randomguy wrote: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.
I don't see why a wait to see if the modeled performance actually generates positive returns after fees for 5 years is not a good idea. I think by not seeing how these guys actually perform you are taking on risks that cannot be seen from modeled performance and why would you pay more for that than other factor funds. I think the argument about more factor exposure is based upon the assumptions that these guys have distilled these factors so that they can be dialed up and down at will. I think the factors are not that well behaved (see SCV over time and Bogle's telltale chart) that this can actually be done.