Larry Swedroe's Use of AQR Funds

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Leesbro63
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Larry Swedroe's Use of AQR Funds

Post by Leesbro63 »

I've been catching up on my Larry Swedroe reading and see that he sometimes recommends AQR funds. I've been here on Bogleheads for years and years and have never heard this discussed. I seem to recall that Larry also recommended Baird municipal bond funds. Is there any reason to think more on this...is Larry onto something? Or is this just factor chasing that's likely to lead to years of frustration while waiting for the factor outperform, if ever?
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Re: Larry Swedroe's Use of AQR Funds

Post by Slick8503 »

Use the search for QSPIX. Happy reading. QSPIX is a “multi premia” fund offered by AQR and is the most discussed of the AQR offerings on Bogleheads. Threads on this fund will include info on other “liquid alt” funds as well.

Cliffs:

Fund is expensive so most will not decide to use it.

The fund had poor returns relative to the market in recent years. In the past few months it has done well, as the market has done poorly, and as per usual we are now seeing renewed interest here.(not directed at you Leesboro, have just noticed more threads recently)

QSPIX is long short and tries to give exposure to other factors without exposure to the market factor.
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Re: Larry Swedroe's Use of AQR Funds

Post by Leesbro63 »

Slick8503 wrote: Sat Mar 19, 2022 7:10 am Use the search for QSPIX. Happy reading. QSPIX is a “multi premia” fund offered by AQR and is the most discussed of the AQR offerings on Bogleheads. Threads on this fund will include info on other “liquid alt” funds as well.

Cliffs:

Fund is expensive so most will not decide to use it.

The fund had poor returns relative to the market in recent years. In the past few months it has done well, as the market has done poorly, and as per usual we are now seeing renewed interest here.(not directed at you Leesboro, have just noticed more threads recently)

QSPIX is long short and tries to give exposure to other factors without exposure to the market factor.
Thanks. I'll check it out. I like reading Larry Swedroe, Rick Ferri and Dr. Bernstein. Larry is brilliant (so are the other two) but seems to complicate things. I guess the bottom line is whether all of his complicating really does reduce the risk/reward ratio, long term versus, the 2 or 3 fund portfolio.
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Re: Larry Swedroe's Use of AQR Funds

Post by nisiprius »

1) Are you talking about any other AQR fund but the AQR Style Premia Alternative Fund? (At one point I made a disparaging remark about an AQR long-short equity fund and Larry Swedroe replied with a side comment that his firm didn't use any of AQR's equity funds and he wasn't going to say much about them).

2) In late 2020 I did a simple (but laborious) survey, AQR and Vanguard funds' performance vs stated benchmarks. I'll just repost the main chart.

38 out of 48 AQR funds underperformed their benchmark, or 79%.
The average underperformance was -1.46% per year.

Image

I did a similar survey for Vanguard's actively-managed stock funds, later in the same thread. For Vanguard, oof the 21 funds for which Vanguard provided benchmark-since-inception data, 12 of them, or 57% missed their benchmarks. However, the average difference from the benchmark was +0.18%.

3) Larry Swedroe's favorable remarks on the AQR Style Premia Alternative Fund, QSPIX or QSPRX, actually became a source of long-running friction between him and the forum. Forum members never quit criticizing the then-over-2% (now 1.77%) expense ratio and Larry Swedroe was irritable about repeatedly explaining why he thought the expenses should be thought of as lower. Forum members never quit noting that the prospectus says "the fund is actively managed" and he got irritable about explaining why he regarded it as passive.

Here's QSPIX's performance to date:

Source

Image






Key to ticker symbols:

Key
AQRIX — Risk Parity Fund (now renamed "AQR Multi-Asset Fund")
QRHIX — Risk Parity II HV Fund
QRMIX — Risk Parity II MV Fund
QCPIX — Core Plus Bond Fund
ARCIX — Risk-Balanced Commodities Strategy Fund
QICLX — International Multi-Style Fund
QIRIX — International Relaxed Constraint Equity Fund
AQIIX — International Equity Fund
ANDIX — International Defensive Style Fund
*QEMLX — Emerging Momentum Style Fund
*QERIX — Emerging Relaxed Constraint Equity Fund
AZEIX — Emerging Defensive Style Fund
QEELX — Emerging Multi-Style Fund
QTELX — TM Emerging Multi-Style Fund
*QEMLX — Emerging Momentum Style Fund
AZEIX — Emerging Defensive Style Fund
AQGIX — Global Equity Fund
QLEIX — Long/Short Equity Fund
AIMOX — International Momentum Style Fund
ATIMX — TM International Momentum Style Fund
AIMOX — International Momentum Style Fund
*ANDIX — International Defensive Style Fund
*QIMLX — TM International Multi-Style Fund
*QLRIX — Large Cap Relaxed Constraint Equity Fund
AMOMX — Large Cap Momentum Style Fund
AMOMX — Large Cap Momentum Style Fund
ATMOX — TM Large Cap Momentum Style Fund
ATMOX — TM Large Cap Momentum Style Fund
AUEIX — Large Cap Defensive Style Fund
AUEIX — Large Cap Defensive Style Fund
QCELX — Large Cap Multi-Style Fund
QTLLX — TM Large Cap Multi-Style Fund
*QSRIX — Small Cap Relaxed Constraint Equity Fund
ASMOX — Small Cap Momentum Style Fund
ATIMX — TM International Momentum Style Fund
ATSMX — TM Small Cap Momentum Style Fund
QSMLX — Small Cap Multi-Style Fund
QSSLX — TM Small Cap Multi-Style Fund
QLEIX — Long/Short Equity Fund
ADAIX — Diversified Arbitrage Fund
AQMIX — Managed Futures Strategy Fund
ASAIX — Multi-Strategy Alternative Fund
QGMIX — Global Macro Fund
QMHIX — Managed Futures Strategy HV Fund
QMNIX — Equity Market Neutral Fund
*QRPIX — Alternative Risk Premia Fund
QSLIX — Style Premia Alternative LV Fund
QSPIX — Style Premia Alternative Fund
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Leesbro63
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Re: Larry Swedroe's Use of AQR Funds

Post by Leesbro63 »

Thanks, Nisiprius, for those statistics and about the history of Larry Swedroe on this issue here on Bogleheads. After all these years, I still can't quite make out what to think about Larry's way of looking at things. Does his "offbeat" way of investing really improve the risk/reward/ease of the 3-Fund portfolio?
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Re: Larry Swedroe's Use of AQR Funds

Post by grok87 »

re QSPIX- it's a hedge fund. as other's have said it's rather expensive. also highly leveraged.

One would expect hedge funds to have shined during the last 3 years- lot's of volatility for them to take advantage of etc. QSPIX is basically flat over this period
https://www.morningstar.com/funds/xnas/ ... erformance
3 year performance CAGR
QSPIX: 0.81%
category: 3.76% (morningstar multi-strategy)
index: 6.87% (morningstar moderate conservative target risk)

consider another hedge fund, vanguard's VMNFX
3 year performance CAGR
VMNFX: 3.01%
category: 1.45% (morningstar equity market neutral
index: 6.87% (morningstar moderate conservative target risk)

VMNFX is much cheaper and is unleveraged.

personally i don't like funds that use leverage. if i want more exposure to a certain asset class or strategy i will throw more money at it myself.
with a leveraged fund i think you can lose all your money- i.e. downside is 100%
for a cautionary tale about leveraged funds destroying value see here
https://www.artnews.com/art-news/news/g ... 234621235/

cheers,
grok
RIP Mr. Bogle.
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Re: Larry Swedroe's Use of AQR Funds

Post by nisiprius »

Since it is very much not my thing I'll try to do a responsible job of presenting a point of view I don't share.

Larry Swedroe did not recommend "AQR funds" per se and he did not recommend QSPIX/QSPRX in isolation.

For a long time, what he has recommended is devoting some of the portfolio to a mixture of equal amounts of four alternatives, QSPIX being only one of them. The other three were "interval funds" from Stone Ridge Funds, which are problematical to analyze because they don't have daily liquidity like mutual funds. For a long time it was 25% each of QSPRX, LENDX, AVRPX, and SRRIX but thing have gotten complicated because Stone Ridge shuttered AVRPX and I'm not sure how Larry Swedroe has adapted to that.

The point is, it isn't just QSPIX/QSPRX in isolation, it's a combination of four non-traditional funds. If you aren't prepared to use all four in combination, then you are not using QSPIX/QSPRX the way Larry Swedroe has recommended.

Here's a much-condensed version of how he presents it in Your Complete Guide to a Successful & Secure Retirement. Bracketed notes are mine.
The way to create a portfolio that looks more like Portfolio C is to continue to add unique sources of risk (sources of risk that have low correlation with each other) that also have risk premiums. There are four alternative investments which we believe have equity-like expected returns, but with far less volatility and far less downside risk, while also having low to no correlation of their returns to either stocks or bonds. And the low correlation of their returns means that a portfolio of these alternatives will have even less volatility than their weighted average There are four alternative investments which we believe have equity-like expected returns, but with far less volatility and far less downside risk, while also having low to no correlation of their returns to either stocks or bonds. And the low correlation of their returns means that a portfolio of these alternatives will have even less volatility than their weighted average volatility....

1. Alternative Lending [i.e. Stone Ridge LENDX]....
2. Reinsurance [i.e. SRRIX]...
3. Variance Risk Premium [i.e. AVRPX, no longer available]...
4. Alternative Risk Premium [i.e. QSPRX]...

Importantly, while the weighted average volatility of the four strategies is about 9 percent, we believe that an equal-weighted portfolio would have volatility of only about 5 percent, while providing an expected return of about 5.5 percent above one-month Treasury bills, producing a high Sharpe ratio (risk-adjusted return).
Last edited by nisiprius on Sat Mar 19, 2022 8:34 am, edited 1 time in total.
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Re: Larry Swedroe's Use of AQR Funds

Post by nisiprius »

Leesbro63 wrote: Sat Mar 19, 2022 7:41 am Thanks, Nisiprius, for those statistics and about the history of Larry Swedroe on this issue here on Bogleheads. After all these years, I still can't quite make out what to think about Larry's way of looking at things. Does his "offbeat" way of investing really improve the risk/reward/ease of the 3-Fund portfolio?
Well, it certainly doesn't improve the ease.

And it certainly involves actual costs. The published SEC-compliant expense ratios are 1.77% for QSPRX, 4.57% for LENDX, 2.28% for SRRIX, and I don't know what Larry Swedroe is doing these days for AVRPX. QSPRX is only supposed to be available through an advisor (but some Bogleheads have reported loopholes for direct individual purchase). I think the Stone Ridge funds really are unobtainable without an advisor. So you have to add the advisor's fee, but then you need to subtract whatever you think is the value of what the advisor is doing for you.

I don't waste too much psychic energy brooding about it because, as a lowly "mass affluent" retirement saver--well, retirement spender now, I guess--I just am not going to be using these funds. To put it bluntly, I happen to think those grapes actually are sour.

I think at the very best you are talking about a very long term, small, statistical edge over a straight three-fund or factor-tilted-traditional-stocks-and-bonds portfolio. It might or might not materialize. That can be said about many non-Bogleheadish strategies.
Last edited by nisiprius on Sat Mar 19, 2022 8:19 am, edited 1 time in total.
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matjen
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Re: Larry Swedroe's Use of AQR Funds

Post by matjen »

grok87 wrote: Sat Mar 19, 2022 7:52 am re QSPIX- it's a hedge fund. as other's have said it's rather expensive. also highly leveraged.

One would expect hedge funds to have shined during the last 3 years- lot's of volatility for them to take advantage of etc. QSPIX is basically flat over this period
https://www.morningstar.com/funds/xnas/ ... erformance
3 year performance CAGR
QSPIX: 0.81%
category: 3.76% (morningstar multi-strategy)
index: 6.87% (morningstar moderate conservative target risk)

consider another hedge fund, vanguard's VMNFX
3 year performance CAGR
VMNFX: 3.01%
category: 1.45% (morningstar equity market neutral
index: 6.87% (morningstar moderate conservative target risk)

VMNFX is much cheaper and is unleveraged.

personally i don't like funds that use leverage. if i want more exposure to a certain asset class or strategy i will throw more money at it myself.
with a leveraged fund i think you can lose all your money- i.e. downside is 100%
for a cautionary tale about leveraged funds destroying value see here
https://www.artnews.com/art-news/news/g ... 234621235/

cheers,
grok
Grok I have pretty good memory of you (among others) giving the same advice years ago during the initial QSPIX wars. For the life of me I have no idea why you would still suggest the same thing and, for some reason, provide 3-year, data-mined argument. There is no reason (at this point) to suggest VMNFX over QSPIX assuming one has access. Not only has QSPIX performed better but it has performed better like 95% of the time (eyeballing it here). On the other hand, I completely understand why someone would not want this type of fund or suggest it for the vast majority of investors/Bogleheads.

Image
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Re: Larry Swedroe's Use of AQR Funds

Post by nisiprius »

Matjen, I look at that chart and I just marvel. I'm happy that the people who are sticking with it are seeing something, but if I had a time machine and could travel back to 2013 and buy it, I wouldn't want it--low correlation or no. If I were going to go in for that much volatility I'd want to see much more return. There's value in low correlation but it's subtle and it's limited.

It just looks to me like the same kind of thing as (say) PIMCO Commodity RealReturn Strategy fund, or Managed Futures funds, or the Prudent Bear fund, or the Hussman Strategic Growth Fund: done really well recently, and you could make a fortune trading it if you could time it correctly.

Seriously, would you want that chart unless you were drawing an imaginary future upward continuation of the last little bit?
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Re: Larry Swedroe's Use of AQR Funds

Post by matjen »

Nisi, completely get it. Do I wish I put that 5%-7% into VTI? Of course! But my reasons for QSPIX were that I wanted more factor tilt and didn't have taxable space to use without massive tax hit and years ago I thought the probability of stocks and bonds both still doing very well was low. I was wrong about that the last 5+ years for sure. Having said that, the last few months were quite amazing as the market churned sideways and bonds did worse and QSPIX screamed upward.

QSPIX's standard deviation is actually as promised 10%. Its lack of correlation is as promised. Equities are around 15% for comparison. Bonds like 3%. I sold Reits and Bonds to free up the $$ for QSPIX. A 50/50 portfolio of REITS and Bonds is 10% standard deviation as well actually (this wasn't planned on my part). Just like looking at returns in isolation I think looking at volatility in isolation doesn't make too much sense IMO.
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Re: Larry Swedroe's Use of AQR Funds

Post by grok87 »

matjen wrote: Sat Mar 19, 2022 8:18 am
grok87 wrote: Sat Mar 19, 2022 7:52 am re QSPIX- it's a hedge fund. as other's have said it's rather expensive. also highly leveraged.

One would expect hedge funds to have shined during the last 3 years- lot's of volatility for them to take advantage of etc. QSPIX is basically flat over this period
https://www.morningstar.com/funds/xnas/ ... erformance
3 year performance CAGR
QSPIX: 0.81%
category: 3.76% (morningstar multi-strategy)
index: 6.87% (morningstar moderate conservative target risk)

consider another hedge fund, vanguard's VMNFX
3 year performance CAGR
VMNFX: 3.01%
category: 1.45% (morningstar equity market neutral
index: 6.87% (morningstar moderate conservative target risk)

VMNFX is much cheaper and is unleveraged.

personally i don't like funds that use leverage. if i want more exposure to a certain asset class or strategy i will throw more money at it myself.
with a leveraged fund i think you can lose all your money- i.e. downside is 100%
for a cautionary tale about leveraged funds destroying value see here
https://www.artnews.com/art-news/news/g ... 234621235/

cheers,
grok
Grok I have pretty good memory of you (among others) giving the same advice years ago during the initial QSPIX wars. For the life of me I have no idea why you would still suggest the same thing and, for some reason, provide 3-year, data-mined argument. There is no reason (at this point) to suggest VMNFX over QSPIX assuming one has access. Not only has QSPIX performed better but it has performed better like 95% of the time (eyeballing it here). On the other hand, I completely understand why someone would not want this type of fund or suggest it for the vast majority of investors/Bogleheads.

Image
Hi Matjen,
hmmm...

So my motivation for looking at the last 3 years was based on this article
https://www.bloomberg.com/opinion/artic ... ood-enough
hedge funds basically did well during this period. i don't completely trust this sort of data- hedge fund returns have lots of issues and biases such as self-reporting bias, survivorship bias etc. but i think the article captures the general assessment that hedge funds have delivered solid 10%ish CAGR returns during the last 3 year period of heightened volatility in the markets - see this VIX chart for example
https://www.tradingview.com/symbols/CBOE-VIX/

QSPIX has very much marketed itself as a "liquid alternative" fund that aims to replicate hedge fund strategies
https://www.barrons.com/articles/making ... 1617376312

cheers,
grok
RIP Mr. Bogle.
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Re: Larry Swedroe's Use of AQR Funds

Post by tarheel »

I think the OP is wondering about AQR as a whole, not just QSPIX. With respect to equities as a whole, AQR offers some nice multi style (or multi factor) funds that many of us own. Larry recommends many of these in his books. Before considering them, you would want to desire to factor tilt your portfolio, and that is a point of contention with many Bogleheads. Things got heated a few years ago to the point that many of us (including Larry) simply stopped posting on the forum (although we do private message each other from time to time)

Now as for QSPIX, I will first say not to invest in it until you are prepared to stick with it, and have a strong understanding of what it is and does.

That said, I have done so, and have been happily buying QSPIX through the dips over the past few years to stay within the rebalancing bands of my 7.5% allocation to the fund. I know what the fund does and believe in the strategy, as do several other (mostly) silent Bogleheads. The fund has had strong performance over the recent past, and I am now just outside rebalancing bands. Anecdotally, I also have some QSPIX positions that have +50% gains, a nice benefit of dollar cost averaging purchases.

In the long run, what matters most is saving and sticking with the process. Having a moderate allocation to alternative strategies I believe in the long run will help me achieve my goals. Others don't. To each their own. Keep an open mind.
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Re: Larry Swedroe's Use of AQR Funds

Post by nedsaid »

The central problem in portfolio construction, doing such things as guarding against Black Swans and trying to minimize volatility is that Asset Classes don't have to behave according to expectations. The magic investment you count on to save the day in a really bad market might just crash along with everything else. We are also finding out that executing Hedge Fund type strategies, even by knowledgeable people, is very difficult. There is just a lot of talent and intellectual energy that goes into finding market inefficiencies and the result is that markets are often frighteningly efficient.

The other thing that happens is that normally patient and rational markets can turn impatient, emotional, and even irrational. The market just seems to go crazy for short periods of time, sort of like a sudden storm that arrives, sound and fury but fortunately the storm passes and rationality returns. The thing is, how to do diversify against crazy? I have come to the conclusion that you probably can't, you just have to wait it out.

Putin's tanks rolled into Ukraine and not Lithuania as I often mused about here, how do you diversify against a national leader taking a crazy chance and essentially betting the whole nation on a certain outcome? You really can't diversify against that either. You just try to own the highest quality assets you can as they have the best chance of surviving a true crisis. If your country is on the wrong side of a World War, you face a real probability of your assets within a portfolio going to zero. Certain things that really aren't diversifiable. I don't have a shotgun, stored food, and a cabin in the woods to wait such things out.

So just as we threw in the towel and wrote off the Liquid Alts in general and QSPIX in particular, that darned QSPIX is doing well while stocks and bonds are doing poorly. Another lesson that asset classes or even investing strategies don't always perform as expected. Maybe in five years, Larry will be back on the forum reminding us of the wisdom of Liquid Alts. Let's see what happens.
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Re: Larry Swedroe's Use of AQR Funds

Post by Slick8503 »

Something that I think is worth mentioning regarding liquid alts - They are SUPPOSED to be uncorrelated with the market. So I have never understood why the hate for them while they were underperforming the market. That is what you should expect. If the market factor is doing great it’s highly likely an investor has plenty of exposure there to benefit and meet their goals. If the market factor starts to do terribly for a long stretch, diversification to other factors has a high likelihood of providing meaningful help. As Larry was always fond of saying, no guarantees.
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Re: Larry Swedroe's Use of AQR Funds

Post by Sammy_M »

Nice to see QSPIX hit the top side of my rebalance band for a change. Not long ago, I was near the point of capitulation. A good reminder not to buy what you cannot stick with.
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Re: Larry Swedroe's Use of AQR Funds

Post by Oregano »

Sammy_M wrote: Wed May 11, 2022 6:54 pm Nice to see QSPIX hit the top side of my rebalance band for a change. Not long ago, I was near the point of capitulation. A good reminder not to buy what you cannot stick with.
Sounds like you should rebalance the position to 0% while it feels good.
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