QSPIX - thoughts on interesting fund

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nbseer
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Re: QSPIX - thoughts on interesting fund

Post by nbseer » Sat Aug 08, 2015 8:44 am

Well I tried to buy QSPIX in my Vanguard TIRA through "FundAccess" and couldn't because of the $5,000,000 minimum investment. Wonder why Fidelity customers can buy at lower amounts but not Vanguard.

rrppve
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Re: QSPIX - thoughts on interesting fund

Post by rrppve » Sat Aug 08, 2015 2:13 pm

It's all based on the marketing agreements that the brokerages sign with the fund family. You should be able to buy the higher cost N class shares with "only" a $1mm minimum then, if that is of interest. The AQR funds are only available to institutional customers on some platforms. Fidelity somehow allows retirement accounts access. TD might as well. On Schwab it is also institutional only access.

canslough
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Re: QSPIX - thoughts on interesting fund

Post by canslough » Sat Aug 08, 2015 2:30 pm

Scottrade has most of AQR's I class funds available with only a $100 minimum investment ($17 transaction fee)

Random Walker
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Re: QSPIX - thoughts on interesting fund

Post by Random Walker » Sun Aug 09, 2015 1:36 pm

I started investing in QSPIX just this year. For us portfolio junkies who may watch things daily, it is very fun to see its daily moves compared to the market.

Dave

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tarheel
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Re: QSPIX - thoughts on interesting fund

Post by tarheel » Mon Aug 10, 2015 5:48 am

I'm up to 7.5% of my portfolio in QSPIX and unfortunately can't go higher for 5 more years (IPS). Eventually I think I'll have a 10% permanent allocation.

It's a wonder of the world. :happy

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grap0013
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Re: QSPIX - thoughts on interesting fund

Post by grap0013 » Mon Aug 10, 2015 6:55 am

rrppve wrote:
grap0013 wrote:Nothing like a play-by-play update.

Trailing 3 month returns for my portfolio:

Total: -3.42%
QSPIX: +6.31%
VFITX (intermed term treasuries): +0.41%

Those are real returns of a fund that I actually held throughout the entire time frame. Not backtested.

While these are real returns and I'm also a fan, you did chose an endpoint where QSPIX was up 0.6% on the day when every other asset class had poorer performance, including bonds, equities were off considerably around the world. I do believe that this may have been the day with greatest outperformance of QSPIX as compared to a balanced portfolio over your relatively short holding period.


Want me to go back one day? I think you will still see something similar. ;-)
There are no guarantees, only probabilities.

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grap0013
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Re: QSPIX - thoughts on interesting fund

Post by grap0013 » Mon Aug 10, 2015 6:57 am

Random Walker wrote:I started investing in QSPIX just this year. For us portfolio junkies who may watch things daily, it is very fun to see its daily moves compared to the market.

Dave


Tis true. No matter what stock futures show, or other markets did during the day etc.... you really can't predict how this fund performed during the day until it spits out the returns at the end of the day.
There are no guarantees, only probabilities.

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Yesterdaysnews
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Re: QSPIX - thoughts on interesting fund

Post by Yesterdaysnews » Tue Aug 11, 2015 7:02 pm

Up 0.4% today.

AQR long short equity product (QLENX) only down 0.17% today.

Good fund shop.

SnowSkier
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Re: QSPIX - thoughts on interesting fund

Post by SnowSkier » Tue Aug 11, 2015 8:23 pm

In addition to QSPIX, AQR's Managed Futures funds have done well...not only today but also over the trailing 12 months.

Today was interesting:
QMHIX up 1.22%
AQMIX up 0.93%

Certainly not for everyone, but I'm happy so far having 4% of portfolio in QSPIX and 2% in QMHIX. Both very uncorrelated with everything else in my portfolio and both of course in tax-advantaged.

AndroAsc
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Re: QSPIX - thoughts on interesting fund

Post by AndroAsc » Wed Aug 12, 2015 6:24 am

I'm agnostic about QSPIX, in fact I only learned about it this month when I was reading up on new developments in the investment world. Yes, my investment plan has not changed since 10 years ago.

My "philosophy" is that I am willing to explore investment strategies like SV-tilt that have (a) a significant amount of peer-reviewed study over the years that demonstrates that it's real and not just some data mining artifact and (b) a reasonable chance of outperforming a purist index fund portfolio after the added fees.

That being said, we also know that sophisticated investment strategies including those backed by extremely intelligent people can go the way of LTCM.

When I was comparing SV tilt to QSPIX, I am concerned because of the following
- In SV tilt, I understand "what they are doing" to some degree, and I can probably do it, if I did not have a day job and access to whatever resources that is necessary. In QSPIX, it's a black box. There are 6 asset class and 4 factors, and we have no idea how the fund manager really manages the fund.
- In SV tilt, if you use respectable/normal index/passive funds, it still at the very core is an index fund that hold real securities. With all the long/short, leveraging, futures, etc... stuff that QSPIX is using, it sounds like more a page out of LTCM than what a passive or index fund should be.
- The strategies that QSPIX use, even though peer-reviewed, are recent. As some who works in R&D, I know there is a lot BS in peer-reviewed literature. The best way to figure out if something is the "real deal" is to wait, for years, sometimes even 5-10 years after the initial publication. If there are indeed problems with the initial study, it will emerge, but it's a slow process. This means that whatever QSPIX is based on literally has no track record, relative to established methods like SV tilting.

Maybe the proponents of QSPIX can chime in.

longinvest
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Re: QSPIX - thoughts on interesting fund

Post by longinvest » Wed Aug 12, 2015 6:50 am

“We know that complexity is usually associated with higher--and often hidden--costs, and with higher--and usually undisclosed--risks.”
-- John C. Bogle
Bogleheads investment philosophy | Lifelong Portfolio: 25% each of (domestic/international)stocks/(nominal/inflation-indexed)bonds | VCN/VXC/VAB/ZRR

larryswedroe
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Re: QSPIX - thoughts on interesting fund

Post by larryswedroe » Wed Aug 12, 2015 8:41 am

Andrew
couple things, first LCTM failed not because of failure of "models" or theory but because of hubris of the managers who were simply making bets and used such high leverage that being wrong even once would have led to failure. Wasn't failure of financial theory.

QSPIX isn't a black box at all, just a complex one. They are passive in implementing rules based strategy in systematic manner. They have defined allocations by style and across asset classes. And the fund managers perform a full attribution analysis for the advisor community at least every quarter, so we see what is driving returns.

Also the strategies they follow aren't really recent, certainly not in the case of carry, value or momentum which are decades old. Even defensive has a fairly long history (low beta strategies).

Having said that IMO one really shouldn't invest in something they don't fully understand the nature of the risks, the sources of returns, etc.

Larry

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Re: QSPIX - thoughts on interesting fund

Post by lack_ey » Wed Aug 12, 2015 11:27 am

Long-short equity has been around a while, using multiple factor tilts. See all the market neutral funds out there, though many of the mutual funds haven't done that great. I guess that's what you get with a strategy that "should" return 0 before fees and costs. Check the historical record for managed futures to see some momentum in action. Carry trade has also been around a long while. Of course long-only value for stock picking is very well established. Defensive kind of goes back to that 1972 paper about low volatility stocks, though that wasn't much picked up until more recently. This is just a repackaging of many components into one fund.

A couple of the more relevant papers from AQR would be "Investing with Style" for the outline of what something like this would look like and be run, and "Value and Momentum Everywhere" as some justification for looking past the more traditional style+asset class combinations, potentially providing some out-of-sample evidence.

They list various bibliographies for the styles, though I'm sure these point to research that more often support than refute their key ideas:
Value
Momentum
Carry
Defensive

The targeted ~10% annual standard deviation and diversification across styles and asset classes means that the concentration in any one given bet is low, reducing the likelihood of a LTCM-style blowup (to be clear, the notional dollar amount exposure for the less volatile positions may still be substantial). LTCM had a debt-to-equity ratio of 25:1 when they were doing well, so that is nothing alike. You should expect double-digit drawdowns now and then here, just not catastrophe as the natural ending point.

For anyone concerned with the volatility target, high expense ratio, amount of leverage, etc., there is a low volatility version of the fund available, QSLIX. That has an ER of 0.85% instead of 1.50% and targets ~5% annual standard deviation. This is probably more in line with the range of returns and volatility seen by many other multialternative funds and comes in cheaper than Vanguard's alternative strategies fund that was supposed to have launched already but hasn't. Now, if you don't think enough of this will persist after costs, both are probably a bad idea, but the option is there.

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Re: QSPIX - thoughts on interesting fund

Post by larryswedroe » Wed Aug 12, 2015 1:39 pm

Lackey
Note it makes no sense to use the other fund as you get 1/2 vol but pay more than half the expenses, better to just put in half the amount in QSPIX than invest in other fund.
Larry

rrppve
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Re: QSPIX - thoughts on interesting fund

Post by rrppve » Wed Aug 12, 2015 1:40 pm

larryswedroe wrote:QSPIX isn't a black box at all, just a complex one. They are passive in implementing rules based strategy in systematic manner. They have defined allocations by style and across asset classes. And the fund managers perform a full attribution analysis for the advisor community at least every quarter, so we see what is driving returns.

Here are the two key charts from the 2nd quarter performance attribution analysis. Value was the key.
Image
Image

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grap0013
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Re: QSPIX - thoughts on interesting fund

Post by grap0013 » Wed Aug 12, 2015 2:44 pm

larryswedroe wrote:Lackey
Note it makes no sense to use the other fund as you get 1/2 vol but pay more than half the expenses, better to just put in half the amount in QSPIX than invest in other fund.
Larry


That other fund is for people poor at math. All 55 million+ $$$ of them. Anyone who thinks that all the "poor behavior" and avoidance of "black hole" premiums have been completely squeezed from the market better think again.
There are no guarantees, only probabilities.

countmein
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Re: QSPIX - thoughts on interesting fund

Post by countmein » Wed Aug 12, 2015 6:04 pm

1. Where does one acquire the attribution scorecard?

2. Why do the returns add up as if all 16 parts of the fund have equal weight? I thought the equity slices were supposed to weigh in at 60% of the fund.

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Re: QSPIX - thoughts on interesting fund

Post by comeinvest » Wed Aug 12, 2015 7:15 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


What is CCFS?

lack_ey
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Re: QSPIX - thoughts on interesting fund

Post by lack_ey » Wed Aug 12, 2015 7:43 pm

grap0013 wrote:
larryswedroe wrote:Lackey
Note it makes no sense to use the other fund as you get 1/2 vol but pay more than half the expenses, better to just put in half the amount in QSPIX than invest in other fund.
Larry


That other fund is for people poor at math. All 55 million+ $$$ of them. Anyone who thinks that all the "poor behavior" and avoidance of "black hole" premiums have been completely squeezed from the market better think again.

I mostly brought up the LV version to reframe the discussion with respect to the people concerned about costs, leverage, etc. For someone with no real sense of the potential returns here, on the surface what they'd see is a better fund... except that doesn't actually make sense for the reasons already stated.

That said, is the LV version actually useless? Doubling the leverage on any strategy doesn't exactly make it twice as effective on both upside and downside. It depends on how the allocations are reconstituted and rebalanced, and the sequence of returns. If someone is targeting a very conservative portfolio, say one that uses cash to dilute the tangency allocation (for lower returns and volatility), it would probably be very slightly better to use the LV version and less cash rather than the normal version and more cash.

Of course virtually everyone should probably prefer the normal volatility version if they had to choose.


comeinvest wrote:
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


What is CCFS?

CCFs. Collateralized commodity futures.

michaelsieg
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Re: QSPIX - thoughts on interesting fund

Post by michaelsieg » Wed Aug 12, 2015 8:12 pm

TD might as well.

I tried to get QSPIX a few months ago in my TDA 403 brokerage account - I was able to place the order online, but it didn't go through, they told me the next day that the minimum is 1M.

Has actually anyone on this forum bought this fund outside a Fidelity IRA?

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Re: QSPIX - thoughts on interesting fund

Post by randomguy » Wed Aug 12, 2015 8:24 pm

lack_ey wrote:
That said, is the LV version actually useless? Doubling the leverage on any strategy doesn't exactly make it twice as effective on both upside and downside. It depends on how the allocations are reconstituted and rebalanced, and the sequence of returns. If someone is targeting a very conservative portfolio, say one that uses cash to dilute the tangency allocation (for lower returns and volatility), it would probably be very slightly better to use the LV version and less cash rather than the normal version and more cash.
.


The argument against is that you are paying .8% er on cash. The argument for is pretty much yeah but they can rebalance using cash to get slightly different results. We can check back in 20 years to see who was right.

comeinvest
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Re: QSPIX - thoughts on interesting fund

Post by comeinvest » Thu Aug 13, 2015 3:11 am

matjen wrote:
Call_Me_Op wrote:Unfortunately, this fund did not exist in 2008 - so we can't see how it stands-up to extreme market stress. By the way, Fidelity's website indicates an expense ratio of 2.61% for the fund.


ER is 1.5%. Fees have been waived and are staying that way.

Market really has been pretty stable since I have owned QSPIX. There was a rough patch in Sept. 14 and I wrote this regarding its performance for Sept and one day of Oct.:

matjen wrote:So September was a rough month for most asset classes. Thought I would take a quick look and see how QSPIX did. I personally sold some bond funds and REITs to move a bit into this fund. With the enormous caveat that this is only one month I still wanted to take a look. My eyeball tells me that it certainly isn't as smooth a ride as total bond but isn't as volatile as total US market. It did turn a profit in a difficult month though.

Image


We also have the backtested results for 2008 which are, of course, backtested...cough. ;-)

http://www.forbes.com/sites/phildemuth/ ... -israel/2/

Q for Ronen Israel: How would a style premia type of strategy have performed in 2008?

Israel: Based on our research, a broadly diversified, market-neutral style premia strategy would have been down about 5% in 2008. Yet, the strategy would have likely been close to flat in the months of September through December of that year, when markets really sold off, further emphasizing its market neutrality and diversification benefits to a traditional equity portfolio. This market neutrality is further evident when you look at longer term correlations of a broadly diversified, market-neutral style premia strategy to traditional markets. For example, the estimated correlation between such a style premia strategy and the MSCI World Index is 0.01 over the period 1990 through September 2013.

Note that every crisis is different. During the steep equity market sell off from March of 2000 through September 2002, when the equity market was down around 60%, according to our research a broadly diversified, market-neutral style premia strategy would have been up decently, providing diversification to a traditional equity portfolio. Market-neutrality does not mean you make money in every crisis – the word is “neutral” not “short”! But it does mean, unlike most traditional investments, you should excel in some of these periods, and have no tendency to get really killed in them in general. Our tests really bear this out.


The S&P 500 was down ca. 30% in 2008. Is the 5% figure cited above for a "market-neutral style premia strategy" before or after the leverage inherent in QSPIX? Also, what was the backtested total drawdown 2007-2009? For the buy-and-hold investor, only the maximum drawdown is what counts. Volatility is irrelevant, as are correlations, IMHO.

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grap0013
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Re: QSPIX - thoughts on interesting fund

Post by grap0013 » Thu Aug 13, 2015 6:20 am

^I think the -5% means max total drawdown during the 2008 financial crisis had the actual fund QSPIX been in existence back then. It backtests well during 2000-2002 crisis. Once again, zero correlation to even butter production in Bangladesh. Sometimes it's up and sometimes it's down. If it can deliver 4-5% real returns with zero correlation this puppy mixes well with any stock bond ratio out there. Time will tell, but so far in vivo it has delivered the goods. I'm going to have to have some patience before thinking about a 20% allocation to this fund.
There are no guarantees, only probabilities.

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packer16
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Re: QSPIX - thoughts on interesting fund

Post by packer16 » Thu Aug 13, 2015 6:56 am

IMO there are some risks worth taking and others that are not. One of this funds assumptions that all risks are worth taking and the market will reward these risks and diversification will somehow make it work out. This to me thus is the same rationale to holding gold. Its expected return maybe low however it can reduce volatility. To me this is a cop out. I have held gold and it was expensive and lost money versus alternative investments like stocks. If I want to reduce volatility I will use cash and bonds. I know what I get and I can take my risk where I know I will get return at a low cost. IMO this fund is the opposite of this approach. It is an expensive attempt to beat the market based upon a simulated record. It is also interesting to delve into AQRs past experience in fund management. They are from Goldman Sachs and have run high fee hedge funds in the past. Smart guys and have generated some interesting research. As to their record in a panic, it is no better than others, they had a large decline (documented up thread) so I would take the less 5% decline with a large grain of salt. What I find amazing are the fees some are willing to pay for an unproven strategy yet at the same time dismiss opportunistic stock selection which has a much higher probability of success. You can do opportunistic selection in a segment of the market where you can have an advantage (less researched portions of the market) and for a cost closer to an index fund.

IMO this fund belongs in the equity basket in terms of risk and given the fees, I highly doubt they can beat the S&P 500 or other skilled active managers like Sequoia. This is a large black box and anyone thinking that is not is fooling themselves. These guys are making factor bets with you money and taking the first 1.5% of the excess return for themselves. I am skeptical that anyone can make factor bets that are not fixed (changing over time) with any degree of accuracy then with the fees for you to make any money they have to find over 1.5% of excess return per year in a diversified portfolio consistently over the years. This fund is an interesting idea and at 25 to 50bp it may get interesting but at 150bp it is no go form me.

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Re: QSPIX - thoughts on interesting fund

Post by larryswedroe » Thu Aug 13, 2015 7:49 am

One of this funds assumptions that all risks are worth taking



No this isn't the assumption at all. All of the risks the fund takes are based on research showing that the factors they are investing in are both persistent and pervasive across time, regions, and asset classes. And they are little to no correlation. And the volatility is expected to be about half of equities, so one shouldn't compare it to equities.

Larry

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Re: QSPIX - thoughts on interesting fund

Post by lack_ey » Thu Aug 13, 2015 8:20 am

We've been through some of this many times before.

In the sense that you're looking at an asset with low correlation to others and possibly gaining some diversification benefit, such as gold, the argument is similar, but the return drivers and role are different. But sure, if you don't believe in spreading money in alternatives, you will not be interested here.

As mentioned many times, fund construction, amount of leverage, etc. are different from the absolute return hedge fund run during the crisis. There will be losses, sometimes greater ones in different market conditions. Even the backtest shows double digit declines here and there, just not during 08-09. If the fund survives long enough, I'm sure there will be times it does worse than expected and certainly worse than even seen in the backtest.

For something like Sequoia, what you get is the passive asset class performance (which can be replicated by an index fund, extremely high correlation to other stocks and not diversifying) plus some deviation, active share, if you will. The deviation needs to overcome the extra manager fees, and this needs to be generated with manager skill in stock selection. Unless the resulting portfolio looks nothing like the market at all in the aggregate, because of the correlations you pretty much need such a fund to outperform the passive benchmark net of fees to be worthwhile. With a market neutral style fund, there is no underlying passive asset class performance, so everything you get is effectively active share. You don't need it to beat stocks in absolute returns or even on a risk-adjusted basis over the long run to improve a portfolio because of the low correlation with other assets and the role here.

In some sense the factor bets are indeed not fixed because they're doing volatility targeting, among other things. But no, they wouldn't profess to being able to time the factors that well for outperformance.

And finally, this is an example why I brought up the low volatility version. Everyone fixates on the cost without analyzing how different the fund is from any benchmark and what is available elsewhere. Everything you say would be true with the low volatility version too, except the cost is lower, and the probability of large drawdowns is lower too. That's not to say that the low volatility version is worthwhile, but unless your analysis accounts for these differences, you're not addressing why one might pick either.

There are a lot of reasons not to want to use something like this, to be sure, and preferences against it people could well have, but these particular arguments I don't really see standing very well.

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Re: QSPIX - thoughts on interesting fund

Post by packer16 » Thu Aug 13, 2015 8:47 am

I agree with your arguments in theory but I have observed there is a significant difference between theory and practice. For the only active share to be true I think there are some underlying assumptions, like the past correlations and returns being similar to the future. This is a huge assumption. We have seen the changing correlation and returns with SCV over time and multiply that by the number of factors and long/short positions in each factor and get an idea of the number of unknowable returns and correlation you are working with. I can understand maybe trying to deal with a few but the number of factors IMO is just unmanageable and in addition to thinking if this works that somehow you are going to outperform your benchmark by 150bp, especially if you are as stated only take 50% of the equity risk is really a stretch. Getting 150bp outperformance with 100% of equity risk is difficult enough.

All of these factors, IMO boil down to the difference between the stock price and intrinsic value. So why not focus on that versus synthetically deriving factors that lead back to the same value difference. What these factors have become is a way to believe EMH (even though evidence does not support some of its conclusions) and account for the observed anomalies.

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Re: QSPIX - thoughts on interesting fund

Post by matjen » Thu Aug 13, 2015 8:54 am

packer16 wrote:I agree with your arguments in theory but I have observed there is a significant difference between theory and practice.


A perfect example being the vast, vast majority of stock picking equity funds over longer periods of time. After the fact tossing out the Sequoia name doesn't change that. 85% chance it could have been Magellan.
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Re: QSPIX - thoughts on interesting fund

Post by packer16 » Thu Aug 13, 2015 9:01 am

The difference being is that Sequoia is not trying to be a diversified fund and is trying to focus on the IV and price difference where most other finds are not. With Sequoia you are paying for a realized outperformance versus for QSPIX you are paying more for a simulated performance. I know which one I would choose.

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Re: QSPIX - thoughts on interesting fund

Post by Ketawa » Thu Aug 13, 2015 9:19 am

countmein wrote:2. Why do the returns add up as if all 16 parts of the fund have equal weight? I thought the equity slices were supposed to weigh in at 60% of the fund.


I'm guessing it's just a convention of how AQR reports it. It doesn't imply that all the factors have equal weight, only that they are reporting the overall return for the fund coming from that factor, weighted for how much is due to each asset class or factor. You can come up with a unweighted estimate for each asset class using the numbers available on the fund web site. I don't think there's any way to calculate it per factor.

Code: Select all

                     % of Risk Allocation
Global Stock Selection         33.8%
Equity Markets                 24.0%
Fixed Income                   17.3%
Commodities                    16.7%
Currencies                      8.2%

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Re: QSPIX - thoughts on interesting fund

Post by grap0013 » Thu Aug 13, 2015 10:37 am

packer16 wrote:I agree with your arguments in theory but I have observed there is a significant difference between theory and practice. For the only active share to be true I think there are some underlying assumptions, like the past correlations and returns being similar to the future. This is a huge assumption. We have seen the changing correlation and returns with SCV over time and multiply that by the number of factors and long/short positions in each factor and get an idea of the number of unknowable returns and correlation you are working with. I can understand maybe trying to deal with a few but the number of factors IMO is just unmanageable and in addition to thinking if this works that somehow you are going to outperform your benchmark by 150bp, especially if you are as stated only take 50% of the equity risk is really a stretch. Getting 150bp outperformance with 100% of equity risk is difficult enough.

All of these factors, IMO boil down to the difference between the stock price and intrinsic value. So why not focus on that versus synthetically deriving factors that lead back to the same value difference. What these factors have become is a way to believe EMH (even though evidence does not support some of its conclusions) and account for the observed anomalies.

Packer


Do you believe stocks have an expected return premium over bonds? If so, the other factors QSPIX uses are really no different. The logic is the same. If you do not understand this concept then it is a very good idea for you to stay away from this fund. Nothing personal of course.
There are no guarantees, only probabilities.

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Re: QSPIX - thoughts on interesting fund

Post by packer16 » Thu Aug 13, 2015 10:51 am

I do and also think some of the factor premiums are true but for this fund make money over more passive exposure you need to believe these guys can time and outperform this passive exposure by 1.5% per year. The later I find hard to believe and the only non-simulated LT returns these guys have is not very encouraging, see performance of funds in 2008. They may have changed and found some secret but call me from Missouri on this one.

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Re: QSPIX - thoughts on interesting fund

Post by lack_ey » Thu Aug 13, 2015 11:22 am

What passive exposure are you comparing it to?

Stocks is not fair, especially if correlation remains low. If you're looking for long-term returns over stocks, sure, I wouldn't count on it either. The alternatives favorite of T-bills doesn't have nearly the kind and magnitude of risks (biggest understatement ever).

You really have to do a portfolio with vs. portfolio without comparison. And this is complicated and depends on what else you own.

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Re: QSPIX - thoughts on interesting fund

Post by grap0013 » Thu Aug 13, 2015 11:42 am

packer16 wrote:I do and also think some of the factor premiums are true but for this fund make money over more passive exposure you need to believe these guys can time and outperform this passive exposure by 1.5% per year. The later I find hard to believe and the only non-simulated LT returns these guys have is not very encouraging, see performance of funds in 2008. They may have changed and found some secret but call me from Missouri on this one.

Packer


All I can say again is this fund is working in vivo for me personally.

3 month trailing returns:

QSPIX +5.64%

My next best performing fund is QSMLX at -1.05%.

I have more money today and less max drawdown over the past 3 months by owning this fund in real life than if I did not.
There are no guarantees, only probabilities.

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Re: QSPIX - thoughts on interesting fund

Post by zaboomafoozarg » Thu Aug 13, 2015 11:51 am

Good thing none of my accounts have access to this fund, or you guys might actually convince me to buy it.

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Re: QSPIX - thoughts on interesting fund

Post by Angst » Thu Aug 13, 2015 12:22 pm

I'm in packer16's camp here: my "Show Me" sensibilities have yet to be sated and my "too good to be true" radar flickers...

I can't help having the impression that many AQR boosters posting here (save Larry, perhaps) have not fully bought into their future with QSPIX - i.e. I sense a lot of dipping of one's toes into the water but not genuine commitment.

If QSPIX is really "real", then for someone who's already "won the game" and believes in QSPIX, rather than going in the direction of the Larry Portfolio for example, shouldn't they be apt to choose something more along the lines of perhaps 75% QSPIX and 25% Treasuries? Just throwing out numbers here of course, but generally speaking, isn't QSPIX pretty much the holy grail for those who've already won the game?

As it is for now, I'm in no more rush to commit to QSPIX than I am for any bleeding edge consumer software or hardware out there in the marketplace. What's a year or two or five in a lifetime of investing? I try to base my decisions more on my confidence in their outcomes rather than on my fear of regret for not having committed as soon as possible. If QSPIX is real, it will continue to exist and will come down in price. And I will be watching!

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Re: QSPIX - thoughts on interesting fund

Post by lack_ey » Thu Aug 13, 2015 12:48 pm

I would say that the composite backtest numbers (17.4% annualized excess return above risk-free rate with 10.3% standard deviation, -0.09/0.09/0.13 correlation to equities/bonds/commodities), even after discounting for transaction costs or lost opportunities from real-world implementation that is cognizant of costs, are too good to be true. You can't expect factors and strategies discovered to work well to do quite as well in the future for all the usual reasons. But you don't need returns like that. If you just get something like 60/40 stock/bond returns and volatility but with frequently low correlation to the combination, you have a winner. Even with slightly worse risk/return characteristics, as long as the correlation is low, you're slightly better off with the inclusion.

It's not a defensive allocation and nobody should want to skip long equity exposure, not accumulators, not those who've won the game. Even the biggest supporters of alternatives wouldn't tell you to just use alternatives and bonds. That's ridiculous, even ignoring the behavioral aspects, because you'd be giving up diversification, and the point of adding alternatives to conventional assets is diversification in the first place. On the behavioral side, it's always tough mentally to deviate from the market and conventional assets. Not to mention, more expensive.

If stocks and bonds continue to do very well in the future and outperform all kinds of alternatives, that's more than fine with me because that's where the bulk of money is and should be.

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Re: QSPIX - thoughts on interesting fund

Post by pshonore » Thu Aug 13, 2015 1:31 pm

FIDO has another share class of QSPIX for anyone interested - QSPNX - .25 added to the ER but no transaction fee (which is $50 for QSPIX). Minimum $2500 investment in an IRA.

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Re: QSPIX - thoughts on interesting fund

Post by HomerJ » Thu Aug 13, 2015 2:53 pm

grap0013 wrote:I have more money today and less max drawdown over the past 3 months by owning this fund in real life than if I did not.


Wow, 3 months.

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Re: QSPIX - thoughts on interesting fund

Post by HomerJ » Thu Aug 13, 2015 2:55 pm

packer16 wrote:the only non-simulated LT returns these guys have is not very encouraging, see performance of funds in 2008.


This.

His excuse in 2008? "The markets did something I did not expect"

Well, as long as THAT doesn't happen again, I'm sure you guys are all good.

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Re: QSPIX - thoughts on interesting fund

Post by lack_ey » Thu Aug 13, 2015 3:17 pm

Again, as discussed previously...
1. Everyone who's not a straw man expects periods of underperformance, drops here and there, some because of market conditions not anticipated, which affect all assets to some degree
2. The historical return series of Absolute Return looks different from the style premia fund, and they're doing different things
3. Bringing up Absolute Return's 2008-2009 drawdown and not its level of risk and returns (10.8% returns net of fees over a sixteen year period over which the S&P 500 returned 6.8%) is kind of disingenuous because drawdowns scale with the amount of risk taken; the style premia LV version is not better than the normal version despite probably only seeing drawdowns half as large

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Re: QSPIX - thoughts on interesting fund

Post by comeinvest » Thu Aug 13, 2015 3:31 pm

Maynard F. Speer wrote:
nisiprius wrote:Remember the 130/30 funds? The whole world seemed to be touting them around 2007. Finally, mutual would be able to unleash the full stock-picking powers of their managers and we would see how much alpha they could generate once they were freed from the suffocating corsets of restriction to long-only positions. They were going to reach $2 trillion in assets very soon, and all but supersede traditional long-only funds as core investment vehicles for 401(k) savers.

I'd love to do my usual Morningstar-chart-thing but 130/30 funds were such an unmitigated disaster that almost all of them succumbed... so even if one could find a 130/30 fund that hadn't morphed into something else, it would be nothing but an exercise in survivorship bias.


I don't know how they sold that idea to people .. When long/short equities goes wrong it just looks like a car hitting black ice

One hedge fund I own (BlueCrest AllBlue) invests in 7 hard-to-access BlueCrest hedge funds, including one which takes long/short equity positions (the whole fund represents something like 700 staff, three continents and a supercomputer), and as a whole, performance has been extremely consistent .. But looking at almost any of the constituent funds/strategies in isolation, performance is rather chaotic

This chart is why I think (unless you can find the next George Soros) hedge funds really need the 'free lunch' of diversification

Image



How do BlueCrest's expense ratio and investment style compare to QSPIX? Here are my preliminary findings: BlueCrest AllBlue has a web site with a performance chart that looks appealing, but I was not able to access the web site of some of the constituents like BlueCrest Quantitative Equity. One of the consitutents (Blue Trend) has a 1% + 25% performance fee structure. Compared to QSPIX, the base fee would be lower, with a higher performance fee, which would mitigate the risk of perpetual "fee drag" in the case that historic factor premiums (or returns from trend following strategies, etc.) disappear in the future. I was not able to find the expense ratio of some of the other constituents. There seems to be partial overlap of BlueCrest AllBlue with QSPIX, especially in the "Systematic Strategies" portion of AllBlue as per http://www.bluecrestallblue.co.uk/about-allblue . BlueCrest AllBlue can be bought on LSE via InteractiveBrokers currently at a 5% discount, which is probably more cost efficient than the typical $50 charge for mutual fund transactions for QSPIX at U.S. brokers. Management of AllBlue creates extra return by repurchasing shares at discount and issuing shares when they trade at a premium. AllBlue has a zero expense ratio at the fund of fund level, i.e. management works for free (if I understand it right). What do you guys think?
Last edited by comeinvest on Thu Aug 13, 2015 3:50 pm, edited 7 times in total.

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Re: QSPIX - thoughts on interesting fund

Post by grap0013 » Thu Aug 13, 2015 3:38 pm

HomerJ wrote:
grap0013 wrote:I have more money today and less max drawdown over the past 3 months by owning this fund in real life than if I did not.


Wow, 3 months.


All I'm saying is this fund backtests well and it has done what it has promised thus far since inception in real life. I'm not guaranteeing anything. It is risky to invest in something new and I accept those risks. I'm not saying everybody should invest in this fund. I do not care what anybody else does with their money and it is none of my business. I'm just stating why I like this fund. Be skeptical all you want, I'm not trying to win you over or convince you of anything.

I wish this thread were more about the nuts of bolts of this fund's strategy rather than the constant barrage of negativity and skepticism without any productive input or attempt at trying to understanding this fund. If a 1.5% ER tears at your soul and you dislike factors please save your comments for something more productive in another thread.
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Re: QSPIX - thoughts on interesting fund

Post by lack_ey » Thu Aug 13, 2015 3:55 pm

packer16 wrote:I agree with your arguments in theory but I have observed there is a significant difference between theory and practice. For the only active share to be true I think there are some underlying assumptions, like the past correlations and returns being similar to the future. This is a huge assumption. We have seen the changing correlation and returns with SCV over time and multiply that by the number of factors and long/short positions in each factor and get an idea of the number of unknowable returns and correlation you are working with. I can understand maybe trying to deal with a few but the number of factors IMO is just unmanageable and in addition to thinking if this works that somehow you are going to outperform your benchmark by 150bp, especially if you are as stated only take 50% of the equity risk is really a stretch. Getting 150bp outperformance with 100% of equity risk is difficult enough.

All of these factors, IMO boil down to the difference between the stock price and intrinsic value. So why not focus on that versus synthetically deriving factors that lead back to the same value difference. What these factors have become is a way to believe EMH (even though evidence does not support some of its conclusions) and account for the observed anomalies.

Packer

I missed this post earlier, other than the benchmark aspect. What's the benchmark you're using? If you expect every non-cash, non-bond fund to have equity performance, this is just arbitrarily restricting your opportunity set (which is fine if it works for you, may actually be better for us or the world in general, but does not necessarily provide the correct insight to analyze the merits or lack thereof of alternatives in general).

The other point about factors I would disagree with. Some use factors to explain pricing in an EMH framework, but others do not. When you look at the analysis, it's just a bunch of regressions on past data. It doesn't really matter for a factor fund in practice, for example, if value is behavioral, risk-based, or both, as long as it delivers returns.

A reasonably well written piece on EMH and so on that's relevant to the topic is by the AQR guys, who were Fama's grad students:
http://www.institutionalinvestor.com/ar ... c0A6fSOMYt

In any case, even if you attribute differences in return to the "difference between the stock price and intrinsic value" (on a side note, remember that the majority of money invested in the style premia fund is not in stocks) then the question is, as you allude to, how best to access that differential. It doesn't matter if factors are bastardizations of whatever is fundamentally going on as long as they're correlated with whatever the secret sauce is. The majority of mutual funds are searching for the secret sauce, not just ones that happen to have good historical track records like Sequoia. They all have their own ideas and processes about how to get there. However, most of them fail to capture it in practice. In fact, many factor funds fail to capture much of anything in practice either. But is it not at least plausible that a systematic, diversified approach based on factors have a priori a higher probability of success than selecting traditional active managers to hunt for the sauce? With the latter, it's more up to manager skill and you finding managers with said skill, which is easier said than done, as fund performance persistence data can attest to. I don't think I have skill in selecting skill, but maybe somebody else does.

Actually, if I were looking for traditional stockpicking, I think I'd go with Berkshire Hathaway and skip the mutual funds with ERs.

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Re: QSPIX - thoughts on interesting fund

Post by longinvest » Thu Aug 13, 2015 4:00 pm

grap0013 wrote:I wish this thread were more about the nuts of bolts of this fund's strategy rather than the constant barrage of negativity and skepticism without any productive input or attempt at trying to understanding this fund. If a 1.5% ER tears at your soul and you dislike factors please save your comments for something more productive in another thread.

Since when can we not discuss outrageous ERs? I thought that low fees were one of the fundamental Bogleheads principles!
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 lack_ey » Thu Aug 13, 2015 4:13 pm

longinvest wrote:
grap0013 wrote:I wish this thread were more about the nuts of bolts of this fund's strategy rather than the constant barrage of negativity and skepticism without any productive input or attempt at trying to understanding this fund. If a 1.5% ER tears at your soul and you dislike factors please save your comments for something more productive in another thread.

Since when can we not discuss outrageous ERs? I thought that low fees were one of the fundamental Bogleheads principles!

I don't know if you call them principles, guidelines, or whatever.

But in practice, you have to look at fees in the context of what's being offered and the potential risk and return characteristics. Again, if you only focus on cost you will come to the conclusion that the LV variant is better (or less bad) than the normal version simply because the ER is 0.85% instead of 1.50%.

If you have a stable value fund with an ER of 0.4% and a yield of 1.6%, that is not better than a stable value fund with an ER of 0.5% and a yield of 2.0%.

For an active, long-only stock mutual fund, you pay for active share relative to a benchmark. For a more peculiarly tilted or screened factor fund, again you're paying for the particular tilt and portfolio construction relative to something cheaper (e.g. DFA small value vs. Vanguard small value). AQR's long-only stock funds start at 0.40%, certainly higher than elsewhere and many would consider not worth the cost, while others might think it is. For fully hedged alts, there really isn't an equivalent passive exposure available that you could have cheaper.

Obviously if you don't believe in factors or that they represent or are correlated to anything other than effectively noise, then it's a given that you should not even take a second look at anything here or great number of other funds.

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Re: QSPIX - thoughts on interesting fund

Post by packer16 » Thu Aug 13, 2015 4:26 pm

I think the main issue is thinking that you can find a diversified portfolio of a large number of stocks or assets that can outperform the market, you cannot except when your starting point is a panic. If you cannot find it amongst a diversified group individual stocks what makes anyone think they can find it amongst a group of factors and there is enough mispricing amongst factors to overcome the 1.5% drag annual from fees?

The only way to outperform is to be different than the market and take a chance that you will underperform. Mutual funds are not structured to provide an opportunistic way to take advantage of mispricings and the mispricings they do find are diluted away by all other holdings they have to be diversified. There are a few that move in that direction Sequoia being one but most are closet indexers by nature due to the diversification rules. The way to do this correctly is to have focus and understand the valuation of companies so you can find the mispricings.

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Re: QSPIX - thoughts on interesting fund

Post by randomguy » Thu Aug 13, 2015 4:38 pm

Angst wrote:I'm in packer16's camp here: my "Show Me" sensibilities have yet to be sated and my "too good to be true" radar flickers...

I can't help having the impression that many AQR boosters posting here (save Larry, perhaps) have not fully bought into their future with QSPIX - i.e. I sense a lot of dipping of one's toes into the water but not genuine commitment.

If QSPIX is really "real", then for someone who's already "won the game" and believes in QSPIX, rather than going in the direction of the Larry Portfolio for example, shouldn't they be apt to choose something more along the lines of perhaps 75% QSPIX and 25% Treasuries? Just throwing out numbers here of course, but generally speaking, isn't QSPIX pretty much the holy grail for those who've already won the game?

As it is for now, I'm in no more rush to commit to QSPIX than I am for any bleeding edge consumer software or hardware out there in the marketplace. What's a year or two or five in a lifetime of investing? I try to base my decisions more on my confidence in their outcomes rather than on my fear of regret for not having committed as soon as possible. If QSPIX is real, it will continue to exist and will come down in price. And I will be watching!


I don't think that is the right way of thinking about it. QSPIX isn't designed to be some low volatility investment without large swings. It is designed to give stock market returns with slighlty less volatility (something like that of a 60/40 portfolio) AND low correlations with Beta. If you view the Larry portfolio as something like 30 SV/70% treasuries (yes I know it is a bit more complicated), the QSPIX version would be something like 25%SV/10% QSPIX/65% treasuries (and no I didn't calculate what that acutally would return and expected volatility). QSPIX gives up some return compared to SV, so you need more risky exposure but you hope the low correlations keeps the swings in check.

Obviously you can wait but it is pretty much impossible to wait long enought. Lets say in 10 years, it has outperformed stocks by 5% with half the volatility. Is that a good time to buy or is it just a sign that we finished up a decade where the strategy worked great and about hit a decade where it trails stocks by 5% (i.e. we end 20 years with the predicated performance of similiar return to stocks)? We have people debating the SV premium with close to 100 years of data to look at. And I am not sure how much cheaper funds like this will get. There is a cost to these strategies and while I am sure they will get cheaper, I don't think we are going to be seeing them in .15% funds in the near future.

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Re: QSPIX - thoughts on interesting fund

Post by HomerJ » Thu Aug 13, 2015 4:39 pm

lack_ey wrote:
longinvest wrote:
grap0013 wrote:I wish this thread were more about the nuts of bolts of this fund's strategy rather than the constant barrage of negativity and skepticism without any productive input or attempt at trying to understanding this fund. If a 1.5% ER tears at your soul and you dislike factors please save your comments for something more productive in another thread.

Since when can we not discuss outrageous ERs? I thought that low fees were one of the fundamental Bogleheads principles!

I don't know if you call them principles, guidelines, or whatever.

But in practice, you have to look at fees in the context of what's being offered and the potential risk and return characteristics. Again, if you only focus on cost you will come to the conclusion that the LV variant is better (or less bad) than the normal version simply because the ER is 0.85% instead of 1.50%.

If you have a stable value fund with an ER of 0.4% and a yield of 1.6%, that is not better than a stable value fund with an ER of 0.5% and a yield of 2.0%.


This sounds a lot like the financial advisor I had in the late 90s who told me that loads and high expense fees were worth it, because the funds I invested in returned far more than other lower-cost funds.

Sorry about my constant barrage of negativity and skepticism... It would probably be good if we kept the posts containing unbridled optimism about an expensive new fund to a minimum as well. This thread is a good place to discuss factors and the nuts and bolts of this fund's strategy.

But people sure seem excited that this fund cannot lose because "factors! lots of factors!"... Oh, and backtesting. This fund backtests great against 2000 and 2008... What a surprise, since it was designed with those data points in hand. I sure hope the next crisis isn't any different.

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Re: QSPIX - thoughts on interesting fund

Post by HomerJ » Thu Aug 13, 2015 4:47 pm

randomguy wrote:Lets say in 10 years, it has outperformed stocks by 5% with half the volatility. Is that a good time to buy or is it just a sign that we finished up a decade where the strategy worked great and about hit a decade where it trails stocks by 5% (i.e. we end 20 years with the predicated performance of similiar return to stocks)?


That exactly is the problem... Even 10 years of good performance may turn out to just be luck. The 10 years may just be good years for those combinations of factors.

Very hard to know for sure... I definitely don't trust backtesting... EVERY new strategy ever invented back-tested well. And pretty much all of them crashed and burned when something different came along.

This is EXACTLY what happened to Asness in 2008 with his other AQR fund. He had lots of factors in that one too... Sure, different factors, but he tried to minimize downturns by devising a fund with a ton of factors that back-tested well against the 2000 crash... And then something new happened.

Are you sure this new fund of his will do just fine if yet another new thing happens?

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