I am open minded towards this fund and yet dubious about purchasing it. I do have concerns about the fund and I don't think they are silly. First, there is a level of complexity to the fund and I counted at least 20 moving parts. Second, I know that leverage and short selling are used in the fund. These can be very useful tools but another question is how much of this are they doing? Is the amount of leverage and short selling going to change with the market conditions? As with all funds, we would get quarterly reports but with window dressing near quarter end it is hard to see exactly what the managers are doing. If the managers are too transparent, they could give away the "secret sauce." There is a big element of faith in the managers.Johno wrote:
Anyway, I don't actually see any point in just 'watching' a fund like this. I doubt many people who are reflexively against a fund like this are going to be convinced by say 5yrs of good performance ('it's a fluke' they'll say, and actually it could be), and the longer than that you go the more the world might be changing to make the fund obsolete. Though if one simply says 'no interest', that's fine, of course.
But as I stated on previous threads, I think the scare mongering about this fund being a time bomb is basically silly. Anything can happen but that's true of the stock market also. Same goes for comparisons of (different) AQR products that went down *slightly* more than the stock market in 2009. Yes that was a well publicized black eye for AQR but it's a rather selective reading of their record, and again Absolute Return Fund's historic performance doesn't look at all like QSPIX's backtested performance. The argument that 'well there could be some other totally different scenario where QSPIX does correlate (down) with the stock market' is basically admitting that the Absolute Return Fund example is irrelevant.
The basic gamble with a reasonable size slice of QSPIX is that it just doesn't do much at all in terms of return in the future, which would make it mainly a dud IMO even with low correlation to stocks and bonds. I haven't seen any good argument made on any of these threads why it would be as likely as a stock index fund to blow up and lose a lot, and we know the latter is not that unlikely, and there's no gtee of a come back from a stock market meltdown in a reasonable portion of an investing life time; the idea that there somehow is is the most common dangerous delusion on this generally level headed forum IMO. Something with a reasonable chance of reasonable return (US stock expected returns are IMO only mid single digits nominal now so 'reasonable' isn't much) and low correlation to stocks is worth considering. Asking for a gtee is not realistic.
Part of this is that this fund invests in commodities and currencies, two areas of investment with which I have not participated in myself. I also have not leveraged my investments or ever participated in short selling. I have never done anything with options. So I am pleading lack of experience and perhaps ignorance on my part. I am also trying to understand how you make something entirely market neutral and distill out everything but whatever factor you are trying to invest in.
The fund sponsors obviously have put a whole lot of thought into this fund. It probably is very well constructed. They have tried to minimize the risk of the fund "blowing up" by investing in more liquid investments. I suppose if liquidity in one of the big markets dried up, it could create a big problem. For example, liquidity in the bond market dried up in late 2008 except for treasuries and certain government agency bonds like GNMAs. It is such unforeseen events that put a big kink in the design of the fund. It is hard to guard against that one unforeseen event that always seems to happen in times of market stress.
In some ways, the fund is only as good as the shareholders themselves. Shareholder redemptions at the wrong time can frustrate the best of fund managers. I would be interested to know if the fund has place restrictions on trading and redemptions by the shareholders.
The other problem is that markets are smart. If someone finds an edge out there, it isn't too long before the copycats come in. I am just asking questions.