Re: Jettison QSPIX?

Post by tarheel »

Chicken Little wrote: Sun Jan 12, 2020 6:23 am I'm following this and the other thread (39/41 funds down) from the sidelines, don't own any AQR.

Hard to imagine these funds can't perform well under different circumstances. If different circumstances are around the corner, you'll be selling right before you need it?

Tough spot to be in.

Good luck.
There are many places to learn about QSPIX's approach, including Bogleheads threads and AQR white papers. The truth is when factor returns are poor, the fund isn't going to do well. For instance, the past decade has been atrocious for value. One reason why QSPIX has underperformed.

I for one am consistently buying more QSPIX on the way down and believe the tide will turn. I understand people's concern but to be honest if you are thinking about unloading your entire QSPIX position at this point after a couple of years you probably shouldn't have invested in it in the first place.
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