QSPIX - thoughts on interesting fund

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larryswedroe
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Re: QSPIX - thoughts on interesting fund

Post by larryswedroe » Sat Sep 19, 2015 3:27 pm

Countmein
Didn't know about that, but would be surprised if true.
At any rate I have as much trust in the Bridgeway folks as I have in anyone. And we get very detailed attribution analysis on the fund to track "tracking error"

Nedsaid, agree with your comments re skepticism, want to be skeptical but not to point you don't believe anything.And certainly people should ask questions so that they can make informed decisions. As you know I never mind answering questions, but sometimes the tone is challenging (to be polite) instead of along the lines of something like, I don't understand this issue could you elaborate, or the prospectus says X, why do you think that isn't reflective, etc.

Best wishes
Larry

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HomerJ
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Re: QSPIX - thoughts on interesting fund

Post by HomerJ » Sat Sep 19, 2015 7:31 pm

duplicate
Last edited by HomerJ on Sun Sep 20, 2015 10:10 am, edited 1 time in total.

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HomerJ
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Re: QSPIX - thoughts on interesting fund

Post by HomerJ » Sat Sep 19, 2015 7:36 pm

lack_ey wrote:I have to say, I am a little surprised in general at the relative attention and concern expressed at agency and execution, relative to individual underlying style performance persistence and the actual strategy.

Maybe I'm the one focused on the wrong things. Who knows.


Experience and knowledge of the history of managed funds is what guides us, I'm afraid.

All I'm going on is my experience... That Wall Street fund managers are not looking out for my best interest, and are not trying to make me money. Anyone who has a winning system does not need to farm it out for a 1.5% expense ratio.

But I could be wrong.. This could indeed be a fund that delivers what it promises.

Not sure WHY I should believe that though. Just because Swedroe says so?
Last edited by HomerJ on Sun Sep 20, 2015 10:09 am, edited 1 time in total.

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Re: QSPIX - thoughts on interesting fund

Post by DaufuskieNate » Sun Sep 20, 2015 8:48 am

countmein wrote:
Larry, does it bother you then that nobody at Bridgeway invests in Omni Small Value (save for Montgomery's token allocation)? At least according to the SAI they don't.


True, of the 5 directors only Mr. Montgomery has an ownership in the Omni Small Cap Value fund, however one of the other directors has a position in the Small Cap Value fund. (I believe the Omni funds are available through advisors while the other SCV fund is available to anyone.)

In addition, there are 3 portfolio managers listed in the SAI that own positions in the Small Cap Value fund, the Omni Small Cap Value fund and the Omni Tax-Managed Small Cap Value fund. One manager owns all 3, the other two managers own 2 of the 3.

Of course, there are other employees of and advisors to Bridgeway besides those listed in the SAI. We don't know what they may own. But clearly it's not true that "nobody at Bridgeway invests in Omni Small Value."

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Re: QSPIX - thoughts on interesting fund

Post by Bitzer » Sun Sep 20, 2015 9:40 am

@HomerJ I find your comment that you "don't trust" Mr. Swedroe to be quite interesting. Based upon his writings here and elsewhere, I took relatively small positions in QSPIX and a commodities ETF, both, in my thoughts, to act as portfolio diversifiers.

My QSPIX shows a loss (perhaps my purchase timing was off or I unknowingly purchased a distribution) and my commodities ETF shows a huge loss. I can't say that I invested "on his word", but it definitely influenced me. Was I naïve? What did I miss? Would you care to elucidate on the trust issue?

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Re: QSPIX - thoughts on interesting fund

Post by nedsaid » Sun Sep 20, 2015 10:10 am

I am not invested in QSPIX, indeed I am not sure that it is available to me through Pershing which a couple of my investment companies use as their brokerage platform. I have questions about this particular fund and have decided for now not to pursue these alternative type of funds.

An exchange of ideas is good. Constructive criticism is good. If someone is putting forth a point of view and there is strong disagreement on the forum, can't we agree to disagree?

I don't like it when the integrity of posters get questioned or when certain people are accused of ulterior motives. Were I a financial advisor and I was looking for business, I am not sure that the Bogleheads are the most fertile area for new business. We are mostly do-it-yourself, passive investors who are seeking rock bottom costs.

Though I have certain convictions as an investor, I don't dismiss what others have to say. There are cases where I can't wade through all the detailed arguments that someone might make for let's say hedge funds. I get through as much as I can. If I think there is something there that might benefit me, I will keep reading. If not, I move on to something else. Yes, it is a lot of work to read through as much as I can but I find that I learn a lot in the process. It is important to keep an open mind.

There are good guys in the investment business. Not everyone is a crook. Let's not chase people away who have important things to say. We are free to disagree and free to raise our objections but please let's stop the personal attacks.

Best wishes,

Ned
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Re: QSPIX - thoughts on interesting fund

Post by Bitzer » Sun Sep 20, 2015 10:23 am

I see that @HomerJ's comment of last evening which I referenced in my comment early this morning has been deleted and replaced with [duplicate].

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HomerJ
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Re: QSPIX - thoughts on interesting fund

Post by HomerJ » Sun Sep 20, 2015 11:06 am

Bitzer wrote:@HomerJ I find your comment that you "don't trust" Mr. Swedroe to be quite interesting. Based upon his writings here and elsewhere, I took relatively small positions in QSPIX and a commodities ETF, both, in my thoughts, to act as portfolio diversifiers.


I just don't think he's smarter than the average bear (he's probably smarter than me though) :)

I enjoy most of writings, but I don't take them as gospel.

Even though he leans towards simplicity and index funds, he has to produce an article or two every week. Hard to keep writing about boring index funds for years... So I don't see him as a disinterested party like most of the other posters here... He makes his living writing about financial instruments, and he can get caught up in the hype just like anyone else.

Frankly, I'm flabbergasted by his strong assertions in THIS thread that QSPIX is a "passive" fund, and that it's crazy for us to be cautious of a 1.5% management fee fund with a dozen factors combined with leverage.

"But it was back-tested! And computers! And the algorithms are locked! Even if markets change, the managers won't change anything! Ignore the prospectus!"

But I haven't done that much research on this fund, it's true... I'm done with this thread... I apologize for wasting some people's time. Plenty of people here have done the research, and they should be the ones commenting, not me... I'm just naturally suspicious of high-fee mutual funds... Their track record is VERY VERY poor, and they have promised the sky before.

I am curious how management justifies it's on-going 1.5% fee if the managers don't actually DO anything. If the fund is truly passive, and computerized, what exactly is the large on-going annual fee for?

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

Post by Maynard F. Speer » Sun Sep 20, 2015 11:22 am

Bitzer wrote:@HomerJ I find your comment that you "don't trust" Mr. Swedroe to be quite interesting. Based upon his writings here and elsewhere, I took relatively small positions in QSPIX and a commodities ETF, both, in my thoughts, to act as portfolio diversifiers.

My QSPIX shows a loss (perhaps my purchase timing was off or I unknowingly purchased a distribution) and my commodities ETF shows a huge loss. I can't say that I invested "on his word", but it definitely influenced me. Was I naïve? What did I miss? Would you care to elucidate on the trust issue?


What I'd say on this - all important rule - is: don't invest in what you don't understand ..

It's clear to me Larry has an very good understanding of this fund (and the principles it operates on), and Homer J perhaps less good (being perhaps a little more dogmatic in his views) .. But the reason you have to understand is because you need to know whether you're going to be committed to holding it, and hence: whether it's going to prove a useful diversifier

Like any asset class, systematic funds will go through periods of strong and weak performance, and it helps if you understand what drives these and whether they represent a flaw in the investing strategy, or just natural cycles and occurrences .... Think of it like flipping a coin ... If you don't understand how a coin works, and you flip 8 heads in a row, you might conclude it's useless for making random binary decisions ... If you understand how a coin (and probability) works, you could throw another 8 heads, but still know it is doing its job ... Process thinking > Results thinking
"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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backpacker
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Re: QSPIX - thoughts on interesting fund

Post by backpacker » Sun Sep 20, 2015 11:45 am

Maynard F. Speer wrote:
Bitzer wrote:@HomerJ I find your comment that you "don't trust" Mr. Swedroe to be quite interesting. Based upon his writings here and elsewhere, I took relatively small positions in QSPIX and a commodities ETF, both, in my thoughts, to act as portfolio diversifiers.

My QSPIX shows a loss (perhaps my purchase timing was off or I unknowingly purchased a distribution) and my commodities ETF shows a huge loss. I can't say that I invested "on his word", but it definitely influenced me. Was I naïve? What did I miss? Would you care to elucidate on the trust issue?


What I'd say on this - all important rule - is: don't invest in what you don't understand.


+1

Investors often confuse trusting someone who understands investment X with actually understanding investment X. I call this the advisor fallacy. The former is no substitute for the latter.

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nedsaid
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Re: QSPIX - thoughts on interesting fund

Post by nedsaid » Sun Sep 20, 2015 11:48 am

I will repeat what I have said before. Were I a client of Larry Swedroe and his firm, I would probably own this fund as a diversifier in my portfolio. I would be buying into his firm's philosophy.

I am mostly a do-it-yourself investor. I work with an independent broker with a portion of my retirement assets but mostly I am on my own. The broker has been in the business for 30 plus years and he isn't a believer in these exotic types of investments.

Homer did an excellent job summarizing my objections to QSPIX. I am not investing.

But again, such an investment is only part of a portfolio and is meant as a diversifier. The argument for having this in a portfolio is pretty much the whole is greater than the sum of its parts and that one cannot consider this investment in isolation but as part of a whole. It is a pretty good argument.

Were I managing my investments full time and I had the time to do the due diligence on this fund, my attitude towards this fund would likely be different. But limited time necessitates a simpler approach. As Maynard said, don't invest in something you don't understand.
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HomerJ
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Re: QSPIX - thoughts on interesting fund

Post by HomerJ » Sun Sep 20, 2015 12:06 pm

Maynard F. Speer wrote:What I'd say on this - all important rule - is: don't invest in what you don't understand ..


With complicated subjects, how do you know when you truly "understand"?

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

Post by Maynard F. Speer » Sun Sep 20, 2015 1:11 pm

HomerJ wrote:
Maynard F. Speer wrote:What I'd say on this - all important rule - is: don't invest in what you don't understand ..


With complicated subjects, how do you know when you truly "understand"?


When you can explain it to an American ..

(I jest! I jest!)
"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 grok87 » Sun Sep 20, 2015 1:55 pm

HomerJ wrote:
I am curious how management justifies it's on-going 1.5% fee if the managers don't actually DO anything. If the fund is truly passive, and computerized, what exactly is the large on-going annual fee for?

it's a good question. the below is not meant as a justification for the fees on my part, but merely my attempt to offer insight into the way AQR thinks about this:

1) they view this as a similar investment to hedge funds. Hedge funds charge 2 and 20. i.e. a 2% annual management fee and 20% of returns above a hurdle rate (often tbills). so assume annual returns of 5%, then the 2 and 20 works out to 3% per year. Hence the 1.5% is cheap!- i.e. only half the level of what a hedge fund would charge.

2) the other angle is to compare to traditional long only passive mutual funds that have similar quant type strategies. for example consider Ishares ACWV
https://www.ishares.com/us/literature/f ... -en-us.pdf
that charges an expense ratio of 0.2%. similar ones may be 0.25%. but these funds are unlevered whereas QSPIX is 7x levered. so AQR mentally says- let's take the 0.2%-0.25% and multiply by 7. voila a number around 1.5% pops out.



3) the idea behind 2) is that for every dollar you give ACWV or similar quant-like passive long only mutual fund they make only one "bet". i.e. they take your dollar and put it into a passive basket of stocks. But QSPIX, through the magic of leverage makes $7 worth of bets for every $1 you give them: 3.5 long bets and 3.5 short bets.
so hence they justify the higher fee.

4) AQR actually has a less levered version of QSPIX called qslix that is only 3.5 times levered. the fees are 0.85% roughly half the qSPIX LEVEL


http://www.morningstar.com/funds/XNAS/QSLIX/quote.html
...
3.5 x levered or 1.75 x per side
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Re: QSPIX - thoughts on interesting fund

Post by grok87 » Sun Sep 20, 2015 2:05 pm

Maynard F. Speer wrote:
HomerJ wrote:
Maynard F. Speer wrote:What I'd say on this - all important rule - is: don't invest in what you don't understand ..


With complicated subjects, how do you know when you truly "understand"?


When you can explain it to an American ..

(I jest! I jest!)

wait, what?

:)
"...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 larryswedroe » Sun Sep 20, 2015 6:10 pm

Homer
First, would be really nice if you made statements that showed you actually knew what you are talking about.
The statement about how I make my living is about as far from the truth as any statement could be.
In fact what it shows you know nothing about what you are talking about, yet you make statements as if they are facts.
This type of BS is exactly why there are so few professionals who even spend any time on such sites.
I don't even have any need to work, and the amount of money I generate from any writings wouldn't even amount to a small fraction of 1% of my net worth. What I write about is what the academic literature finds,. In addition I don't HAVE to write anything. I write when I have something intelligent to add to the discussion about investing, something that I believe will help people make better investment decisions.

As to how the management justifies the fee, that should be obvious or they wouldn't have over $7 billion in assets of which over 80% is from institutional investors. It's in the design and ability to execute, manage the risks, trade efficiently,etc.

Larry

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Re: QSPIX - thoughts on interesting fund

Post by packer16 » Sun Sep 20, 2015 7:09 pm

I think the concept is interesting but I am going to wait for the fees to decline. If this fund works as stated and has static factor weightings as described above there are probably numerous managers that either know now or will figure out how to engineer similar results for a much lower cost. That is how the market works. IMO AQR is trying to maximize profits now because in the future there will be more competition. I also am skeptical of the calculating fees on factor exposure and thus if you have a strategy and leverage it you can charge more fees. This is a rationalization not a real reason, it does not cost AQR the leverage amount of cost more to implement QSPIX versus its less leveraged comparable fund.

IMO I think Homer has a good point about AQR and probably most asset management firms except Vanguard in that they are in the business of maximizing the AM firms profits not the investors profits. So some firms exploit this more than others but this motive needs to be examined carefully. The question in my mind is would the AM managers pay the same fees they charge for someone else to do the same thing they are doing? A real good test is how much of the AM firms principles' wealth are in the funds paying the fees everyone else does. In most cases the answer to this question will tell you where an AM firm stands.

As to using that is what institutions do as rationale for the fee is also IMO poor logic. Institutions have a pretty poor record of achieving investment success. They underperform the indicies by large margins in large part due to the large fees they pay to managers. One, UCLA, has stopped using hedge funds for this very reason. I for one do not want to follow this record of "lack of success" in my personal investments.

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Re: QSPIX - thoughts on interesting fund

Post by lack_ey » Sun Sep 20, 2015 7:43 pm

packer16 wrote:I think the concept is interesting but I am going to wait for the fees to decline. If this fund works as stated and has static factor weightings as described above there are probably numerous managers that either know now or will figure out how to engineer similar results for a much lower cost. That is how the market works. IMO AQR is trying to maximize profits now because in the future there will be more competition. I also am skeptical of the calculating fees on factor exposure and thus if you have a strategy and leverage it you can charge more fees. This is a rationalization not a real reason, it does not cost AQR the leverage amount of cost more to implement QSPIX versus its less leveraged comparable fund.

It's clear they can offer the fund at a lower cost. It doesn't have to be engineered by someone clever. The management fee is 1.35% on the fund (out of total 1.50% ER including expense cap). Nobody actually needs 1.35% to run the fund. The low-volatility version has a management fee of 0.65% (out of a total 0.85% ER including expense cap). That basically does the same thing. The normal-volatility version is not 0.70% of AUM per year more taxing for the computers to handle. It's just some fat profits going to the managers because this they can attract a lot of assets even at these prices. Not because they are doing anything that particularly special—though it's definitely more complicated than running a long-only fund and execution is nontrivial—but because for whatever reasons others aren't running and publicizing similar alternatives. Certainly many of these strategies are and have been in use by other managers in other funds. It's just that they may too be charging large fees, or they don't tell us about the strategy.

It's not about the cost to them. It's about the cost the customers are willing to pay for what is offered. And in that sense, grok87's analysis is appropriate. Asness has said in places that fund costs should scale with how different they are from a benchmark. He's said that smart beta/tilted funds should cost between the broadest index funds and what most active managers charge and that with a heavier tilt, you should be able to charge more (note that AQR has long-only stock funds starting at 0.40%, multi-style funds at 0.45%). For a long-short fund, which behaves further from any passive long-only benchmark that can be gotten for cheap, you can charge even more.

From a total portfolio construction perspective, I think it makes sense from the investor's point of view. You shouldn't tolerate high fees for something that is only marginally different from what you can get for much cheaper. The question is whether or not to hold one's nose and tolerate a high fee if something is vastly different from any cheaper benchmark. Some say no way, never. I would say it depends on in which ways it is being different and why.

packer16 wrote:IMO I think Homer has a good point about AQR and probably most asset management firms except Vanguard in that they are in the business of maximizing the AM firms profits not the investors profits. So some firms exploit this more than others but this motive needs to be examined carefully. The question in my mind is would the AM managers pay the same fees they charge for someone else to do the same thing they are doing? A real good test is how much of the AM firms principles' wealth are in the funds paying the fees everyone else does. In most cases the answer to this question will tell you where an AM firm stands.

This was covered to some degree before, but two of the things you look for in a fund manager are (1) closing funds to new investors when appropriate and (2) personal investment in funds managed, both of which AQR does to some extent. You can find the latter in the "statement of additional information" such as here:
http://hosted.rightprospectus.com/AQRFu ... 3H370&dt=S
http://hosted.rightprospectus.com/docum ... mbined.pdf

It is not incredibly high, particularly compared to what their net worths should be, but I don't know if money is instead in the non-mutual fund versions. And they run hedge funds too and collect some performance fees there, for what that's worth.

The diversified arbitrage and multi-strategy alternative funds are closed to new investors, so this has happened. I don't know about the ones that aren't mutual funds. According to Larry, they may be closing this one if it (combined with the institutional version) grows too large.

packer16 wrote:As to using that is what institutions do as rationale for the fee is also IMO poor logic. Institutions have a pretty poor record of achieving investment success. They underperform the indicies by large margins in large part due to the large fees they pay to managers. One, UCLA, has stopped using hedge funds for this very reason. I for one do not want to follow this record of "lack of success" in my personal investments.

I would say the AUM is likely necessary (or not even) but surely not sufficient as an argument. If nothing else, hedge fund AUM is as high as ever these days, despite alpha apparently shrinking and common beta exposures describing more of the performance.
Last edited by lack_ey on Sun Sep 20, 2015 7:45 pm, edited 1 time in total.

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Re: QSPIX - thoughts on interesting fund

Post by backpacker » Sun Sep 20, 2015 7:44 pm

grok87 wrote: The other angle is to compare to traditional long only passive mutual funds that have similar quant type strategies. for example consider Ishares ACWV that charges an expense ratio of 0.2%. similar ones may be 0.25%. but these funds are unlevered whereas QSPIX is 7x levered. so AQR mentally says- let's take the 0.2%-0.25% and multiply by 7. voila a number around 1.5% pops out.


This is one of the more interesting points to come out of a thread that has now (mostly) devolved into a shouting match. One way you could think of QSPIX is as a fund that (a) charges a very reasonable .5% for management and (b) charges a very reasonable 1% for leverage. Leveraging 2x on your own through interactive brokers is 1.60% or whatever. So 1% for whatever AQR is doing might be quite fair.

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Re: QSPIX - thoughts on interesting fund

Post by lack_ey » Sun Sep 20, 2015 8:33 pm

backpacker wrote:
grok87 wrote: The other angle is to compare to traditional long only passive mutual funds that have similar quant type strategies. for example consider Ishares ACWV that charges an expense ratio of 0.2%. similar ones may be 0.25%. but these funds are unlevered whereas QSPIX is 7x levered. so AQR mentally says- let's take the 0.2%-0.25% and multiply by 7. voila a number around 1.5% pops out.


This is one of the more interesting points to come out of a thread that has now (mostly) devolved into a shouting match. One way you could think of QSPIX is as a fund that (a) charges a very reasonable .5% for management and (b) charges a very reasonable 1% for leverage. Leveraging 2x on your own through interactive brokers is 1.60% or whatever. So 1% for whatever AQR is doing might be quite fair.

But that's just a management fee. They're paying money for the leverage in the fund internally and that's not part of the ER. And they're not even using that much in exotic instruments (aside from some swaps maybe for some of the things) and super-special institutional deals. They're primarily using futures, and many people have large enough balances to reasonably work with futures on their own. An S&P 500 e-mini is 50x the index, so around $100k, and many bond futures command about $100k par value. That's without any real money down, just the initial and maintenance margin of several thousand dollars so the broker is allowed to keep your position open. This gets borrowing costs to within say a couple dozen bp of 3-month LIBOR, I think it was.

And the argument should be made that you need not necessarily use leverage to get the same exposures. Let's pretend we're looking at just equities for a moment (conveniently enough, AQR has an equity market neutral fund doing mostly the same things but only in that asset class). If you invest 90% in cap-weighted equities and 10% in a long-short fund that goes 2x long some equities and 2x short some others, this is not functionally much different from being 100% in a tilted equity portfolio. It might even be that you're still net positively invested in the securities that the short part of the long-short fund is saying to underweight. The leverage may be completely unnecessary to gain the same exposures. After all, if all you want to do is underweight some stocks relative to cap weighting, then you can just skip buying them or buy less of them.

What is being offered here is a way to keep all these deviations, which may involve nontrivial turnover, in a single fund. This could be useful from a tax management perspective, for example getting the style exposures in a small IRA relative to a large taxable account holding broad market or tax-efficient tilted funds. In addition, this isn't just a long-short equity fund and it taps into these styles in other asset classes as well.

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Re: QSPIX - thoughts on interesting fund

Post by grok87 » Sun Sep 20, 2015 8:58 pm

backpacker wrote:
grok87 wrote: The other angle is to compare to traditional long only passive mutual funds that have similar quant type strategies. for example consider Ishares ACWV that charges an expense ratio of 0.2%. similar ones may be 0.25%. but these funds are unlevered whereas QSPIX is 7x levered. so AQR mentally says- let's take the 0.2%-0.25% and multiply by 7. voila a number around 1.5% pops out.


This is one of the more interesting points to come out of a thread that has now (mostly) devolved into a shouting match. One way you could think of QSPIX is as a fund that (a) charges a very reasonable .5% for management and (b) charges a very reasonable 1% for leverage. Leveraging 2x on your own through interactive brokers is 1.60% or whatever. So 1% for whatever AQR is doing might be quite fair.

Thanks.

The trouble is leverage doesn't always work the way one thinks it should. At least not the way QSPIX does leverage. this may be similar to the way leveraged ETFs work.

as i mentioned above AQR has two versions of QSPIX. QSPIX which is 7 times levered and a fund called QSLIX that is 3.5 times levered.

ytd qslix has returned 1.47%.
http://performance.morningstar.com/fund ... on?t=QSLIX

so logically QSPIX should be up half that right or 2.94% right?
nope. it is up 2.13%, in other words it has done only about 1.5 x as well as QSLIX.
http://performance.morningstar.com/fund ... on?t=QSPIX

but i'm pretty sure in turns of downside risk QSPIX will lose twice as much as QSLIX. you see the same thing with leveraged etfs. they never really deliver on the 2x better or 3x better performance when things are up. but they sure as hell deliver on the 2x or 3x worse performance when things are bad.

i wish AQR would run a 2x levered (i.e. 1 long bet, 1 short bet) version of this fund at an expense ratio of say 0.43% (i.e. 2/7 of 1.5%). i might invest in it then.

this is what the vanguard market neutral fund does (VMNFX) at a net expense ratio of 0.28%
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Re: QSPIX - thoughts on interesting fund

Post by grok87 » Sun Sep 20, 2015 8:58 pm

lack_ey wrote:
backpacker wrote:
grok87 wrote: The other angle is to compare to traditional long only passive mutual funds that have similar quant type strategies. for example consider Ishares ACWV that charges an expense ratio of 0.2%. similar ones may be 0.25%. but these funds are unlevered whereas QSPIX is 7x levered. so AQR mentally says- let's take the 0.2%-0.25% and multiply by 7. voila a number around 1.5% pops out.


This is one of the more interesting points to come out of a thread that has now (mostly) devolved into a shouting match. One way you could think of QSPIX is as a fund that (a) charges a very reasonable .5% for management and (b) charges a very reasonable 1% for leverage. Leveraging 2x on your own through interactive brokers is 1.60% or whatever. So 1% for whatever AQR is doing might be quite fair.

But that's just a management fee. They're paying money for the leverage in the fund internally and that's not part of the ER.

agree
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Re: QSPIX - thoughts on interesting fund

Post by lack_ey » Sun Sep 20, 2015 9:10 pm

grok87 wrote:
backpacker wrote:
grok87 wrote: The other angle is to compare to traditional long only passive mutual funds that have similar quant type strategies. for example consider Ishares ACWV that charges an expense ratio of 0.2%. similar ones may be 0.25%. but these funds are unlevered whereas QSPIX is 7x levered. so AQR mentally says- let's take the 0.2%-0.25% and multiply by 7. voila a number around 1.5% pops out.


This is one of the more interesting points to come out of a thread that has now (mostly) devolved into a shouting match. One way you could think of QSPIX is as a fund that (a) charges a very reasonable .5% for management and (b) charges a very reasonable 1% for leverage. Leveraging 2x on your own through interactive brokers is 1.60% or whatever. So 1% for whatever AQR is doing might be quite fair.

Thanks.

The trouble is leverage doesn't always work the way one thinks it should. At least not the way QSPIX does leverage. this may be similar to the way leveraged ETFs work.

as i mentioned above AQR has two versions of QSPIX. QSPIX which is 7 times levered and a fund called QSLIX that is 3.5 times levered.

ytd qslix has returned 1.47%.
http://performance.morningstar.com/fund ... on?t=QSLIX

so logically QSPIX should be up half that right or 2.94% right?
nope. it is up 2.13%, in other words it has done only about 1.5 x as well as QSLIX.
http://performance.morningstar.com/fund ... on?t=QSPIX

but i'm pretty sure in turns of downside risk QSPIX will lose twice as much as QSLIX. you see the same thing with leveraged etfs. they never really deliver on the 2x better or 3x better performance when things are up. but they sure as hell deliver on the 2x or 3x worse performance when things are bad.

i wish AQR would run a 2x levered (i.e. 1 long bet, 1 short bet) version of this fund at an expense ratio of say 0.43% (i.e. 2/7 of 1.5%). i might invest in it then.

this is what the vanguard market neutral fund does (VMNFX) at a net expense ratio of 0.28%

On the other hand, look at the total return chart since inception (about a year) and you see this:
Image
http://quotes.morningstar.com/chart/fun ... A%5B%5D%7D

The rebalancing is probably not daily like leveraged ETFs. No, the leverage doesn't work like a multiplier over the long run, but it's not always biased to the downside and is of relatively lower concern when the underlying assets aren't as volatile as say stocks. A lot of the leverage is in bonds and interest rates, which don't move that much, just to bring up the risk level to usable levels.

With too little leverage and net risk you'd get something with relatively low impact per dollar, not moving the needle as much. I guess this could be readily workable if you had a conservative AA overall or were comfortable with leveraging the rest of your portfolio yourself a bit so you could invest say 25% or more in some hypothetical 1x up / 1x down version and keep overall risk levels high enough.

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Re: QSPIX - thoughts on interesting fund

Post by grok87 » Sun Sep 20, 2015 9:31 pm

lack_ey wrote:
grok87 wrote:
backpacker wrote:
grok87 wrote: The other angle is to compare to traditional long only passive mutual funds that have similar quant type strategies. for example consider Ishares ACWV that charges an expense ratio of 0.2%. similar ones may be 0.25%. but these funds are unlevered whereas QSPIX is 7x levered. so AQR mentally says- let's take the 0.2%-0.25% and multiply by 7. voila a number around 1.5% pops out.


This is one of the more interesting points to come out of a thread that has now (mostly) devolved into a shouting match. One way you could think of QSPIX is as a fund that (a) charges a very reasonable .5% for management and (b) charges a very reasonable 1% for leverage. Leveraging 2x on your own through interactive brokers is 1.60% or whatever. So 1% for whatever AQR is doing might be quite fair.

Thanks.

The trouble is leverage doesn't always work the way one thinks it should. At least not the way QSPIX does leverage. this may be similar to the way leveraged ETFs work.

as i mentioned above AQR has two versions of QSPIX. QSPIX which is 7 times levered and a fund called QSLIX that is 3.5 times levered.

ytd qslix has returned 1.47%.
http://performance.morningstar.com/fund ... on?t=QSLIX

so logically QSPIX should be up half that right or 2.94% right?
nope. it is up 2.13%, in other words it has done only about 1.5 x as well as QSLIX.
http://performance.morningstar.com/fund ... on?t=QSPIX

but i'm pretty sure in turns of downside risk QSPIX will lose twice as much as QSLIX. you see the same thing with leveraged etfs. they never really deliver on the 2x better or 3x better performance when things are up. but they sure as hell deliver on the 2x or 3x worse performance when things are bad.

i wish AQR would run a 2x levered (i.e. 1 long bet, 1 short bet) version of this fund at an expense ratio of say 0.43% (i.e. 2/7 of 1.5%). i might invest in it then.

this is what the vanguard market neutral fund does (VMNFX) at a net expense ratio of 0.28%

On the other hand, look at the total return chart since inception (about a year) and you see this:
Image
http://quotes.morningstar.com/chart/fun ... A%5B%5D%7D

The rebalancing is probably not daily like leveraged ETFs. No, the leverage doesn't work like a multiplier over the long run, but it's not always biased to the downside and is of relatively lower concern when the underlying assets aren't as volatile as say stocks. A lot of the leverage is in bonds and interest rates, which don't move that much, just to bring up the risk level to usable levels.

With too little leverage and net risk you'd get something with relatively low impact per dollar, not moving the needle as much. I guess this could be readily workable if you had a conservative AA overall or were comfortable with leveraging the rest of your portfolio yourself a bit so you could invest say 25% or more in some hypothetical 1x up / 1x down version and keep overall risk levels high enough.


thanks. that's an interesting graph. I agree for the time period of the graph QSPIX has delivered twice the return of QSLIX.

"A lot of the leverage is in bonds and interest rates, which don't move that much, just to bring up the risk level to usable levels."

thanks- i was not aware of that. it makes sense. if true it may point to this strategy being built off of AQR's previous 'risk parity" strategies- that would make me even more uncomfortable as i really dislike risk-parity. just wait till we get a huge spike in interest rates like 1994. and of course if could happen a lot quicker this time around. all those leveraged bond funds are going to get killed.
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Re: QSPIX - thoughts on interesting fund

Post by lack_ey » Sun Sep 20, 2015 10:01 pm

grok87 wrote:thanks. that's an interesting graph. I agree for the time period of the graph QSPIX has delivered twice the return of QSLIX.

"A lot of the leverage is in bonds and interest rates, which don't move that much, just to bring up the risk level to usable levels."

thanks- i was not aware of that. it makes sense. if true it may point to this strategy being built off of AQR's previous 'risk parity" strategies- that would make me even more uncomfortable as i really dislike risk-parity. just wait till we get a huge spike in interest rates like 1994. and of course if could happen a lot quicker this time around. all those leveraged bond funds are going to get killed.

Hm, maybe it's too late but I should modulate my claim of "a lot" in bonds. Look back on the last page. Over half of the risk allocation (in this context, measured in standard deviation) is still in equities and equity indices, and don't forget commodities and currencies too. So it is not as aggressively leveraged in fixed income as the more risky risk parity funds, where they seek to take comparable risk in equities and bonds.

For anyone reading, again, please keep in mind the difference between a risk allocation and dollar allocation. For equivalent risk allocation, a less volatile asset needs a greater dollar allocation (more leverage). The risk allocation to equities is a lot higher than that for bonds, but it is closer on a dollar basis because bonds are less volatile.

Furthermore, keep in mind that risk parity funds are net invested in bonds and all the other asset classes. On the other hand, this fund tries to be net (pretty much) zero invested in asset classes. If rates spike across the board, the fund will lose on the long positions in bonds but gain on the offsetting short positions. To hurt the fund, bond rates need to spike or fall for the exact wrong securities held long and short. Also note that big movements are frequently preceded by higher volatility; the volatility targeting will bring down exposures and risk levels when markets get choppier, reducing the likelihood of big gains or big losses when things are crazier.

This of course does not at all guarantee smooth sailing and protection of capital but it's better than nothing.

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Re: QSPIX - thoughts on interesting fund

Post by larryswedroe » Mon Sep 21, 2015 7:48 am

I find the comments about AQR and what it charges really surprising. In a capitalist system companies charge the price that is based on what the market will bear, where supply and demand allow them to charge to maximize profits. The investment business isn't any different. AQR charges what they believe is an appropriate fee and charges much less where the products are more commodity like and capacity is large and barriers to entry aren't high.
When they have limited capacity and limited competition they charge more, just like any other business. It's that simple. Yet many seem to think of them as "evil".
Sure I wish their fees were less, and hopefully competition will help drive their fees down, as it has done with DFA for example in their more commodity like products like REIT fund and US large company fund.
It's called capitalism. It's about value added, not cost. And the question for investors should not be what does AQR charge, but do I get value, does my portfolio improve, if I add this fund. IMO it does, or I would not invest my own money, nor would I recommend others consider it.

I would note that if AQR had chosen to create two funds, a long only and a short only, and charged 75bp for each we would not hear anywhere near the degree of criticism, yet the two fund and one fund (QSPIX) are identical in the costs to the investor.

Larry

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Re: QSPIX - thoughts on interesting fund

Post by larryswedroe » Mon Sep 21, 2015 8:18 am

Lackey
I would add to your comments this important point that the critics talking about the fund blowing up seem to overlook.
The fund is designed to have factors that almost naturally aren't correlated, or even negatively correlated.For example, value and momentum the two largest allocations, are highly negatively correlated and that should be expected. You get to be value due to poor performance.

The fund has no correlation with a 60/40 global portfolio. But importantly of the 19 different ways in which the fund implements the four style premium, only two currency carry and bond value, have historically had negative returns during periods of equity tail risk. The others have positive. This is very important in terms of thinking about how the portfolio is likely to perform when you most need it to perform well.
Larry

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Re: QSPIX - thoughts on interesting fund

Post by HomerJ » Mon Sep 21, 2015 8:50 am

larryswedroe wrote:Homer
First, would be really nice if you made statements that showed you actually knew what you are talking about.
The statement about how I make my living is about as far from the truth as any statement could be.


You are correct. My apologies... You are the director of Research for a wealth management firm. A simple web-search would have shown me this...

I've seen numerous articles and appearances on TV shows from you on various web-pages, etc, and made an incorrect assumption and stated the assumption as fact.

That was wrong of me.

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Re: QSPIX - thoughts on interesting fund

Post by VictoriaF » Mon Sep 21, 2015 9:08 am

HomerJ wrote:
Bitzer wrote:@HomerJ I find your comment that you "don't trust" Mr. Swedroe to be quite interesting. Based upon his writings here and elsewhere, I took relatively small positions in QSPIX and a commodities ETF, both, in my thoughts, to act as portfolio diversifiers.


I just don't think he's smarter than the average bear (he's probably smarter than me though) :)

I enjoy most of writings, but I don't take them as gospel.

Even though he leans towards simplicity and index funds, he has to produce an article or two every week. Hard to keep writing about boring index funds for years... So I don't see him as a disinterested party like most of the other posters here... He makes his living writing about financial instruments, and he can get caught up in the hype just like anyone else.

Frankly, I'm flabbergasted by his strong assertions in THIS thread that QSPIX is a "passive" fund, and that it's crazy for us to be cautious of a 1.5% management fee fund with a dozen factors combined with leverage.

"But it was back-tested! And computers! And the algorithms are locked! Even if markets change, the managers won't change anything! Ignore the prospectus!"

But I haven't done that much research on this fund, it's true... I'm done with this thread... I apologize for wasting some people's time. Plenty of people here have done the research, and they should be the ones commenting, not me... I'm just naturally suspicious of high-fee mutual funds... Their track record is VERY VERY poor, and they have promised the sky before.

I am curious how management justifies it's on-going 1.5% fee if the managers don't actually DO anything. If the fund is truly passive, and computerized, what exactly is the large on-going annual fee for?


HomerJ,

I am glad that you continue posting in this thread and raising valid skepticism.

SOME people may be interested in a fund with a 1.5% fee and read about the nuances of its composition and management. BUT this fund does NOT comply with the Bogleheads investments principles and it should be positioned as a fund for hobbyists, not for the Bogleheads.

Apart from not paying high fees, the Bogleheads principles include:
- Don't invest in something that's too complex.
- Don't invest just because someone, however well-known, advocates it.

Victoria
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Re: QSPIX - thoughts on interesting fund

Post by larryswedroe » Mon Sep 21, 2015 9:12 am

Homer
apology accepted
Thanks
Larry

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Re: QSPIX - thoughts on interesting fund

Post by Maynard F. Speer » Mon Sep 21, 2015 9:40 am

VictoriaF wrote:
HomerJ wrote:
Bitzer wrote:@HomerJ I find your comment that you "don't trust" Mr. Swedroe to be quite interesting. Based upon his writings here and elsewhere, I took relatively small positions in QSPIX and a commodities ETF, both, in my thoughts, to act as portfolio diversifiers.


I just don't think he's smarter than the average bear (he's probably smarter than me though) :)

I enjoy most of writings, but I don't take them as gospel.

Even though he leans towards simplicity and index funds, he has to produce an article or two every week. Hard to keep writing about boring index funds for years... So I don't see him as a disinterested party like most of the other posters here... He makes his living writing about financial instruments, and he can get caught up in the hype just like anyone else.

Frankly, I'm flabbergasted by his strong assertions in THIS thread that QSPIX is a "passive" fund, and that it's crazy for us to be cautious of a 1.5% management fee fund with a dozen factors combined with leverage.

"But it was back-tested! And computers! And the algorithms are locked! Even if markets change, the managers won't change anything! Ignore the prospectus!"

But I haven't done that much research on this fund, it's true... I'm done with this thread... I apologize for wasting some people's time. Plenty of people here have done the research, and they should be the ones commenting, not me... I'm just naturally suspicious of high-fee mutual funds... Their track record is VERY VERY poor, and they have promised the sky before.

I am curious how management justifies it's on-going 1.5% fee if the managers don't actually DO anything. If the fund is truly passive, and computerized, what exactly is the large on-going annual fee for?


HomerJ,

I am glad that you continue posting in this thread and raising valid skepticism.

SOME people may be interested in a fund with a 1.5% fee and read about the nuances of its composition and management. BUT this fund does NOT comply with the Bogleheads investments principles and it should be positioned as a fund for hobbyists, not for the Bogleheads.


Perhaps as the Zen masters say: moderation in moderation

John Bogle of course has around 24% in active funds - including Bogle Small-Cap Growth (with an ER of 1.25%) - and four Vanguard active funds, which in his own words: "are broadly diversified largely with a value orientation, which is deliberate on my part" ... Which would amount to almost half of his equities exposure

Perhaps as they say: "You're not properly diversified until you own something that makes you uncomfortable" .. or perhaps there's a risk of taking good general investment principles as 'gospel'
"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 VictoriaF » Mon Sep 21, 2015 9:52 am

Maynard F. Speer wrote:
VictoriaF wrote:
HomerJ wrote:
Bitzer wrote:@HomerJ I find your comment that you "don't trust" Mr. Swedroe to be quite interesting. Based upon his writings here and elsewhere, I took relatively small positions in QSPIX and a commodities ETF, both, in my thoughts, to act as portfolio diversifiers.


I just don't think he's smarter than the average bear (he's probably smarter than me though) :)

I enjoy most of writings, but I don't take them as gospel.

Even though he leans towards simplicity and index funds, he has to produce an article or two every week. Hard to keep writing about boring index funds for years... So I don't see him as a disinterested party like most of the other posters here... He makes his living writing about financial instruments, and he can get caught up in the hype just like anyone else.

Frankly, I'm flabbergasted by his strong assertions in THIS thread that QSPIX is a "passive" fund, and that it's crazy for us to be cautious of a 1.5% management fee fund with a dozen factors combined with leverage.

"But it was back-tested! And computers! And the algorithms are locked! Even if markets change, the managers won't change anything! Ignore the prospectus!"

But I haven't done that much research on this fund, it's true... I'm done with this thread... I apologize for wasting some people's time. Plenty of people here have done the research, and they should be the ones commenting, not me... I'm just naturally suspicious of high-fee mutual funds... Their track record is VERY VERY poor, and they have promised the sky before.

I am curious how management justifies it's on-going 1.5% fee if the managers don't actually DO anything. If the fund is truly passive, and computerized, what exactly is the large on-going annual fee for?


HomerJ,

I am glad that you continue posting in this thread and raising valid skepticism.

SOME people may be interested in a fund with a 1.5% fee and read about the nuances of its composition and management. BUT this fund does NOT comply with the Bogleheads investments principles and it should be positioned as a fund for hobbyists, not for the Bogleheads.


Perhaps as the Zen masters say: moderation in moderation

John Bogle of course has around 24% in active funds - including Bogle Small-Cap Growth (with an ER of 1.25%) - and four Vanguard active funds, which in his own words: "are broadly diversified largely with a value orientation, which is deliberate on my part" ... Which would amount to almost half of his equities exposure

Perhaps as they say: "You're not properly diversified until you own something that makes you uncomfortable" .. or perhaps there's a risk of taking good general investment principles as 'gospel'


I am not interested in John Bogle's portfolio. Bogle does not recommend investing in high-ER funds; he stresses that the only controllable variable is cost and cost must be kept to the minimum.

Investing must be understandable and comfortable. The best investments such as low-cost broad-based index funds are comfortable. I Bonds are comfortable.

Bogleheads principles are not gospel, they are a collection of simple prudent concepts that make logical sense.

Victoria
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Re: QSPIX - thoughts on interesting fund

Post by lack_ey » Mon Sep 21, 2015 10:14 am

He's also a big skeptic of factor investing in general.

On the other hand, virtually all the other investing books and recommended authors on the wiki do believe in some overweightings here and there potentially being advantageous for some investors (who can stick with it), and many of the recommended allocations in those writings are not as simple as possible. This includes using funds that are narrower and more expensive than broad-market funds. It also includes different ideas from different authors about more optimal bond selection, with many not preferring a pure BarCap Agg allocation.

Without arguing if any of the above is appropriate advice or not, if it's not all Bogleheaded, why is it even included?

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Re: QSPIX - thoughts on interesting fund

Post by grap0013 » Mon Sep 21, 2015 10:15 am

VictoriaF wrote:
I am glad that you continue posting in this thread and raising valid skepticism.


I too promote valid skepticism. If one initially hears 1.5% ER and after that hears "blah blah blah" then heavily critiques proponents of the fund and blatantly disregards expert analysis..... I call that rubbish and ignorance rather than valid skepticism. Just my opinion.
There are no guarantees, only probabilities.

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Re: QSPIX - thoughts on interesting fund

Post by Maynard F. Speer » Mon Sep 21, 2015 10:50 am

VictoriaF wrote:
Maynard F. Speer wrote:
VictoriaF wrote:
HomerJ wrote:
Bitzer wrote:@HomerJ I find your comment that you "don't trust" Mr. Swedroe to be quite interesting. Based upon his writings here and elsewhere, I took relatively small positions in QSPIX and a commodities ETF, both, in my thoughts, to act as portfolio diversifiers.


I just don't think he's smarter than the average bear (he's probably smarter than me though) :)

I enjoy most of writings, but I don't take them as gospel.

Even though he leans towards simplicity and index funds, he has to produce an article or two every week. Hard to keep writing about boring index funds for years... So I don't see him as a disinterested party like most of the other posters here... He makes his living writing about financial instruments, and he can get caught up in the hype just like anyone else.

Frankly, I'm flabbergasted by his strong assertions in THIS thread that QSPIX is a "passive" fund, and that it's crazy for us to be cautious of a 1.5% management fee fund with a dozen factors combined with leverage.

"But it was back-tested! And computers! And the algorithms are locked! Even if markets change, the managers won't change anything! Ignore the prospectus!"

But I haven't done that much research on this fund, it's true... I'm done with this thread... I apologize for wasting some people's time. Plenty of people here have done the research, and they should be the ones commenting, not me... I'm just naturally suspicious of high-fee mutual funds... Their track record is VERY VERY poor, and they have promised the sky before.

I am curious how management justifies it's on-going 1.5% fee if the managers don't actually DO anything. If the fund is truly passive, and computerized, what exactly is the large on-going annual fee for?


HomerJ,

I am glad that you continue posting in this thread and raising valid skepticism.

SOME people may be interested in a fund with a 1.5% fee and read about the nuances of its composition and management. BUT this fund does NOT comply with the Bogleheads investments principles and it should be positioned as a fund for hobbyists, not for the Bogleheads.


Perhaps as the Zen masters say: moderation in moderation

John Bogle of course has around 24% in active funds - including Bogle Small-Cap Growth (with an ER of 1.25%) - and four Vanguard active funds, which in his own words: "are broadly diversified largely with a value orientation, which is deliberate on my part" ... Which would amount to almost half of his equities exposure

Perhaps as they say: "You're not properly diversified until you own something that makes you uncomfortable" .. or perhaps there's a risk of taking good general investment principles as 'gospel'


I am not interested in John Bogle's portfolio. Bogle does not recommend investing in high-ER funds; he stresses that the only controllable variable is cost and cost must be kept to the minimum.

Investing must be understandable and comfortable. The best investments such as low-cost broad-based index funds are comfortable. I Bonds are comfortable.

Bogleheads principles are not gospel, they are a collection of simple prudent concepts that make logical sense.

Victoria


Well I think we can all agree diversification is a simple concept that makes logical sense - and therefore could be weighed against other simple concepts

Fees are one controllable variable; diversification is another .. One has an effect on returns; the other on risk .. We don't know what the best investments will be going forwards, but we do know the market invests in stocks, bonds and alternatives
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Re: QSPIX - thoughts on interesting fund

Post by larryswedroe » Mon Sep 21, 2015 11:09 am

Thought I would add few thoughts
First, skepticism is always appropriate. What you want to make sure is that the evidence presented is persistent and pervasive, across time, economic regimes, regions, sectors, and even asset classes if possible. Then you want to be sure that it is TRANSPARENT. While complexity is an issue, if the strategy is transparent and replicable (meaning not subject to human judgment, and thus returns would be virtually identical no matter who ran the fund, as long as they had the same skills/resources, like trading knowledge), then complexity can be understood by those with sufficient knowledge to make an informed decision.

Second, while costs matter they should be the ONLY consideration when you have a pure commodity, like an index fund whose sole objective is to replicate the index (which imposes costs on the investor, in many cases foolishly). Once you get away from a pure commodity then you should consider costs RELATIVE to the value added. That is what matters. What you should consider is the value added vs. the alternative, and then make a judgment about is the value added by including an allocation sufficient to justify the incremental costs. The slavish devotion to a good principle can lead to suboptimal, and even poor decisions.

Third, you want to be sure the people you hire to implement the strategy have high integrity and can be relied on to deliver what they say they will. Due diligence into track records, etc. is required for that.

Victoria is certainly entitled to her view/decision not to invest. But some of the smartest people I know invest in the fund as the strategies are all based on strong academic research that meets everyone of the criteria that I stated above. And none of them has any reason to invest other than they believe it adds value for their portfolios. Are they all stupid?

Now if someone cannot understand the strategy well enough to explain it to others than it's likely that they shouldn't invest.

Larry

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Re: QSPIX - thoughts on interesting fund

Post by larryswedroe » Mon Sep 21, 2015 2:22 pm


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Re: QSPIX - thoughts on interesting fund

Post by VictoriaF » Mon Sep 21, 2015 2:29 pm

larryswedroe wrote:Victoria is certainly entitled to her view/decision not to invest. But some of the smartest people I know invest in the fund as the strategies are all based on strong academic research that meets everyone of the criteria that I stated above. And none of them has any reason to invest other than they believe it adds value for their portfolios. Are they all stupid?

Now if someone cannot understand the strategy well enough to explain it to others than it's likely that they shouldn't invest.

Larry


Victoria is entitled to her opinions that:
- Funds with ER of 1.5% should not be discussed as general recommendations for the Bogleheads or in any way imply that they are endorsed by the Bogleheads.
- QSPIX discussions should make it clear that some people want to speculate and consider QSPIX an interesting fund to speculate with.

The issue is not whether posters expressing skepticism will or will not invest in QSPIX. The issue is that the Bogleheads Forum is the best place on the web to educate the public about personal finance. And the public should not be deceived into assuming that investing in QSPIX is consistent with the Bogleheads principles.

Victoria
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Re: QSPIX - thoughts on interesting fund

Post by Maynard F. Speer » Mon Sep 21, 2015 3:03 pm

VictoriaF wrote:The issue is not whether posters expressing skepticism will or will not invest in QSPIX. The issue is that the Bogleheads Forum is the best place on the web to educate the public about personal finance. And the public should not be deceived into assuming that investing in QSPIX is consistent with the Bogleheads principles.

Victoria


From what I understand the fund is essentially a low-cost, passive way to invest directly in alternative beta (that might otherwise incur hefty active management fees and exposure to human error)

I don't think that sounds a million miles away from a certain popular approach to investing mentioned around here ..
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Re: QSPIX - thoughts on interesting fund

Post by nisiprius » Mon Sep 21, 2015 3:07 pm

larryswedroe wrote:...As to how the management justifies the fee, that should be obvious or they wouldn't have over $7 billion in assets of which over 80% is from institutional investors...
Institutional investors are also some of the largest investors in hedge funds, ...According to the Financial Times,
assets run on behalf of the 10 largest institutional investors in hedge funds worldwide stood at $183bn at the end of June.
One could could say,

"As to how hedge fund managers justify their two-and-twenty fees, that should be obvious or they wouldn't have $183 billion in institutional assets."

Is that a valid argument?
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Re: QSPIX - thoughts on interesting fund

Post by backpacker » Mon Sep 21, 2015 3:09 pm

On the issue of skepticism: Even if you fully understand the factor literature and are completely convinced that factors exist, it does not follow that it makes sense to invest in a fancy multi-factor fund. Gene Fama himself owns a cap-weighted stock portfolio (with no bonds!).
Last edited by backpacker on Mon Sep 21, 2015 3:18 pm, edited 2 times in total.

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Re: QSPIX - thoughts on interesting fund

Post by VictoriaF » Mon Sep 21, 2015 3:17 pm

Maynard F. Speer wrote:
VictoriaF wrote:The issue is not whether posters expressing skepticism will or will not invest in QSPIX. The issue is that the Bogleheads Forum is the best place on the web to educate the public about personal finance. And the public should not be deceived into assuming that investing in QSPIX is consistent with the Bogleheads principles.

Victoria


From what I understand the fund is essentially a low-cost, passive way to invest directly in alternative beta (that might otherwise incur hefty active management fees and exposure to human error)

I don't think that sounds a million miles away from a certain popular approach to investing mentioned around here ..


I disagree with your assessment. I posted a question to the Bogleheads Expert Panel to get their take on it.

Victoria
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Re: QSPIX - thoughts on interesting fund

Post by Random Walker » Mon Sep 21, 2015 3:20 pm

"And the public should not be deceived into assuming that investing in QSPIX is consistent with the Bogleheads principles."


"Deceived" is too strong a word. Boglehead is a forum dedicated to passive investing. Of course Bogle's "Cost Matters Hypothesis" is fundamental to this forum. But I believe there is definitely room in this forum for discussing cost versus value added. That is the implicit discussion in all tilting threads and QSPIX is just expanding on the concept of diversifying across risk factors and sources of return. It is up to each investor to decide when additional value is worth the additional cost and when it is not.

Dave
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Re: QSPIX - thoughts on interesting fund

Post by nisiprius » Mon Sep 21, 2015 3:22 pm

Maynard F. Speer wrote:...From what I understand the fund is essentially a low-cost, passive way to invest directly in alternative beta... I don't think that sounds a million miles away from a certain popular approach to investing mentioned around here ..
According to Morningstar, it isn't low cost, and according to Larry Swedroe, "many would consider" it active, although he does not.

1) It isn't "low cost," according to Morningstar. (They categorize fund costs as "low," "below average," "average," and several higher categories.")

Image

2) As to whether it is passive, that is at least debatable. Larry Swedroe has written
A good example of a fund that many would consider active, yet meets all of the above criteria, is AQR’s Style Premia Alternative Fund (QSPIX).
Larry Swedroe says that in the context of his own definition of "passive," but it is not the definition of passive according to Wikipedia, which says
Passive management (also called passive investing) is an investing strategy that tracks a market-weighted index or portfolio.
What's important is not that Wikipedia says it, but that as customary they attribute it to sources; in this case, they cite two authorities for that definition: 1) William F. Sharpe and 2) Clifford Asness, principal of AQR.

So, it's not low-cost, and it is passive by Larry Swedroe's definition of passive, but not according to the meaning of the word "passive" as used by others.
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Re: QSPIX - thoughts on interesting fund

Post by matjen » Mon Sep 21, 2015 3:37 pm

VictoriaF wrote:
larryswedroe wrote:Victoria is certainly entitled to her view/decision not to invest. But some of the smartest people I know invest in the fund as the strategies are all based on strong academic research that meets everyone of the criteria that I stated above. And none of them has any reason to invest other than they believe it adds value for their portfolios. Are they all stupid?

Now if someone cannot understand the strategy well enough to explain it to others than it's likely that they shouldn't invest.

Larry


Victoria is entitled to her opinions that:
- Funds with ER of 1.5% should not be discussed as general recommendations for the Bogleheads or in any way imply that they are endorsed by the Bogleheads.
- QSPIX discussions should make it clear that some people want to speculate and consider QSPIX an interesting fund to speculate with.

The issue is not whether posters expressing skepticism will or will not invest in QSPIX. The issue is that the Bogleheads Forum is the best place on the web to educate the public about personal finance. And the public should not be deceived into assuming that investing in QSPIX is consistent with the Bogleheads principles.

Victoria


This sounds like book burning to me. No one is saying this is a down the middle Boglehead recommendation. No one is asking that it should be. Many of the Bogleheads are factor investors and/or tilt to something other than cap weight (REITS for instance). I believe there was a recent poll where the majority by a large margin tilted actually.
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Re: QSPIX - thoughts on interesting fund

Post by VictoriaF » Mon Sep 21, 2015 3:45 pm

matjen wrote:
VictoriaF wrote:
larryswedroe wrote:Victoria is certainly entitled to her view/decision not to invest. But some of the smartest people I know invest in the fund as the strategies are all based on strong academic research that meets everyone of the criteria that I stated above. And none of them has any reason to invest other than they believe it adds value for their portfolios. Are they all stupid?

Now if someone cannot understand the strategy well enough to explain it to others than it's likely that they shouldn't invest.

Larry


Victoria is entitled to her opinions that:
- Funds with ER of 1.5% should not be discussed as general recommendations for the Bogleheads or in any way imply that they are endorsed by the Bogleheads.
- QSPIX discussions should make it clear that some people want to speculate and consider QSPIX an interesting fund to speculate with.

The issue is not whether posters expressing skepticism will or will not invest in QSPIX. The issue is that the Bogleheads Forum is the best place on the web to educate the public about personal finance. And the public should not be deceived into assuming that investing in QSPIX is consistent with the Bogleheads principles.

Victoria


This sounds like book burning to me. No one is saying this is a down the middle Boglehead recommendation. No one is asking that it should be. Many of the Bogleheads are factor investors and/or tilt to something other than cap weight (REITS for instance). I believe there was a recent poll where the majority by a large margin tilted actually.


My point is not that QSPIX should not be discussed, but that it must be discussed in the context of alternative investing and as being inconsistent with the Bogleheads principles. Its ER=1.5% must be prominently featured together with a disclaimer "Not endorsed by the Bogleheads. Invest at your own risk."

Victoria
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Re: QSPIX - thoughts on interesting fund

Post by lack_ey » Mon Sep 21, 2015 3:46 pm

nisiprius wrote:
larryswedroe wrote:...As to how the management justifies the fee, that should be obvious or they wouldn't have over $7 billion in assets of which over 80% is from institutional investors...
Institutional investors are also some of the largest investors in hedge funds, ...According to the Financial Times,
assets run on behalf of the 10 largest institutional investors in hedge funds worldwide stood at $183bn at the end of June.
One could could say,

"As to how hedge fund managers justify their two-and-twenty fees, that should be obvious or they wouldn't have $183 billion in institutional assets."

Is that a valid argument?

That is basically what packer16 (and I) pointed out above. Surely institutional investment in something is not a sufficient argument by itself to claim that something is worthwhile. Larry later said "some of the smartest people I know" are invested in the fund which may or may not be a little more convincing. That's probably not going to change anyone's mind; we should probably just skip the appeals to authority and go right back to arguments one way or the other about the fund itself.

On a side note, if you haven't seen this somewhat recent report by SSgA on institutional investor attitudes, they think some of the darndest things (and disagree on a lot of aspects).

backpacker wrote:On the issues of skepticism: It's important to keep in mind that skepticism is one reason, but not the only reason, to avoid investing in a fancy multi-factor strategy. Gene Fama is as un-skeptical as anyone about multi-factor investing, and he owns a cap-weighted stock portfolio with no bonds.

Depends to which degree you're counting skepticism of what exactly, but sure. Even all that aside, maybe somebody doesn't want the extra complexity or philosophically doesn't believe in paying any manager that much or any number of other things. I'm surprised more people haven't gone for the emotional or moral angle. It might seem strange or "wrong" to put money in something that isn't even net invested in asset classes, for example, which in some sense is a kind of perversion of Bogle's ideals of thinking of investing as long-term ownership rather than a piece of paper to be pushed around a table. Now, I don't particularly think this has a lot of legs if you think of an investment portfolio as a whole and not a bunch of disparate pieces—basically any investor who uses long-short funds is going to have net long exposure in main asset classes—but I thought some would see it that way.


VictoriaF wrote:
larryswedroe wrote:Victoria is certainly entitled to her view/decision not to invest. But some of the smartest people I know invest in the fund as the strategies are all based on strong academic research that meets everyone of the criteria that I stated above. And none of them has any reason to invest other than they believe it adds value for their portfolios. Are they all stupid?

Now if someone cannot understand the strategy well enough to explain it to others than it's likely that they shouldn't invest.

Larry


Victoria is entitled to her opinions that:
- Funds with ER of 1.5% should not be discussed as general recommendations for the Bogleheads or in any way imply that they are endorsed by the Bogleheads.
- QSPIX discussions should make it clear that some people want to speculate and consider QSPIX an interesting fund to speculate with.

The issue is not whether posters expressing skepticism will or will not invest in QSPIX. The issue is that the Bogleheads Forum is the best place on the web to educate the public about personal finance. And the public should not be deceived into assuming that investing in QSPIX is consistent with the Bogleheads principles.

Victoria

So what's kosher and what's not? There are other threads about all kinds of other ideas including heavy portfolio leverage, momentum overlays, market timing, and other things that seem way outside general Boglehead orthodoxy, never mind smaller deviations on the periphery like buying on dips, bond/fixed income market positioning based on yield curves, valuations-based investing. You also didn't respond to my question about Boglehead (?) authors and ideas.

Along these lines, let's say we have an asset allocation of say 30% cap-weighted equities, 30% tilted equities, 40% bonds. The tilted equities are somewhat significantly more expensive than the cap-weighted equities but it may or may not be better over the long run because XYZ. Let's say the total weighted ER is 0.20%. Is that okay? And is it much different from a hypothetical allocation of something like 50% cap-weighted equities, 10% long-short equities, 40% bonds, if the total weighted ER is 0.20%?

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Re: QSPIX - thoughts on interesting fund

Post by matjen » Mon Sep 21, 2015 4:01 pm

VictoriaF wrote:My point is not that QSPIX should not be discussed, but that it must be discussed in the context of alternative investing and as being inconsistent with the Bogleheads principles. Its ER=1.5% must be prominently featured together with a disclaimer "Not endorsed by the Bogleheads. Invest at your own risk."

Victoria


This is no better. Like Tipper Gore trying to label music and keep it from those delicate ears of teenagers. We are all adults here, there are hundreds of threads on all sorts of things and mostly things you may consider a "purer" form of investing. Let us have our one or two threads in peace please.
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Re: QSPIX - thoughts on interesting fund

Post by CantPassAgain » Mon Sep 21, 2015 4:05 pm

lack_ey wrote:So what's kosher and what's not? There are other threads about all kinds of other ideas including heavy portfolio leverage, momentum overlays, market timing, and other things that seem way outside general Boglehead orthodoxy, never mind smaller deviations on the periphery like buying on dips, bond/fixed income market positioning based on yield curves, valuations-based investing. You also didn't respond to my question about Boglehead (?) authors and ideas.

Along these lines, let's say we have an asset allocation of say 30% cap-weighted equities, 30% tilted equities, 40% bonds. The tilted equities are somewhat significantly more expensive than the cap-weighted equities but it may or may not be better over the long run because XYZ. Let's say the total weighted ER is 0.20%. Is that okay? And is it much different from a hypothetical allocation of something like 50% cap-weighted equities, 10% long-short equities, 40% bonds, if the total weighted ER is 0.20%?


Boglehead principles aren't complicated. I think it's pretty darn obvious this thing isn't in the spirit of the BH philosophy. The quoted comments just seem like a lot of obfuscating to me. Not saying that's what it is, it just sure seems that way.

And because there are other threads espousing nonsense, that doesn't mean the forum should throw in the towel and let everything go. Quite frankly, I've noticed more and more of this stuff lately and, to me at least, it's a little annoying. Especially when many of the (seeming) advocates are johnny-come-latelys (here less than a year) with a lot to say (thousands of posts). Makes you wonder is all.

This a great forum and there are lots of lurkers who could get the wrong idea.

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Re: QSPIX - thoughts on interesting fund

Post by VictoriaF » Mon Sep 21, 2015 4:12 pm

lack_ey wrote:Larry later said "some of the smartest people I know" are invested in the fund which may or may not be a little more convincing. That's probably not going to change anyone's mind; we should probably just skip the appeals to authority and go right back to arguments one way or the other about the fund itself.

...

Even all that aside, maybe somebody doesn't want the extra complexity or philosophically doesn't believe in paying any manager that much or any number of other things. I'm surprised more people haven't gone for the emotional or moral angle.


Emotional or moral angle is not a logical argument, just as an appeal to authority is not a logical argument. When people use logical fallacies, it discredits their arguments.

lack_ey wrote:
VictoriaF wrote:
larryswedroe wrote:Victoria is certainly entitled to her view/decision not to invest. But some of the smartest people I know invest in the fund as the strategies are all based on strong academic research that meets everyone of the criteria that I stated above. And none of them has any reason to invest other than they believe it adds value for their portfolios. Are they all stupid?

Now if someone cannot understand the strategy well enough to explain it to others than it's likely that they shouldn't invest.

Larry


Victoria is entitled to her opinions that:
- Funds with ER of 1.5% should not be discussed as general recommendations for the Bogleheads or in any way imply that they are endorsed by the Bogleheads.
- QSPIX discussions should make it clear that some people want to speculate and consider QSPIX an interesting fund to speculate with.

The issue is not whether posters expressing skepticism will or will not invest in QSPIX. The issue is that the Bogleheads Forum is the best place on the web to educate the public about personal finance. And the public should not be deceived into assuming that investing in QSPIX is consistent with the Bogleheads principles.

Victoria

So what's kosher and what's not? There are other threads about all kinds of other ideas including heavy portfolio leverage, momentum overlays, market timing, and other things that seem way outside general Boglehead orthodoxy, never mind smaller deviations on the periphery like buying on dips, bond/fixed income market positioning based on yield curves, valuations-based investing. You also didn't respond to my question about Boglehead (?) authors and ideas.


Portfolio leverage, momentum overlays, market timing, and other similar discussions are clearly presented as alternative investments. In this thread, QSPIX is being positioned as a component of the Bogleheads portfolio. I posted a question to the Bogleheads Expert Panel, which includes several authors, about their take.


lack_ey wrote:Along these lines, let's say we have an asset allocation of say 30% cap-weighted equities, 30% tilted equities, 40% bonds. The tilted equities are somewhat significantly more expensive than the cap-weighted equities but it may or may not be better over the long run because XYZ. Let's say the total weighted ER is 0.20%. Is that okay? And is it much different from a hypothetical allocation of something like 50% cap-weighted equities, 10% long-short equities, 40% bonds, if the total weighted ER is 0.20%?


In my portfolio, I use funds with lowest fees, which I consider far more important than tilting. If you optimize for a combination of tilting and fees, you may end up with some more expensive funds. But you would need to have a minuscule amount of QSPIX to get the weighed ER of 0.20%.

Victoria
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