QSPIX - thoughts on interesting fund

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Maynard F. Speer
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Re: QSPIX - thoughts on interesting fund

Post by Maynard F. Speer » Sun Jan 17, 2016 3:32 pm

longinvest wrote:
Maynard F. Speer wrote:You know what they did to Galileo when he suggested it was the Earth that revolves around the Sun?

I don't think Bogle should change his advice - because it does take expertise to understand alternative investments, and if you haven't got it, you need to put quite a bit of trust in someone who does ... But, as a softener, Bogle does have this to say on Cliff Asness:

"I greatly admire Cliff Asness as well. These are guys who run large pools of capital with non-traditional investment strategies. They’re smart, savvy, can keep their perspective, and understand both sides of an issue. They’re far more knowledgeable from an investment standpoint than I am, and are great additions to my large group of heroes"

Maynard,

If you think that our Bogleheads Investment Philosophy is "dumb", then you should propose to change it.


No one's saying that at all

But an index tracker is an inherently "dumb" investment instrument ... It just follows the market like a moth towards a lit candle ... It can be front-run by hedge funds, slapped around and have its lunch money stolen, and it'll be sit there dimly, blowing bubbles between its lips and chuckling to itself .. But it doesn't need much feeding, and makes for a simple relationship
"Economics is a method rather than a doctrine, an apparatus of the mind, a technique of thinking, which helps its possessor to draw correct conclusions." - John Maynard Keynes

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Re: QSPIX - thoughts on interesting fund

Post by larryswedroe » Sun Jan 17, 2016 3:33 pm

Here's an interesting fact
The S&P 500 has actually underperformed the original stocks in the index. And of course it's likely to look like the TSM since it's about 80% of the market itself. It has forced trading and some tax inefficiency also. And the active managers game the system a bit when shares enter and leave it. Now it's only mildly "dumb" as opposed to the R2k which was really dumb. But one could improve on it simply by avoiding the forced trading that an index fund requires.
Larry

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Re: QSPIX - thoughts on interesting fund

Post by lack_ey » Sun Jan 17, 2016 3:42 pm

If dumb isn't much dumber but is significantly cheaper, you want dumb. For example if you want to invest in large caps you might avoid some of the minor pitfalls in the space by using say a DFA fund instead of one of the index funds, but with the higher ER that may well not be worth it. And if you need to pay an adviser for access then it's definitely not worth it.

Most active funds are dumber than index funds.

Point is to evaluate potential benefits vs. cost. Reasonable people can and will disagree about the magnitude of such benefits and whether or not some things are benefits at all. No, that's not one of the ten BH principles, but does it not make any sense?

longinvest
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Re: QSPIX - thoughts on interesting fund

Post by longinvest » Sun Jan 17, 2016 3:55 pm

Larry,

Many Bogleheads invest using total-market index funds. That's what I do.

I didn't say that QSPIX is a bad or good investment or that it can't improve or worsen the performance or volatility of a portfolio; I have no opinon about it. I'll admit that I suspect that its promoters are good at marketing if they can attract customers to invest into such an opaque fund.

It is all very nice to learn about new things. Yes, there are academic studies and publications about factors, but there are opinions, in there. Not all scholars and Nobel Laureates agree about it. There can thus be reasonable doubt about the findings.

What I wrote, earlier today, was that QSPIX does not meet at least four of the ten Bogleheads Investment Philosophy principles. I think that this assessment is pretty straightforward to do. Maybe these principles will change, in the future, in light of new knowledge. But as of today, they are what they are.
Bogleheads investment philosophy | Lifelong Portfolio: 25% each of (domestic/international)stocks/(nominal/inflation-indexed)bonds | VCN/VXC/VAB/ZRR

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Maynard F. Speer
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Re: QSPIX - thoughts on interesting fund

Post by Maynard F. Speer » Sun Jan 17, 2016 4:25 pm

longinvest wrote:It is all very nice to learn about new things. Yes, there are academic studies and publications about factors, but there are opinions, in there. Not all scholars and Nobel Laureates agree about it. There can thus be reasonable doubt about the findings.


As far as academia goes, there's a great deal of uncertainty around the equity risk-premium, the perpetual growth of financial markets, efficient markets, and many of the asset allocation decisions Bogleheads tend to adopt

If you were certain about factor premiums, you'd invest >50% of your portfolio in funds like QSPIX ... But a 60:40 portfolio is potentially a much larger bet on something I (personally) find much less convincing - looking at mixed results over history, and in international markets
"Economics is a method rather than a doctrine, an apparatus of the mind, a technique of thinking, which helps its possessor to draw correct conclusions." - John Maynard Keynes

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Re: QSPIX - thoughts on interesting fund

Post by larryswedroe » Sun Jan 17, 2016 6:38 pm

Longinvest
But you did say I thought I had found the Holy Grail, which was totally incorrect statement with no basis upon which to make it. I recommended investors CONSIDER it for good reasons.

And fwiw, and more importantly, in case you are interested it was a NOBEL PRIZE WINNING economist named Eugene Fama who made the statement that all index funds except TSM are dumb. I just quoted him (though didn't provide the attribution).

Some indices are smarter than others, that's why new indices like the MSCI ones have been created. Clearly Vanguard must think the ones they used to use before moving to newer/better ones were also in relative terms dumb or they would not have switched.

Larry

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Re: QSPIX - thoughts on interesting fund

Post by longinvest » Sun Jan 17, 2016 7:19 pm

Larry,

This is incorrect. I did not write that you thought you had found the Holy Grail; I just claimed that you had found it. It was a figure of speech, much like your use of the term "dumb". We both know that there's much dumber than some of the so-called "dumb" indexes, in the investing world. You have defended QSPIX quite strongly in this thread. Many investors are searching for the holy grail of investment; an investment that is uncorrelated with both the stock and bond markets. I thought that the image was appropriate, in the context.

But this deviates from my point which was that QSPIX does not meet at least four of the ten Bogleheads Investment Philosophy principles. It's not the only investment discussed in this forum that does not meet them. But few other non-traditional investments get as strong advocates in this forum. I was just stating a fact for new investors visiting the forum who might not read the entire thread.
Bogleheads investment philosophy | Lifelong Portfolio: 25% each of (domestic/international)stocks/(nominal/inflation-indexed)bonds | VCN/VXC/VAB/ZRR

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Re: QSPIX - thoughts on interesting fund

Post by larryswedroe » Sun Jan 17, 2016 7:35 pm

longinvest,
Really? Seriously? Here is your exact quotation [url]It is really nice to know that you have found the Holy Grail of investments[/url] IMO anyone reading it would take that to mean I believe I have found it, and thus I must believe it. Don't think there's any other way to interpret it. Now if you meant it in different way, I'll accept that.

BTW I put the word dumb in quotation marks for a reason. To show it was meant to not say they were truly dumb, but that they aren't the most efficient, there can be better designs. And I clearly stated that there are really dumb ones and ones that only have minor issues, but nonetheless they can be improved on.

I'll agree it doesn't meet for Boglehead criteria, but that doesn't mean that it isn't a good investment choice, which IMO is the important question, not whether it meets some criteria that may be good general guidelines but not so good in specific situations.


Larry

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grap0013
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Re: QSPIX - thoughts on interesting fund

Post by grap0013 » Sun Jan 17, 2016 9:45 pm

Avo wrote:PortfolioVisualizer was being used to study correlations between QSPIX and various long-equity DFA funds, with the conclusion that correlations are low. That seems perfectly valid to me.


Low is an understatement. They are 0. :sharebeer
There are no guarantees, only probabilities.

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grap0013
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Re: QSPIX - thoughts on interesting fund

Post by grap0013 » Sun Jan 17, 2016 9:58 pm

longinvest wrote:1 Develop a workable plan
2 Invest early and often
3 Never bear too much or too little risk
4 Diversify
5 Never try to time the market[/size]
6 Use index funds when possible
7 Keep costs low
8 Minimize taxes
9 Invest with simplicity

10 Stay the course


QSPIX is not too far off from the above when considered in the context of the whole portfolio. It definitely increases diversification, net portfolio costs are pretty low with a small allocation, and one should keep it in tax sheltered to minimize taxes.

I dislike stating whether this fund is "Boglehead approved" or not. It makes it sound like the Bogleheads are a bit cultish and it's off putting. Let's just say this fund is not for novice investors and most people should not own it. If you know enough to ignore that advice and know why it's true then it may be for you.
There are no guarantees, only probabilities.

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Re: QSPIX - thoughts on interesting fund

Post by Johno » Sun Jan 17, 2016 10:28 pm

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Last edited by Johno on Sun Jan 17, 2016 11:17 pm, edited 1 time in total.

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Re: QSPIX - thoughts on interesting fund

Post by LadyGeek » Sun Jan 17, 2016 10:43 pm

Before this escalates further, the points have been made. Let's move on.

State your opinions factually, and keep them related to QSPIX.
To some, the glass is half full. To others, the glass is half empty. To an engineer, it's twice the size it needs to be.

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Re: QSPIX - thoughts on interesting fund

Post by DIY_investor » Fri Jan 29, 2016 5:04 pm

Hi Everyone,

This is a very interesting thread. Thank you all for posting so much interesting info.
I was convinced by Antti Ilmanen's Expected Returns that QSPNX/QSPIX is a worthwhile investment so I own it as 10% of my portfolio.
Perhaps I missed a discussion on this topic but I was wondering if any of you have an opinion about the potential impact of the proposed SEC derivatives rule on the existence of QSPNX/QSPIX as a mutual fund?

https://www.sec.gov/news/pressrelease/2015-276.html

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Re: QSPIX - thoughts on interesting fund

Post by LadyGeek » Fri Jan 29, 2016 5:20 pm

Welcome! You can find the previous discussion and related SEC info in this thread: SEC warning on leveraged ETF [Proposed rule]
To some, the glass is half full. To others, the glass is half empty. To an engineer, it's twice the size it needs to be.

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Re: QSPIX - thoughts on interesting fund

Post by grok87 » Fri Jan 29, 2016 7:09 pm

DIY_investor wrote:Hi Everyone,

This is a very interesting thread. Thank you all for posting so much interesting info.
I was convinced by Antti Ilmanen's Expected Returns that QSPNX/QSPIX is a worthwhile investment so I own it as 10% of my portfolio.
Perhaps I missed a discussion on this topic but I was wondering if any of you have an opinion about the potential impact of the proposed SEC derivatives rule on the existence of QSPNX/QSPIX as a mutual fund?

https://www.sec.gov/news/pressrelease/2015-276.html

Hi DIY_investor,
welcome to the forum.
here is aqr's statement
https://funds.aqr.com/news/aqr-statemen ... s-proposal
so basically they are saying they will be fine.
i'm not so sure they'll really be able to do business as usual. Less leverage with these sort of strategies is a good thing IMHO.
cheers,
"...people always live for ever when there is any annuity to be paid them"- Jane Austen

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Re: QSPIX - thoughts on interesting fund

Post by DIY_investor » Fri Jan 29, 2016 11:36 pm

grok87 wrote:
DIY_investor wrote:Hi Everyone,

This is a very interesting thread. Thank you all for posting so much interesting info.
I was convinced by Antti Ilmanen's Expected Returns that QSPNX/QSPIX is a worthwhile investment so I own it as 10% of my portfolio.
Perhaps I missed a discussion on this topic but I was wondering if any of you have an opinion about the potential impact of the proposed SEC derivatives rule on the existence of QSPNX/QSPIX as a mutual fund?

https://www.sec.gov/news/pressrelease/2015-276.html

Hi DIY_investor,
welcome to the forum.
here is aqr's statement
https://funds.aqr.com/news/aqr-statemen ... s-proposal
so basically they are saying they will be fine.
i'm not so sure they'll really be able to do business as usual. Less leverage with these sort of strategies is a good thing IMHO.
cheers,



Hi grok87,

Thank you for your reply!

I did previously read AQR statement on the matter but I didn't particularly see any concrete information there.
AQR basically said let's wait and see what the rule will be and we'll adapt from there. I guess it's hard to imagine them saying anything else at this point.

SEC mentioned that they are thinking of capping leverage at 150% or 300% (if you meet some risk based criteria).
According to AQR website QSPIX has exposure of 637% of NAV and even the low volatility fund has 346% of NAV. As of Dec 31 2015.

With these numbers in mind it is hard to imaging that QSPIX will be able to comply with the new SEC rule and stay as a 1940 Act Mutual Fund.
Even the low volatility fund is above the leverage limit.

Unless:
- Final rule has 2x/4x more leverage allowed then the proposed rule
- Final rule will set different leverage limits on equity vs bonds vs commodities in some volatility based way and somehow AQR will squeeze by.
- AQR measures leverage in significantly different way then how SEC measures leverage
- Current funds are grandfathered

All of these scenarios do not seem too likely (but maybe possible) since I assume the whole point of the rule is to prevent mutual funds from using too much leverage and 6x leverage is definitely bad in the wrong hands... and maybe even in any hands:)

So basically it seems to me that they will have to shut down or change something dramatically. But what does that mean for current investors? Anyone? I guess we'll have to wait and see.

I do agree with you that it is a good thing in the long run that SEC comes up with clear/smart guidelines on the use of leverage in mutual funds to protect investors.

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Re: QSPIX - thoughts on interesting fund

Post by lack_ey » Fri Jan 29, 2016 11:55 pm

That is largely my understanding as well on the above points.

For what it's worth, if some hard cap for leverage passes, the fund could just jettison or reduce weighting to some of the asset classes that require more leverage per risk, such as the short-term interest rates, bonds to some degree, currencies to some degree, etc. That would give up some diversification but help squeeze in under the limits, in addition to possibly going for a lower volatility target overall.

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Re: QSPIX - thoughts on interesting fund

Post by grok87 » Sat Jan 30, 2016 10:12 am

DIY_investor wrote:
grok87 wrote:
DIY_investor wrote:Hi Everyone,

This is a very interesting thread. Thank you all for posting so much interesting info.
I was convinced by Antti Ilmanen's Expected Returns that QSPNX/QSPIX is a worthwhile investment so I own it as 10% of my portfolio.
Perhaps I missed a discussion on this topic but I was wondering if any of you have an opinion about the potential impact of the proposed SEC derivatives rule on the existence of QSPNX/QSPIX as a mutual fund?

https://www.sec.gov/news/pressrelease/2015-276.html

Hi DIY_investor,
welcome to the forum.
here is aqr's statement
https://funds.aqr.com/news/aqr-statemen ... s-proposal
so basically they are saying they will be fine.
i'm not so sure they'll really be able to do business as usual. Less leverage with these sort of strategies is a good thing IMHO.
cheers,



Hi grok87,

Thank you for your reply!

I did previously read AQR statement on the matter but I didn't particularly see any concrete information there.
AQR basically said let's wait and see what the rule will be and we'll adapt from there. I guess it's hard to imagine them saying anything else at this point.

SEC mentioned that they are thinking of capping leverage at 150% or 300% (if you meet some risk based criteria).
According to AQR website QSPIX has exposure of 637% of NAV and even the low volatility fund has 346% of NAV. As of Dec 31 2015.

With these numbers in mind it is hard to imaging that QSPIX will be able to comply with the new SEC rule and stay as a 1940 Act Mutual Fund.
Even the low volatility fund is above the leverage limit.

Unless:
- Final rule has 2x/4x more leverage allowed then the proposed rule
- Final rule will set different leverage limits on equity vs bonds vs commodities in some volatility based way and somehow AQR will squeeze by.
- AQR measures leverage in significantly different way then how SEC measures leverage
- Current funds are grandfathered

All of these scenarios do not seem too likely (but maybe possible) since I assume the whole point of the rule is to prevent mutual funds from using too much leverage and 6x leverage is definitely bad in the wrong hands... and maybe even in any hands:)

So basically it seems to me that they will have to shut down or change something dramatically. But what does that mean for current investors? Anyone? I guess we'll have to wait and see.

I do agree with you that it is a good thing in the long run that SEC comes up with clear/smart guidelines on the use of leverage in mutual funds to protect investors.

Reading between the lines, I think AQR may be saying there may be some other way for them to deal with leverage restrictions. For example PCRIX used to invest directly in commodity futures but then the regs changed and and they had to invest in commodity linked notes. So that sort of thing.
"...people always live for ever when there is any annuity to be paid them"- Jane Austen

gtwhitegold
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Re: QSPIX - thoughts on interesting fund

Post by gtwhitegold » Sun Jan 31, 2016 8:25 am

I have not read the SEC proposal, but I believe that one possible solution is to do something similar to what PIMCO is doing with the PLUS series of funds which have half of their portfolio implemented using total return swaps. If that's the case, AQR may not have any actual transactions aside from purchasing the swaps.

grok87 wrote:
DIY_investor wrote:
grok87 wrote:
DIY_investor wrote:Hi Everyone,

This is a very interesting thread. Thank you all for posting so much interesting info.
I was convinced by Antti Ilmanen's Expected Returns that QSPNX/QSPIX is a worthwhile investment so I own it as 10% of my portfolio.
Perhaps I missed a discussion on this topic but I was wondering if any of you have an opinion about the potential impact of the proposed SEC derivatives rule on the existence of QSPNX/QSPIX as a mutual fund?

https://www.sec.gov/news/pressrelease/2015-276.html

Hi DIY_investor,
welcome to the forum.
here is aqr's statement
https://funds.aqr.com/news/aqr-statemen ... s-proposal
so basically they are saying they will be fine.
i'm not so sure they'll really be able to do business as usual. Less leverage with these sort of strategies is a good thing IMHO.
cheers,



Hi grok87,

Thank you for your reply!

I did previously read AQR statement on the matter but I didn't particularly see any concrete information there.
AQR basically said let's wait and see what the rule will be and we'll adapt from there. I guess it's hard to imagine them saying anything else at this point.

SEC mentioned that they are thinking of capping leverage at 150% or 300% (if you meet some risk based criteria).
According to AQR website QSPIX has exposure of 637% of NAV and even the low volatility fund has 346% of NAV. As of Dec 31 2015.

With these numbers in mind it is hard to imaging that QSPIX will be able to comply with the new SEC rule and stay as a 1940 Act Mutual Fund.
Even the low volatility fund is above the leverage limit.

Unless:
- Final rule has 2x/4x more leverage allowed then the proposed rule
- Final rule will set different leverage limits on equity vs bonds vs commodities in some volatility based way and somehow AQR will squeeze by.
- AQR measures leverage in significantly different way then how SEC measures leverage
- Current funds are grandfathered

All of these scenarios do not seem too likely (but maybe possible) since I assume the whole point of the rule is to prevent mutual funds from using too much leverage and 6x leverage is definitely bad in the wrong hands... and maybe even in any hands:)

So basically it seems to me that they will have to shut down or change something dramatically. But what does that mean for current investors? Anyone? I guess we'll have to wait and see.

I do agree with you that it is a good thing in the long run that SEC comes up with clear/smart guidelines on the use of leverage in mutual funds to protect investors.

Reading between the lines, I think AQR may be saying there may be some other way for them to deal with leverage restrictions. For example PCRIX used to invest directly in commodity futures but then the regs changed and and they had to invest in commodity linked notes. So that sort of thing.

longinvest
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Re: QSPIX - thoughts on interesting fund

Post by longinvest » Sun Jan 31, 2016 8:47 am

AQR is probably not worried one iota, because QSPIX has no index to be compared to. No investor will ever be able to complain about a tracking error.

That's a perfect fund for its managers with a sweet expense ratio to reward them for their cleverness. :moneybag
Bogleheads investment philosophy | Lifelong Portfolio: 25% each of (domestic/international)stocks/(nominal/inflation-indexed)bonds | VCN/VXC/VAB/ZRR

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Re: QSPIX - thoughts on interesting fund

Post by gtwhitegold » Sun Jan 31, 2016 8:56 am

Upon review of the proposal, it would greatly depend upon how the rule was written whether or not it would actually require AQR to reduce leverage of their hedge fund style funds.

gtwhitegold wrote:I have not read the SEC proposal, but I believe that one possible solution is to do something similar to what PIMCO is doing with the PLUS series of funds which have half of their portfolio implemented using total return swaps. If that's the case, AQR may not have any actual transactions aside from purchasing the swaps.

grok87 wrote:
DIY_investor wrote:
grok87 wrote:
DIY_investor wrote:Hi Everyone,

This is a very interesting thread. Thank you all for posting so much interesting info.
I was convinced by Antti Ilmanen's Expected Returns that QSPNX/QSPIX is a worthwhile investment so I own it as 10% of my portfolio.
Perhaps I missed a discussion on this topic but I was wondering if any of you have an opinion about the potential impact of the proposed SEC derivatives rule on the existence of QSPNX/QSPIX as a mutual fund?

https://www.sec.gov/news/pressrelease/2015-276.html

Hi DIY_investor,
welcome to the forum.
here is aqr's statement
https://funds.aqr.com/news/aqr-statemen ... s-proposal
so basically they are saying they will be fine.
i'm not so sure they'll really be able to do business as usual. Less leverage with these sort of strategies is a good thing IMHO.
cheers,



Hi grok87,

Thank you for your reply!

I did previously read AQR statement on the matter but I didn't particularly see any concrete information there.
AQR basically said let's wait and see what the rule will be and we'll adapt from there. I guess it's hard to imagine them saying anything else at this point.

SEC mentioned that they are thinking of capping leverage at 150% or 300% (if you meet some risk based criteria).
According to AQR website QSPIX has exposure of 637% of NAV and even the low volatility fund has 346% of NAV. As of Dec 31 2015.

With these numbers in mind it is hard to imaging that QSPIX will be able to comply with the new SEC rule and stay as a 1940 Act Mutual Fund.
Even the low volatility fund is above the leverage limit.

Unless:
- Final rule has 2x/4x more leverage allowed then the proposed rule
- Final rule will set different leverage limits on equity vs bonds vs commodities in some volatility based way and somehow AQR will squeeze by.
- AQR measures leverage in significantly different way then how SEC measures leverage
- Current funds are grandfathered

All of these scenarios do not seem too likely (but maybe possible) since I assume the whole point of the rule is to prevent mutual funds from using too much leverage and 6x leverage is definitely bad in the wrong hands... and maybe even in any hands:)

So basically it seems to me that they will have to shut down or change something dramatically. But what does that mean for current investors? Anyone? I guess we'll have to wait and see.

I do agree with you that it is a good thing in the long run that SEC comes up with clear/smart guidelines on the use of leverage in mutual funds to protect investors.

Reading between the lines, I think AQR may be saying there may be some other way for them to deal with leverage restrictions. For example PCRIX used to invest directly in commodity futures but then the regs changed and and they had to invest in commodity linked notes. So that sort of thing.

lack_ey
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Re: QSPIX - thoughts on interesting fund

Post by lack_ey » Sun Jan 31, 2016 11:10 am

gtwhitegold wrote:I have not read the SEC proposal, but I believe that one possible solution is to do something similar to what PIMCO is doing with the PLUS series of funds which have half of their portfolio implemented using total return swaps. If that's the case, AQR may not have any actual transactions aside from purchasing the swaps.

They already use total return swaps for some of the exposures. For some of the stocks, I think it was. A large chunk of the rest is just futures and forwards contracts.

But does that matter? The leveraged and inverse ETFs use swaps for exposure.


longinvest wrote:AQR is probably not worried one iota, because QSPIX has no index to be compared to. No investor will ever be able to complain about a tracking error.

That's a perfect fund for its managers with a sweet expense ratio to reward them for their cleverness. :moneybag

They do provide a quarterly performance attribution by style and describe what kinds of trades they make generally, which seems to be a lot more than most competitors do including Vanguard.

But yes, in general if offering something that isn't available in an index (or seeming to, at least, to some customers), a greater price can be charged, whether that's alternative betas, nontraditional assets, active manager alpha, or whatever. Again, doesn't actually need to be legitimate or worth the money as long as some people think it is.

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Re: QSPIX - thoughts on interesting fund

Post by TdF fan » Tue Feb 02, 2016 11:28 am

I just noticed that the soft close scheduled for Jan. 29 has been pushed out to March 31. Is the reason simply that the "capacity constraints" didn't arrive as soon as they anticipated? Are the SEC proposals causing a slowdown of inflows into the fund?

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Re: QSPIX - thoughts on interesting fund

Post by larryswedroe » Tue Feb 02, 2016 5:38 pm

I learned that they do not believe that this issue will be resolved for perhaps two years, as the people drawing up the rules are lawyers and don't understand the differences of leverage based on risk, so leveraging a one month bill is very different than leveraging a 30 year bond or stocks. The industry is banding together to try to make sure the rules are risk based, not simply leveraged based. Also note that derivatives can be used to lower risk, not only increase it yet proposals are to limit derivatives, which makes no sense.

I don't believe the soft close delay was due to this but other issues.

Larry

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Re: QSPIX - thoughts on interesting fund

Post by nisiprius » Tue Feb 02, 2016 6:37 pm

Haven't the rules for mutual funds always included limits on leverage, rules that are "simply leverage based?" According to the Investment Company Institute
Limits on Leverage The inherent nature of a fund—a professionally managed pool of securities owned pro rata by its investors—is straightforward and easily understood by investors. The Investment Company Act of 1940 fosters simplicity by prohibiting complex capital structures and limiting funds’ use of leverage.
If the rules are to be based on "risk" rather than "leverage," how is "risk" to be measured accurately? Won't every fund managers using leverage insist that their particular way of using leverage isn't risky?
Annual income twenty pounds, annual expenditure nineteen nineteen and six, result happiness; Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.

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Re: QSPIX - thoughts on interesting fund

Post by larryswedroe » Tue Feb 02, 2016 7:31 pm

Nisiprius
There are simple VAR based measures which can be used, like a simple one might be volatility. So you can leverage something like a one one bill which has almost no volatility more than you can leverage large caps which have vol of say 20 and small caps which have vol of say 35. It's like a bank or insurance company which has risked based capital rules.
Larry

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Re: QSPIX - thoughts on interesting fund

Post by grap0013 » Wed Feb 03, 2016 8:51 am

larryswedroe wrote:I learned that they do not believe that this issue will be resolved for perhaps two years, as the people drawing up the rules are lawyers and don't understand the differences of leverage based on risk, so leveraging a one month bill is very different than leveraging a 30 year bond or stocks. The industry is banding together to try to make sure the rules are risk based, not simply leveraged based. Also note that derivatives can be used to lower risk, not only increase it yet proposals are to limit derivatives, which makes no sense.

I don't believe the soft close delay was due to this but other issues.

Larry


Translation: sit tight for a while on this fund and it will not probably matter much in the end. If it does matter, the strategy is transparent enough that the impact of enforced changes will be discussed here.

Did I mention my equities were down 2-4% yesterday while QSPIX was up 1.25%? Working like a charm!
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Re: QSPIX - thoughts on interesting fund

Post by nisiprius » Wed Feb 03, 2016 10:05 am

larryswedroe wrote:Nisiprius
There are simple VAR based measures which can be used, like a simple one might be volatility. So you can leverage something like a one one bill which has almost no volatility more than you can leverage large caps which have vol of say 20 and small caps which have vol of say 35. It's like a bank or insurance company which has risked based capital rules.
Larry
Then I take it that you do not agree with those who say VaR has been discredited, and you feel that VaR is a valid and appropriate measuring stick for regulators to use when protecting mutual fund investors.

(Mutual fund investors are supposed to have more protection than hedge fund investors--or banks and insurance companies investing directly--and mutual funds are supposed to have a degree of conservatism in the form of the rules on diversification, liquidity, and leverage).

Naturally this is a debated issue. Wikipedia's article on "Value at risk" has a section summarizing criticisms.
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Re: QSPIX - thoughts on interesting fund

Post by larryswedroe » Wed Feb 03, 2016 11:27 am

Yes I disagree, VAR is a tool that like all tools is neither good nor bad. Used correctly it is highly useful, misused or abused it is dangerous.
Remember the person most easily fooled is yourself and that's what happens when people misuse models.
This is really simple concept of leveraging low risk assets is less risky than leveraging high risk assets and you need to understand the difference. Now the problem is the models used need to be good models that don't ignore fat tail risks.
Larry

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Re: QSPIX - thoughts on interesting fund

Post by grap0013 » Fri Jul 01, 2016 9:33 am

1 week returns since Brexit....

VFITX (intermediate treasuries) +1.32%
QSPIX +1.51%

Observations: Nothing has changed in the world. Bonds are still a safe haven especially in times of equity troubles and QSPIX reduces downside volatility sometimes even more than bonds. I know QSPIX is supposed to have zero correlation to equities but I am noticing a trend where it appears to go up more when equities are down such as the 2nd half 2015, early this year, and now Brexit. Fun to watch but not actionable. Just an observation.
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Re: QSPIX - thoughts on interesting fund

Post by rrppve » Thu Sep 01, 2016 3:07 pm

Is QSPIX losing its magic:
YTD: -3.16% through 8/31/16
August: -2.48%
The last week has been particularly bad.

Wonder what factors have turned negative in their mix. Will have to wait till October when they publish their 3rd quarter attribution analysis.

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Re: QSPIX - thoughts on interesting fund

Post by grap0013 » Fri Sep 02, 2016 7:15 am

rrppve wrote:Is QSPIX losing its magic:
YTD: -3.16% through 8/31/16
August: -2.48%
The last week has been particularly bad.

Wonder what factors have turned negative in their mix. Will have to wait till October when they publish their 3rd quarter attribution analysis.


I was waiting for someone to post about poor recent performance. :wink:

Annualized returns since inception are still nice. 12 mo returns are still decent. More importantly my overall portfolio performance YTD even with 20% QSPIX/QSPNX is still 10%+. I'm not going to confuse portfolio strategy with outcome.

If 8 months of performance scares investors holding this fund they should not be in it in the first place. I will stay the course. I am curious what specific component is dragging the fund down a little though. Should be interesting.
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Re: QSPIX - thoughts on interesting fund

Post by DaufuskieNate » Fri Sep 02, 2016 8:48 am

rrppve wrote:Is QSPIX losing its magic


Seems to me that the "magic" of this fund is twofold: 1) returns that are uncorrelated to traditional asset classes and 2) reasonable long term returns.

Let's compare QSPIX returns to a 60/40 3-fund portfolio with a 50/50 U.S./International allocation:

In 2014, QSPIX returned 11.30% compared to 4.87% for the 60/40 providing a nice boost to an otherwise lackluster year.

In 2015, QSPIX returned 8.76% compared to (1.00)% for the 60/40. This is exactly the kind of performance you would like to see in a difficult year for traditional asset classes. I say "like to see" because uncorrelated returns do not always produce gains when the other asset classes are producing losses.

YTD, QSPIX has returned (3.16)% compared to 6.40% for the 60/40. The loss in QSPIX is being offset by a solid year so far in traditional asset classes.

All-in-all, this fund is proving to be a valuable component of a traditional portfolio. Of course, more time is needed to evaluate the performance over the longer term.

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Re: QSPIX - thoughts on interesting fund

Post by matjen » Fri Sep 02, 2016 10:10 am

DaufuskieNate wrote:
rrppve wrote:Is QSPIX losing its magic


Seems to me that the "magic" of this fund is twofold: 1) returns that are uncorrelated to traditional asset classes and 2) reasonable long term returns.

Let's compare QSPIX returns to a 60/40 3-fund portfolio with a 50/50 U.S./International allocation:

In 2014, QSPIX returned 11.30% compared to 4.87% for the 60/40 providing a nice boost to an otherwise lackluster year.

In 2015, QSPIX returned 8.76% compared to (1.00)% for the 60/40. This is exactly the kind of performance you would like to see in a difficult year for traditional asset classes. I say "like to see" because uncorrelated returns do not always produce gains when the other asset classes are producing losses.

YTD, QSPIX has returned (3.16)% compared to 6.40% for the 60/40. The loss in QSPIX is being offset by a solid year so far in traditional asset classes.

All-in-all, this fund is proving to be a valuable component of a traditional portfolio. Of course, more time is needed to evaluate the performance over the longer term.


+1 Nice post. This is pretty much exactly my bogie rather than some 100% equity fund or 3-month T-Bills on the other extreme. The low correlation is what really makes it attractive. Although a bit low on International equity exposure, I often just look at Vanguard's LifeStrategy Moderate Growth Fund (VSMGX) since it is a diversified 60/40 fund.
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Re: QSPIX - thoughts on interesting fund

Post by nisiprius » Fri Sep 02, 2016 10:30 am

Note: I am a skeptic who owns no QSPIX and continually snipes at it with snarky comments. Nevertheless, so far, in my personal opinion, to my eyeball, QSPIX has been doing just fine. Since inception it has done better than any of the mutual funds I own (notably Total Stock*, Total Bond, and Total International Stock). It has done so without any obvious large risk in any sense of the word "risk."

And, if I'd had, let's say--just picking numbers out of the air--if I'd replaced 20% of my Total Stock holding with QSPIX--the result, over the time period shown by Portfolio Visualizer, would have been
--a small decrease in return, 7.65% -> 7.41%
--a big decrease in standard deviation, 11.21% -> 8.85%
--an improvement in risk-adjusted return, Sharpe ratio 0.70 -> 0.84.

I have no idea what would be a fair comparison, but compared to, let's say Wellington, to my eyeball QSPIX has had about the same return and has done it in noticeably smoother and steadier way. Over the last six months it's turned in a loss, but it is a small and gradual loss--nothing catastrophic. If I had had the conviction to hold this fund in the first place (and been able to buy it), nothing that's happened this year would have shaken that conviction at all.

In short, so far this fund has done just about what the people who recommend it have said it should do.

It's too bad for my personal dislike of tricky-tricky funds that use short positions and leverage, but that's what's actually happened. I am going to pretend that I am not a snarky person so I will stop right there.

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*Correction, since inception of QSPIX Total Stock has edged it out, but only by a trifle.
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Re: QSPIX - thoughts on interesting fund

Post by Random Walker » Fri Sep 02, 2016 10:48 am

Nisiprius,
Think what you showed is exactly what is expected of the fund. If one takes from equity side of portfolio to generate position, expected return stays about same, portfolio volatility same or less, increased Sharpe ratio. If one takes from the bond side, expected return increases, volatility increases, Sharpe ratio increases.

Dave

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Re: QSPIX - thoughts on interesting fund

Post by nisiprius » Fri Sep 02, 2016 9:21 pm

Random Walker wrote:Nisiprius,
Think what you showed is exactly what is expected of the fund. If one takes from equity side of portfolio to generate position, expected return stays about same, portfolio volatility same or less, increased Sharpe ratio. If one takes from the bond side, expected return increases, volatility increases, Sharpe ratio increases.

Dave
I thought that's what I said. "In short, so far this fund has done just about what the people who recommend it have said it should do."
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Re: QSPIX - thoughts on interesting fund

Post by lack_ey » Fri Sep 02, 2016 10:23 pm

Yup.

And to recap the main points to consider are
(1) maybe the source of returns goes away later
(2) maybe the obvious risk just hasn't shown up yet

Looking at any investment for three years, (2) is almost always going to be true—you've yet to see the worst of it or what can really happen. Or the best of it. And for any factor, including the market factor, (1) is to a degree a concern but I wouldn't bet hard against it.

If you're looking at something that has very low correlation to stocks and bonds, I think even equity-like risk with bond-like returns is acceptable, so anything better than that is fine in my books. That's not incredibly far removed from what you might expect with commodities, to be honest, except that commodities can trend down sharply with equities too, and the volatility is usually even higher.

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Re: QSPIX - thoughts on interesting fund

Post by nedsaid » Sat Sep 03, 2016 12:22 pm

nisiprius wrote:Note: I am a skeptic who owns no QSPIX and continually snipes at it with snarky comments. Nevertheless, so far, in my personal opinion, to my eyeball, QSPIX has been doing just fine. Since inception it has done better than any of the mutual funds I own (notably Total Stock*, Total Bond, and Total International Stock). It has done so without any obvious large risk in any sense of the word "risk."

And, if I'd had, let's say--just picking numbers out of the air--if I'd replaced 20% of my Total Stock holding with QSPIX--the result, over the time period shown by Portfolio Visualizer, would have been
--a small decrease in return, 7.65% -> 7.41%
--a big decrease in standard deviation, 11.21% -> 8.85%
--an improvement in risk-adjusted return, Sharpe ratio 0.70 -> 0.84.

I have no idea what would be a fair comparison, but compared to, let's say Wellington, to my eyeball QSPIX has had about the same return and has done it in noticeably smoother and steadier way. Over the last six months it's turned in a loss, but it is a small and gradual loss--nothing catastrophic. If I had had the conviction to hold this fund in the first place (and been able to buy it), nothing that's happened this year would have shaken that conviction at all.

In short, so far this fund has done just about what the people who recommend it have said it should do.

It's too bad for my personal dislike of tricky-tricky funds that use short positions and leverage, but that's what's actually happened. I am going to pretend that I am not a snarky person so I will stop right there.

Source
Image

*Correction, since inception of QSPIX Total Stock has edged it out, but only by a trifle.


If I wanted to buy a fund such as QSPIX, I would buy it as sort of a proxy for bonds. Bonds historically have returned about 6% and now future expected returns are more like 2%. So pretty much my benchmark for such a fund would be the 6% or so historical returns of bonds. A fund like Vanguard Wellington which is 60% stocks/40% bonds would have a future expected return of about 4-5%. So if I got a fairly steady 4-6% annual return from such a fund with low correlation to the stock market, I would be very pleased. We will see if they can deliver.
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Re: QSPIX - thoughts on interesting fund

Post by nisiprius » Sat Sep 03, 2016 7:20 pm

lack_ey wrote:...And to recap the main points to consider are
(1) maybe the source of returns goes away later...

And for any factor, including the market factor, (1) is to a degree a concern but I wouldn't bet hard against it.
By the "market factor" as a source of returns, is this about the same thing as the "equity risk premium?"

I think it is very worth noting that the disappearance of the equity risk premium was put forward quite seriously in 1999 by Glassman and Hassett, in Dow 36000. In fact it was the chief premise of the book. I'm not putting words into their mouth or paraphrasing. They said, direct quotation:
The Dow 36,000 theory depends on the risk premium for stocks disappearing.
They thought that a sensible target date for this was 2005 or sooner. The reason was that the knowledge that stocks were actually no riskier than bonds was rapidly diffusing throughout the investment community. Stocks would rapidly rise to their "perfectly reasonable price," which according to their calculations implied Dow 36,000 in 2005.

Since the risk premium can only be eliminated once, the rise to 36,000 would presumably be a one-time event, but they didn't say this. Since I don't think any kind of pessimism about stocks formed part of their theory, I'm not clear on what exactly was supposed to happen after the Dow reached 36,000.

So the idea of the risk premium disappearing is not as far-fetched as it might appear. Or then again, maybe it really is far-fetched--since the Dow did not, in fact, reach 36,000 by 2005.
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Re: QSPIX - thoughts on interesting fund

Post by lack_ey » Sat Sep 03, 2016 7:42 pm

nisiprius wrote:
lack_ey wrote:...And to recap the main points to consider are
(1) maybe the source of returns goes away later...

And for any factor, including the market factor, (1) is to a degree a concern but I wouldn't bet hard against it.
By the "market factor" as a source of returns, is this about the same thing as the "equity risk premium?"

I think it is very worth noting that the disappearance of the equity risk premium was put forward quite seriously in 1999 by Glassman and Hassett, in Dow 36000. In fact it was the chief premise of the book. I'm not putting words into their mouth or paraphrasing. They said, direct quotation:
The Dow 36,000 theory depends on the risk premium for stocks disappearing.
They thought that a sensible target date for this was 2005 or sooner. The reason was that the knowledge that stocks were actually no riskier than bonds was rapidly diffusing throughout the investment community. Stocks would rapidly rise to their "perfectly reasonable price," which according to their calculations implied Dow 36,000 in 2005.

Since the risk premium can only be eliminated once, the rise to 36,000 would presumably be a one-time event, but they didn't say this. Since I don't think any kind of pessimism about stocks formed part of their theory, I'm not clear on what exactly was supposed to happen after the Dow reached 36,000.

So the idea of the risk premium disappearing is not as far-fetched as it might appear. Or then again, maybe it really is far-fetched--since the Dow did not, in fact, reach 36,000 by 2005.

The return of the market factor is more or less the equity risk premium, yeah. But in the usual formulation for factor models, that's over the so-called risk-free rate of 1-month T-bills, not bonds. Sometimes the equity risk premium is defined as a return above T-bills. Other times it's the return above bonds.

I said that I would not bet hard on the factors going away. That in of itself does not mean that I would bet hard on the factors staying, and in fact there is a nontrivial possibility of any of them going away for a long period of time, including the market factor. I was not making a case that they're sure things. I think they should all be treated with some degree of skepticism, probably different degrees for different factors.

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Re: QSPIX - thoughts on interesting fund

Post by tarheel » Sun Sep 04, 2016 6:27 am

If anyone really wants the performance attribution for QSPIX, Larry would know.

As for myself, not concerned and sticking with AA with 7.5% QSPIX for the long haul.

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Re: QSPIX - thoughts on interesting fund

Post by larryswedroe » Sun Sep 04, 2016 7:53 am

Nisiprius
The fact that two authors made that case doesn't mean that it was an intelligent case. IMO it is about as dumb a case as one could make, completely illogical on all counts. Now that doesn't mean the ERP could not disappear. There are two possibilities. The first is it can disappear because of bubbles, like in 2000, at the time the E/P was much lower than the yield on riskless TIPS as one example.

The other is the risks show up as they have for many countries such as Russia, Cuba,and Egypt (which in 1900 was the sixth largest market in the world) or can disappear because of wars.

But ex ante there SHOULD always be an ERP.

Most important, all factors, including the 8 (six stock and two bonds) that I focus on in my new book (should be out in about 2 months as we just finished the editing) go through long periods of underperformance. One of the things we do in the new book is present the odds of underperformance for each of the factors over various time frames. And what we see is that in each case the longer the horizon, the lower the odds of underperformance, but that there is always the risk of underperformance, no matter how long the horizon. We also show that a portfolio (naive 1/n) of factors that is diversified has lower odds of underperformance than even the most persistent factor REGARDLESS of the time horizon. Which makes diversification the prudent strategy.

The hard part I've learned is that unfortunately for most investors three years is long time, five very long and 10 infinity, and financial economists know that 10 years in finance is very likely just "noise", nothing more. What's also unfortunate is that so many think along these lines "well I don't have 20,30 years to wait for a factor to outperformance, and thus they don't diversify. That's exactly backwards thinking. Since any factor can underperform for a very long time and we don't have clear crystal balls, the prudent strategy then is to diversify across them. And that includes market beta as a factor.

Best wishes
Larry

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Re: QSPIX - thoughts on interesting fund

Post by matjen » Tue Nov 01, 2016 5:37 pm

Another minor rough stretch for the markets and QSPIX has performed admirably. In October it was up 1.62% (helped mightily by a 1% day yesterday). Today it was the only thing in my portfolio not red. For the month of October it was about the only thing positive other than Emerging Markets eking out a tiny gain. This is why I love it.

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QSPIX:
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Re: QSPIX - thoughts on interesting fund

Post by rrppve » Tue Nov 01, 2016 6:56 pm

Thanks to Fido re-opening access, I was able to shift another 1% into this portfolio diversifying fund. Turned out to be well timed. 8-)

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Re: QSPIX - thoughts on interesting fund

Post by grap0013 » Tue Nov 01, 2016 9:38 pm

^^ Nice matjen, I was just about to post the same. Fund is doing what it does best. Diversification.
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Re: QSPIX - thoughts on interesting fund

Post by boglefoot » Tue Nov 01, 2016 11:38 pm

Does anybody know what ever became of the planned release of Style Premia II ? I thought this was supposed to have come out already.

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Re: QSPIX - thoughts on interesting fund

Post by grap0013 » Wed Nov 02, 2016 5:28 pm

^Not sure. Don't look now but equities are down another ~1% today. 5 year treasuries +0.17% and QSPIX +0.70%.
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Re: QSPIX - thoughts on interesting fund

Post by rrppve » Wed Nov 02, 2016 6:22 pm

grap0013 wrote:^Not sure. Don't look now but equities are down another ~1% today. 5 year treasuries +0.17% and QSPIX +0.70%.

Gotta love a true beta=0 product

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Re: QSPIX - thoughts on interesting fund

Post by Lieutenant.Columbo » Sat Jan 14, 2017 10:35 pm

Random Walker wrote:I too have climbed on the QSPIX bandwagon. I'm a big believer in looking at the portfolio as a whole and I hugely influenced by Gibson's Asset Allocation. How an additional fund impacts a portfolio depends on expected return, volatility, correlations, and costs. I've admittedly become an asset class junkie. That being said, I really like the idea of a small allocation to a highly volatile and weakly correlated asset class. The allocation will have a more significant diversification effect on the portfolio than one would expect from such a small %. And the absolute increase in portfolio cost is not all that much when the % allocation is small. I've held 3% allocation to CCFS for about a year and 3% QSPIX for about 6 months. It's intriguing to see the daily moves in these funds compared to the overall market.
Gibson comments that for an investor with an aggressive equity rich portfolio, maximal diversification across asset classes with high expected return can lend strength to the investor's conviction to stick with the plan. I agree. Admittedly, high costs can also make one consistently question the plan. I have to say, QSPIX, CCFs, international small value, REITs, International REITS are what provide me the entertainment in my portfolio. :-). QSPIX should only be held in tax deferred accounts.

Dave
Dave,
Eighteen months later, what's your update on your QSPIX position? Still holding 3%? (is it 3% of total portfolio? or 3% of a given class?
Thank you.
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