QSPIX - thoughts on interesting fund

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VictoriaF
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Re: QSPIX - thoughts on interesting fund

Postby VictoriaF » Mon Sep 21, 2015 4:20 pm

matjen wrote:This sounds like book burning to me.


matjen wrote:This is no better. Like Tipper Gore trying to label music and keep it from those delicate ears of teenagers.


You keep coming up with provocative comparisons. Are you trying to trip me into violating Forum's rules?

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Re: QSPIX - thoughts on interesting fund

Postby newsole » Mon Sep 21, 2015 4:25 pm

Long time lurker here. I just want to say that the "Bogleheads" trying to shut down this discussion are getting it all wrong. The immense value in this community is in the open dialogue and the rational, logical, advice and analysis. It's not in turning the Boglehead philosophy into it's own irreproachable ideology.

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Re: QSPIX - thoughts on interesting fund

Postby Maynard F. Speer » Mon Sep 21, 2015 4:28 pm

VictoriaF wrote:
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


I'll be interested to hear their assessment :beer


nisiprius wrote:
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.")

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.


1) It wasn't that long ago index trackers used to have 1.5% ERs .. Morgan Stanley S&P500 Index B and Total Market, both 1.5% back in 2004 .. Still much cheaper for most than buying every stock in the index

2) You know my line on this: William Sharpe's own definition of 'passive' (the only true passive benchmark) is the Global Market Portfolio - every investable financial risk asset held in the proportion the market holds it .. So a 60:40 portfolio is a large active overweight on stocks

I think you could make the argument that as the market does invest in alternatives (including about 5% in hedge funds), you can't hold a truly passive portfolio (or achieve 'the market return') without directly investing in alternative beta
"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

Postby LadyGeek » Mon Sep 21, 2015 4:44 pm

As a reminder, alternative perspectives are welcome. Please present your points in a clear, factual manner.

newsole, Welcome!
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Re: QSPIX - thoughts on interesting fund

Postby matjen » Mon Sep 21, 2015 4:46 pm

VictoriaF wrote:
matjen wrote:This sounds like book burning to me.


matjen wrote:This is no better. Like Tipper Gore trying to label music and keep it from those delicate ears of teenagers.


You keep coming up with provocative comparisons. Are you trying to trip me into violating Forum's rules?

Victoria


No, I am trying to shame you into letting us talk about QSPIX in peace. I'm not sure why you feel the need to chime in on this thread 12-14 pages after it began to basically insult Larry Swedroe, suggest discussions on this fund should have warnings attached to it, etc.

Or I am just joking... :twisted:
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Re: QSPIX - thoughts on interesting fund

Postby lack_ey » Mon Sep 21, 2015 4:53 pm

VictoriaF wrote:
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.

Perhaps not logical, but I would be sympathetic to considering the emotional or moral grounds valid on a personal level for explaining why someone would not want to invest in something like this. You can justify it with behavioral finance ideas if you want. In general, Bogleheads appeals to simplicity are more about the behavioral aspect than some attempted optimization, right? (Many people would say that the simplicity is strictly better; some I think would say it's good enough rather than best.)

Certainly I think they hold more water than a lot of the attempted "logical" attacks that have been lobbed by people so far. Not all of them, but a lot of them, in part from not taking the time to look deeper into the fund.


VictoriaF wrote:
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.

Okay. In some sense this fund is just an extension of the usual factor investing. Perhaps rather than cite the fund specifically, you could ask whether or not long-short factor tilted funds might be worth consideration depending on tilts and costs. That would also cover long-short equity funds from some families and perhaps managed futures and some others.

VictoriaF wrote:
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

For what it's worth, my weighted ER is around 0.18% with a 7% investment here (into the normal volatility, 1.5% ER version) but would be closer to 0.22% if I had more IRA space to comfortably use as much as 10% of the fund and have room for rebalancing in there. Almost none of the investors using or considering using the fund have an allocation greater than 10%; most are at lower. I don't know if you consider this miniscule.

I decided it was a better idea to confine all the deviations to tax-advantaged space and primarily use cap-weighted equities in taxable. A problem with a lot of the tilted equity funds is that they have unintentional negative loadings at times, like value funds having negative momentum, which defeats the point. Many follow indices that don't update as much as they should and may have issues getting frontrun. And they changes indices all the time, unless you have access to DFA, which I don't, which can make for awkward tax decisions down the line. I believe more in a throw-things-at-the-wall-and-see-what-sticks approach, going multi-factor, because individual styles can have many years of underperformance consecutively, and you may as well diversify among return sources. In addition, a key aspect here was getting exposures to the same concepts outside of equities, which is relatively rare and tends to be more expensive.

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Re: QSPIX - thoughts on interesting fund

Postby oneleaf » Mon Sep 21, 2015 5:10 pm

Please let's not start having "endorsed by Bogleheads", "not endorsed by Bogleheads" labels. We do not need disclaimers. We are big boys and girls who can make our own decisions. This is one of the most interesting threads and Larry's contributions are helpful as always.

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Re: QSPIX - thoughts on interesting fund

Postby larryswedroe » Mon Sep 21, 2015 5:13 pm

Few thoughts
First, as I have noted the only truly passive fund is a TSM. Even S&P 500 isn't passive as a committee selects it, not the top 500 stocks. yet IMO all Bogleheads would consider it passive. It's all a matter of explaining what you mean by passive. I gave my definition and each person can provide their own, just as long as it's explained and the reasons why--which I gave. And yes most use other definitions which I don't find of real value because they don't really differentiate well between what is truly active (individual stock/security selection and or market timing--which by the way is the definition given by a pretty smart man, Eugene Fama.

Second, to Nisiprius's (And Victoria's) point on low fees, if the fund charged 75bp would that be "obscene?" Well the fund effectively does charge 75bp. As I noted AQR could have created two funds, a long and a short, and charged 75bp for each and you would not have the level of animosity. yet that would be very dumb because the funds would then hold offsetting positions which it eliminates by managing them as one fund. By combining into one fund you get the full exposure to the factor, not half that a long only fund would get. Also note it literally makes no sense to talk about fees or expenses without talking about the value added.

Third, I noted many smart people I know invest in the fund because they have looked at the evidence and done the do diligence. Note not a single statement by most critics (including Victoria) has anything that shows that the research that the fund is based on isn't good nor that it should not be "trusted". In fact the evidence for each of the factors is highly persistent and pervasive wherever one looks. It has as much academic grounding as any fund I know of. Now if people want to point out where the research is wrong go for it.

To me a Boglehead is someone who follows the research, the evidence, and considers the value added, not just costs. But of course one can use their own definition. Didn't know Victoria was the declared arbiter of the definition and could decide who was and who wasn't.
Larry

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Re: QSPIX - thoughts on interesting fund

Postby backpacker » Mon Sep 21, 2015 5:39 pm

lack_ey wrote:
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.


In Fama's case, he thinks that factors don't improve a portfolio in any objective sense, they just give investors another knob to spin when matching the risk profile of a portfolio to their own risk preferences. In his judgement, adding small and value tilts and even adding bonds would result in a portfolio that is a worse match for his risk preferences. So he has a cap weighed, all-stock portfolio.

One of the difficulties with factor investing, I think, is figuring out what the risks are and whether they match your portfolio. Overweighting momentum stocks (say) makes sense if you have more tolerance than the market for whatever risk is driving the performance of momentum stocks. I don't know how I would figure that out.

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Re: QSPIX - thoughts on interesting fund

Postby matjen » Mon Sep 21, 2015 5:57 pm

backpacker wrote:In Fama's case, he thinks that factors don't improve a portfolio in any objective sense, they just give investors another knob to spin when matching the risk profile of a portfolio to their own risk preferences. In his judgement, adding small and value tilts and even adding bonds would result in a portfolio that is a worse match for his risk preferences. So he has a cap weighed, all-stock portfolio.

One of the difficulties with factor investing, I think, is figuring out what the risks are and whether they match your portfolio. Overweighting momentum stocks (say) makes sense if you have more tolerance than the market for whatever risk is driving the performance of momentum stocks. I don't know how I would figure that out.


I think you are reading way, way too much into that brief summary you linked to. By the way, thank you for that link. I remembered reading that he didn't have any bonds but could not find the source. In any case, I think it is logical to conclude that he has no bonds b/c of his tenured professor status and being a rock star in general in academia. He said that. On the equity side he has a large stake in DFA. I'm not privy to his finances but I would bet just about anything that he is a very, very wealthy man and the stake in DFA is substantially larger than his liquid portfolio. Just as he doesn't need bonds, he doesn't need factor investing because his DFA position correlates with that. I can point you to recent videos where he states small cap value is the way he would invest. My speculation.

EDIT: Video with the infamous Cliff Asness. Cliff actually said Fama would invest in value and Fama agreed. 6:25 to 9:00 with the 8 minute mark being the part in particular. http://www.bloomberg.com/news/videos/b/ ... 8def9e37a8
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Re: QSPIX - thoughts on interesting fund

Postby nisiprius » Mon Sep 21, 2015 6:11 pm

larryswedroe wrote:...Second, to Nisiprius's (And Victoria's) point on low fees, if the fund charged 75bp would that be "obscene?"
I did not use the word "obscene." I did not say that 0.75% would be "obscene" and I did not say that 1.5% is "obscene."

I said that Morningstar does not categorize it as a "low cost" fund. They categorize it as being an "average cost" fund in the "multialternative" category.

(After saying twice "according to Morningstar" I then said simply "it's not low-cost," but the point is that isn't just my lay opinion, it is also the opinion of an authoritative source).

The question of whether long-short funds should have their expense ratios divided by two when comparing costs is a separate question.

In your opinion, Larry, do you think that the expense ratio of the Direxion Daily S&P 500 Bull 3x Shares, SPXL, is 0.99%, or should we be dividing it by 3 and calling it "effectively 0.33%" to recognize the fact that we are getting three times the exposure to the S&P 500's daily movements as we would be getting in SPY?
Last edited by nisiprius on Mon Sep 21, 2015 6:20 pm, edited 4 times in total.
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Re: QSPIX - thoughts on interesting fund

Postby backpacker » Mon Sep 21, 2015 6:15 pm

matjen wrote:
backpacker wrote:In Fama's case, he thinks that factors don't improve a portfolio in any objective sense, they just give investors another knob to spin when matching the risk profile of a portfolio to their own risk preferences. In his judgement, adding small and value tilts and even adding bonds would result in a portfolio that is a worse match for his risk preferences. So he has a cap weighed, all-stock portfolio.

One of the difficulties with factor investing, I think, is figuring out what the risks are and whether they match your portfolio. Overweighting momentum stocks (say) makes sense if you have more tolerance than the market for whatever risk is driving the performance of momentum stocks. I don't know how I would figure that out.


I think you are reading way, way too much into that brief summary you linked to. By the way, thank you for that link. I remembered reading that he didn't have any bonds but could not find the source. In any case, I think it is logical to conclude that he has no bonds b/c of his tenured professor status and being a rock star in general in academia. He said that. On the equity side he has a large stake in DFA. I'm not privy to his finances but I would bet just about anything that he is a very, very wealthy man and the stake in DFA is substantially larger than his liquid portfolio. Just as he doesn't need bonds, he doesn't need factor investing because his DFA position correlates with that. I can point you to recent videos where he states small cap value is the way he would invest. My speculation.


I was partially summarizing Fama's view, as I understand it, and as he has expressed it elsewhere. Factors are risk factors and should be treated as such. The market portfolio, as traditional MPT tells us, is a point on the efficiency frontier. It is one of the optimal portfolios, but only one of them. There are other points on the efficiency frontier too. Some of them are portfolios tilted towards growth, some towards value, some towards large, and some towards small. How much an investor should put in value stocks is as a much a question of personal risk preferences as how much an investor should put in bonds.

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Re: QSPIX - thoughts on interesting fund

Postby VictoriaF » Mon Sep 21, 2015 6:21 pm

nisiprius wrote:
larryswedroe wrote:...Second, to Nisiprius's (And Victoria's) point on low fees, if the fund charged 75bp would that be "obscene?"
I did not use the word "obscene." I did not say that 0.75% would be "obscene" and I did not say that 1.5% is "obscene."


I used the word "obscene" because that's my reaction to a 1.5% fee.

nisiprius wrote:I said that Morningstar does not categorize it as a "low cost" fund. They categorize it as being an "average cost" fund in the "multialternative" category.

After saying twice "according to Morningstar" I plead guilty to slipping and saying "it's not low-cost," but I'll stick with it. I don't think it is a low-cost, but the point is that my layman's judgement is shared by an authoritative source.


Thank you for the research. Your references to Morningstar are more authoritative than my gut reaction.

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Re: QSPIX - thoughts on interesting fund

Postby matjen » Mon Sep 21, 2015 6:23 pm

backpacker wrote:I was partially summarizing Fama's view, as I understand it, and as he has expressed it elsewhere. Factors are risk factors and should be treated as such. The market portfolio, as traditional MPT tells us, is a point on the efficiency frontier. It is one of the optimal portfolios, but only one of them. There are other points on the efficiency frontier too. Some of them are portfolios tilted towards growth, some towards value, some towards large, and some towards small. How much an investor should put in value stocks is as a much a question of personal risk preferences as how much an investor should put in bonds.


Ah, I see what you are saying now. Mostly agree if we are just talking Fama's perspective. I think most others would say they are risk AND behavioral factors. It's an unknown mixture. Certainly Momentum is mostly if not all behavioral whereas value perhaps risk.
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Re: QSPIX - thoughts on interesting fund

Postby VictoriaF » Mon Sep 21, 2015 6:45 pm

larryswedroe wrote:To me a Boglehead is someone who follows the research, the evidence, and considers the value added, not just costs. But of course one can use their own definition. Didn't know Victoria was the declared arbiter of the definition and could decide who was and who wasn't.
Larry


Here is a link to the Bogleheads® investment philosophy which includes:
    1 Develop a workable plan
    2 Invest early and often
    3 Never bear too much or too little risk
    4 Diversify
    5 Never try to time the market
    6 Use index funds when possible
    7 Keep costs low
    8 Minimize taxes
    9 Invest with simplicity
    10 Stay the course

In the Keep costs low section it states:
Bogleheads Wiki wrote:The difference between an expense ratio of 0.15% and 1.5% might not seem like much, but the effect of the compounding over an investing lifetime is enormous. After 30 years, a fund with a 1.5% expense ratio will provide an investor with several hundred thousand dollars less for retirement than a 0.15% index fund with the same growth.


In the Invest with simplicity section it states:
Bogleheads Wiki wrote:John Bogle, in his speech, “ Investing With Simplicity, ” said: “Simplicity is the master key to financial success. When there are multiple solutions to a problem, choose the simplest one.”
...
Mr. Bogle recommends a simple portfolio of only two funds for many investors: Vanguard Total Stock Market Index Fund and Total Bond Market Index Fund.


I am not saying that QSPIX should not be discussed. I am pointing out that it should be clear from the discussion that QSPIX is not consistent with the Bogleheads philosophy.

Victoria
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Re: QSPIX - thoughts on interesting fund

Postby lack_ey » Mon Sep 21, 2015 7:21 pm

nisiprius wrote:
larryswedroe wrote:...Second, to Nisiprius's (And Victoria's) point on low fees, if the fund charged 75bp would that be "obscene?"
I did not use the word "obscene." I did not say that 0.75% would be "obscene" and I did not say that 1.5% is "obscene."

I said that Morningstar does not categorize it as a "low cost" fund. They categorize it as being an "average cost" fund in the "multialternative" category.

(After saying twice "according to Morningstar" I then said simply "it's not low-cost," but the point is that isn't just my lay opinion, it is also the opinion of an authoritative source).

The question of whether long-short funds should have their expense ratios divided by two when comparing costs is a separate question.

In your opinion, Larry, do you think that the expense ratio of the Direxion Daily S&P 500 Bull 3x Shares, SPXL, is 0.99%, or should we be dividing it by 3 and calling it "effectively 0.33%" to recognize the fact that we are getting three times the exposure to the S&P 500's daily movements as we would be getting in SPY?

For what it's worth, and "low cost" was never my argument, the low-volatility version of the fund is "low" cost for the category according to Morningstar. And from what I remember from poking around and checking other funds in the category, the low-volatility version has about similar volatility compared to many of the competitors, with lower than average market beta, R^2, and traditional asset class exposures than many of the others. It's had higher performance than most, but that's a very short 1-year history. But really, the cost categorization by Morningstar isn't really a value assessment at all, just a comparison to peers in the category. I don't think it's that meaningful or worth pointing out.

Now and then, I wonder how the arguments would be framed if they came out with QSLIX (the low volatility version) first and then released QSPIX (normal volatility) as a high volatility variant with higher ER.

Regardless, to me, 0.85% is still very high. The 1.50% makes me want to cry (slight hyperbole, but only slight). But the alternatives are sadly lacking. *sigh*

And I'm not Larry but I'd say that every fund's cost needs to be evaluated in the context of exposures and costs of alternatives. For example, with a long-only active stock mutual fund, what you get is primarily the passive stock exposure with some alpha (positive or negative) riding on top that's based on the manager's particular stock choices, the deviations from the benchmark. The question is whether or not the manager's alpha—which is very hard to estimate for a particular manager, but has been low or close to zero for the average mutual fund manager, at least in US stocks—is worth the additional ER over the passive alternative. And tax and other considerations too, of course, and how it fits into an entire portfolio allocation.

Dividing ERs by levels of exposures as with your leveraged ETF example is just one way of looking at things. It may or may not provide some useful insight. Realistically, you can't just own 3x of SPY rather than 1x of SPXL in your portfolio because you run out of money, so it's not quite fair. For example, if you mean to be 40% SPXL, 60% BND (total bond), you can't really replicate this with SPY as you can't go above 100% SPY—and even then, you'd be missing out on the bond exposure, never mind the vagaries of daily rebalancing. To get comparable exposures you'd have to use leverage on your own. On a side note, in practice getting leverage on your own is actually probably better than SPXL, as S&P e-mini futures are a good alternative.

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Re: QSPIX - thoughts on interesting fund

Postby larryswedroe » Mon Sep 21, 2015 9:08 pm

Nisi
First I didn't say you said obscene, others have implied that or used that term. So was just addressing the general question

Second, the question of whether something is a high cost of not should be based first on VALUE added relative to the cost, not COST in isolation. IMO only fools consider ONLY costs, with exception of the product is a PURE commodity. Also would add that cost matters then relative to the alternatives. Since there are no equivalent funds to this at lower cost I don't know how one could say it's high cost except relative to a low cost index fund, which this isn't. It's giving you exposure to many factors across many asset classes. And it's not high cost relative to something similar. Hedge funds offer this type exposures but at much higher costs and without the transparency.

Third, No you should not pay extra for leverage itself, and I wouldn't pay for three times a short or a long position in stocks or bonds. IMO that subtracts value, not adds it. You don't triple the expected return by tripling the leverage, you might even lower the return. Here I'm paying for a certain amount of risk in a factor. And I wouldn't pay say 1.5% unless the expected returns were worth the risks. The leverage which they manage gets me the expected return for an expected risk level in manner that IMO does add value and thus is worth it. I also hope that competition pushes prices down.
Note that AQR has lowered their multi style large cap fund (MOM, value and profitability) down I think to 36bp, as asset growth (pretty large capacity here) and competition has pushed prices down.

Victoria
All the Boglehead characteristics you cite are relatively fine. The fact is they are not all correct. I don't even think it's debatable. For example almost all index funds (with exception of a TSM) are pretty dumb if you slavishly try to replicate them. There are ways to improve on them, including choosing "better indices" which minimize some of the negatives in indices like the R2K. So Vanguard was clearly hurting investors by using for long time the R2K so even though it was cheap it was not smart. Also as I have stated looking at costs alone is also not intelligent. As I pointed out one could use the lower cost version of the fund at 75bp but that would actually be dumb, inefficient. And as I noted the only right way to look at this fund would be to think of it as 75bp for the long side and 75 for the short side. Now the lower cost version then would be about 42bp for the long and 42 for the short, which I think even you would agree isn't "obscene" nor as I understand it would M* even consider it high cost. And yet it would be dumb to use that fund vs the "higher cost version." There are good common sense guidelines that are listed in the Bogleheads list but they should be used IMO ONLY as STARTING points, meaning unless you have good reason to deviate from them. I believe I have presented many good reasons to consider including the fund, all of them based on solid academic research. Now if you care to show where the research is wrong I'm happy to have that discussion.


I hope that helps
larry

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Re: QSPIX - thoughts on interesting fund

Postby oneleaf » Mon Sep 21, 2015 9:33 pm

larryswedroe wrote:...
I also hope that competition pushes prices down.

Note that AQR has lowered their multi style large cap fund (MOM, value and profitability) down I think to 36bp, as asset growth (pretty large capacity here) and competition has pushed prices down.


Larry,
Thanks for the continuing discussion. Do you see a likelihood that we will see competition in this arena in the future? I would like to increase an allocation to alternative strategies in my portfolio, and besides that QSPIX is not readily available to me, I also would rather diversify across different funds if that were possible.

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Re: QSPIX - thoughts on interesting fund

Postby HomerJ » Mon Sep 21, 2015 9:36 pm

lack_ey wrote:So what's kosher and what's not?


I have a real problem with trying to pass this off as a "passive" investment... Maynard even said it was "low-cost" (compared to hedge funds). I also dislike the argument that "really smart people invest this way!"

If you guys want to argue this this new fund is awesome and is worth the cost, by lowering volatility, that's okay... but there's a lot of obfuscation going on it appears to me...

Sorry for posting again... I really didn't want to.
Last edited by HomerJ on Mon Sep 21, 2015 9:39 pm, edited 1 time in total.

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Re: QSPIX - thoughts on interesting fund

Postby nedsaid » Mon Sep 21, 2015 9:38 pm

This has been a very interesting thread. I have read through this with great interest as I am getting older and have thought about things that might further diversify my portfolio and perhaps act as portfolio insurance.

I have learned not to make even mild scatological references or mentions of a very hot place. That gets you edited by the Geekster herself. I have also learned that there are some hot button issues on this forum: Dividends, Rebalancing, the "Bond Bubble", and now QSPIX. I haven't seen the equivalent of chairs thrown here yet but this has risen to the level of a good pie fight.

As long as folks keep cool and discuss the pros and cons of a fund such as this, it is a very interesting and enlightening discussion. I am always open to new things and I will keep reading.

I don't have to watch professional wrestling anymore, I just hang out around certain threads on this forum for entertainment. Last I checked, I think Swedroe has Victoria in the famous double hammerlock hold. Rumor has it that Victoria has some not before seen moves yet witnessed on the forum. Whatever trick moves she has in reserve, I am sure they will be done in good humor.
;O)
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Re: QSPIX - thoughts on interesting fund

Postby LadyGeek » Mon Sep 21, 2015 9:38 pm

To new investors, I'd like to translate the acronyms in Larry Swedroe's prior post which addresses nisiprius and VictoriaF:

R2K - an abbreviation for the Russell 2000® Index
MOM - Momentum
75 bp - "bp" is a basis point, 1/100 of a percent. 0.75 % = 75 bp
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Re: QSPIX - thoughts on interesting fund

Postby lack_ey » Mon Sep 21, 2015 9:57 pm

HomerJ wrote:
lack_ey wrote:So what's kosher and what's not?


I have a real problem with trying to pass this off as a "passive" investment... Maynard even said it was "low-cost" (compared to hedge funds). I also dislike the argument that "really smart people invest this way!"

If you guys want to argue this this new fund is awesome and is a good choice for most portfolios, I guess that's okay... but there's a lot of obfuscation going on it appears to me...

Sorry for posting again... I really didn't want to.

It's not passive in the way most people use the term, in any case. Larry has made it clear by this point in which ways he means the term. I am mostly ambivalent to all these issues and references of who is investing in the fund.

Actually, as a segue into oneleaf's comment above, at least in the whole alternatives space pretty much all the other funds disclose much less information about the strategy, at least publicly. Is it more or less obfuscation if there is just less information in the first place?

Multialternatives in general have been an area of AUM growth and fund launches of late. Vanguard even launched their own this year, the prospectus of which is here:
http://www.vanguard.com/pub/Pdf/p1298.pdf

Though prospectuses may be broader than what the managers intend, that is a lot of leeway there, mostly talking about "mispricings." I mean, any way you slice it, "This strategy involves simultaneously purchasing equities the advisor expects to increase in value and selling equities the advisor expects to decrease in value" (part of the long-short equity trading program, which is one of five key themes listed) does not tell you about what is going on and why it might work. This is about par for the course for what I have seen in most fund literature in the category. The strategy may or may not be based on sound principles, be they the traditional academic ones or not. Maybe they tell their institutional clients what they're actually doing. Maybe not. Of course, it is less directly relevant to discuss than AQR's fund because Vanguard at the moment is only making it available to institutional customers. But Vanguard entering a space usually is interpreted as some air of legitimacy, for better or worse, as they're slow to move on new investment products.

I wonder if the growth of the category will be an ongoing trend with many launches to come, some maybe a bit more transparent, or if it is just a passing fad. Perhaps the category is buoyed by current high valuations in stocks and bonds. If I had to guess, I'd think it's a combination of both cyclical and long-term forces. High growth in indexing I'd imagine is part cyclical and part a long-term change too.

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Re: QSPIX - thoughts on interesting fund

Postby backpacker » Mon Sep 21, 2015 10:13 pm

HomerJ wrote:
lack_ey wrote:So what's kosher and what's not?


I have a real problem with trying to pass this off as a "passive" investment... Maynard even said it was "low-cost" (compared to hedge funds). I also dislike the argument that "really smart people invest this way!"


Welcome to the AQR reality distortion field. :wink:

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Re: QSPIX - thoughts on interesting fund

Postby Angst » Mon Sep 21, 2015 10:28 pm

larryswedroe wrote:Second, to Nisiprius's (And Victoria's) point on low fees, if the fund charged 75bp would that be "obscene?" Well...

nisiprius wrote:
larryswedroe wrote:...Second, to Nisiprius's (And Victoria's) point on low fees, if the fund charged 75bp would that be "obscene?"
I did not use the word "obscene." I did not say that 0.75% would be "obscene" and I did not say that 1.5% is "obscene."

larryswedroe wrote:Nisi
First I didn't say you said obscene, others have implied that or used that term. So was just addressing the general question

VictoriaF wrote:
nisiprius wrote:
larryswedroe wrote:...Second, to Nisiprius's (And Victoria's) point on low fees, if the fund charged 75bp would that be "obscene?"
I did not use the word "obscene." I did not say that 0.75% would be "obscene" and I did not say that 1.5% is "obscene."

I used the word "obscene" because that's my reaction to a 1.5% fee.

Victoria

C'mon Larry! It cuts both ways. What's good for the goose.... As a writer, surely you can see that adding "(And Victoria's)" after Nisi's name explicitly de-emphasizes Victoria's contribution and attributes primary responsibility to Nisi for the intent of, let alone the actual quotation you're citing. I've been lurking around this particular thread (and generally enjoying it and learning from it) since it began weeks ago, and although I personally may have barely a minuscule fraction of the knowledge and experience you have in finance and investment, I'm no dummy when it comes to interpersonal behaviors and bullying, and in this thread in particular you've shown some of the most acute, hi-gain, "I've been dissed" radar of anyone who's been posting. I don't deny for a moment that some others' posts have lacked tactfulness, but that's not a good excuse for abandoning your own better half; I think you owe Nisi an apology. He's another person whose frequent contributions to this forum have been invaluable.

Angie

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Re: QSPIX - thoughts on interesting fund

Postby SnowSkier » Mon Sep 21, 2015 11:28 pm

backpacker wrote:
Welcome to the AQR reality distortion field. :wink:


AQR has certainly been distorting my returns. :wink:

I just looked at the Total 1-yr return as of today, after expenses, of some of the funds I own:

Code: Select all

  9.0%   QSPIX  *AQR* Style Premia
  2.6%   VBTLX  Vanguard Total Bond Mkt
  2.5%   VWIUX  Vanguard Int Term Tax Exempt
  0.2%   VTSAX  Vanguard Total Stock Mkt
(-8.2%)  VTMGX  Vanguard Developed Mkts
(-19.6%) VEMAX  Vanguard Emerging Mkts


Seriously, the reason I have a 4% allocation to QSPIX is because I believe it has decent "expected returns" and will be very-uncorrelated with TSM, TISM, and TBM. I think this kind of diversification will help me, at a portfolio level.

I consider myself a boglehead.

I am thankful that discussions on QSPIX are not censored.

I am grateful to evidence-based writers including Larry Swedroe, Sam Lee, William Bernstein, Cliff Asness, Antti Ilmanen ("Expected Returns", etc), and many more.

As Jack Bogle has reportedly said, AQR is the "hedge fund he hates the least" :happy (as heard in the Barry Ritholtz podcast interview of Cliff Asness)

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Re: QSPIX - thoughts on interesting fund

Postby Bitzer » Tue Sep 22, 2015 6:22 am

My sentiments and portfolio are very similar to those of SnowSkier, except that I have an allocation to REITs and hold more AQR funds in my alternatives space.

I learn a lot from this forum but am disappointed that thread seems to have devolved into a game of "gotcha", with comments such as "you got your facts all wrong", "you dissed Person X and therefore owe him/her an apology". Can't say I'm continuing to learn much from this thread, but I suppose it is entertaining.

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Re: QSPIX - thoughts on interesting fund

Postby VictoriaF » Tue Sep 22, 2015 7:09 am

nedsaid wrote:This has been a very interesting thread. I have read through this with great interest as I am getting older and have thought about things that might further diversify my portfolio and perhaps act as portfolio insurance.

I have learned not to make even mild scatological references or mentions of a very hot place. That gets you edited by the Geekster herself. I have also learned that there are some hot button issues on this forum: Dividends, Rebalancing, the "Bond Bubble", and now QSPIX. I haven't seen the equivalent of chairs thrown here yet but this has risen to the level of a good pie fight.

As long as folks keep cool and discuss the pros and cons of a fund such as this, it is a very interesting and enlightening discussion. I am always open to new things and I will keep reading.

I don't have to watch professional wrestling anymore, I just hang out around certain threads on this forum for entertainment. Last I checked, I think Swedroe has Victoria in the famous double hammerlock hold. Rumor has it that Victoria has some not before seen moves yet witnessed on the forum. Whatever trick moves she has in reserve, I am sure they will be done in good humor.
;O)


You are right. I cannot win this wrestling match (if it is a match), because I don't want to spend time investigating QSPIX which I consider useless. However, I am grateful to Nisiprius and others who have looked into it and pointed out that:
1. QSPIX has 1.5% ER.
2. The fund prospectus is vague.

It is my duty as a Forum member to support points of view that are consistent with the Forum philosophy, clarify that this is an investing hobbyist discussion and not a Bogleheads recommendation, and challenge sophistry in arguments.

Victoria
WINNER of the 2015 Boglehead Contest. | Every joke has a bit of a joke. ... The rest is the truth. (Marat F)

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Re: QSPIX - thoughts on interesting fund

Postby matjen » Tue Sep 22, 2015 7:25 am

Bitzer wrote:I learn a lot from this forum but am disappointed that thread seems to have devolved into a game of "gotcha", with comments such as "you got your facts all wrong", "you dissed Person X and therefore owe him/her an apology". Can't say I'm continuing to learn much from this thread, but I suppose it is entertaining.


With the outcome of "parentheses-gate" still hanging in the balance I think we all need to be on our best behavior. I've been around the block and this ain't my first rodeo, etc. Bitzer I feel strongly that you owe the entire forum an apology for putting your punctuation outside of the quotation marks. We all know that you meant bad things by that purposeful error.

If you are British you only owe the American participants an apology for your rude behavior. Or is that behaviour.... :happy
Last edited by matjen on Wed Sep 23, 2015 10:53 am, edited 1 time in total.
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Re: QSPIX - thoughts on interesting fund

Postby grap0013 » Tue Sep 22, 2015 7:37 am

VictoriaF wrote:
You are right. I cannot win this wrestling match because I don't want to spend time investigating QSPIX which I consider useless. However, I am grateful to Nisiprius and others who have looked into it and pointed out that:
1. The fund has 1.5% ER.
2. The fund prospectus is vague.

It is my duty as a Forum member to support points of view that are consistent with the Forum philosophy, clarify that this is an investing hobbyist discussion, and challenge sophistry in arguments.

Victoria


Thanks for actually admitting you did not spend time researching the fund. Those of us who have done a little more research could tell. However, how can you challenge a fallacious argument if you have not done your homework on the fund? One would not know if it's the truth or not because they have not spent the time investigating to find out what the truth is. If you are going to vehemently oppose something at least look under the hood and get your facts first.

I am shocked at the amount of lamb blasting that this fund has taken. It has performed exactly how it was expected to perform thus far. I think there are much riskier ways to invest that take a lot less heat. For instance, would you rather have a 10% stake in the 5 largest companies in the US holding individual stocks or 10% in QSPIX? It's not even close for me that the latter is much safer with much less volatility. I do not see individual stock holders taking near this much criticism. To each their own.
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Re: QSPIX - thoughts on interesting fund

Postby Bitzer » Tue Sep 22, 2015 7:53 am

matjen - I am deeply offended that you are ascribing sinister motives to my comments and further take exception to your characterization of my behavior as rude. I will not be goaded into a debate on grammar and punctuation in an investment forum. Perhaps you would like to begin an off-topic thread on the matter and "lamb blast" me there. :wink:

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Re: QSPIX - thoughts on interesting fund

Postby lack_ey » Tue Sep 22, 2015 7:59 am

Most of this back-and-forth with all parties involved is really not doing anyone a favor. People need to chill out for a bit. Except for the ones who are quite chill already.

On another note, I understand that people don't have time to research every fund, but if (several of) you have time to make several posts in a thread about a particular one, it may provide useful ammunition to at least do some cursory reading of the general premise so at least you're armed with some of the facts.

I'll even tell you where to read. Go download "Investing with Style" here:
https://www.aqr.com/~/media/files/paper ... -style.pdf

and skim sections 1, 2, 3.3, and 4. It is probably sufficient to skim the first sentence of each paragraph there. It shouldn't take very long at all. The actual fund is structured a little bit differently, and there are some low-level details about trading, volatility targeting, etc. that fill in some extra details, but that should provide at least a roadmap. Certainly that should take less time than was put into the posts.

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Re: QSPIX - thoughts on interesting fund

Postby VictoriaF » Tue Sep 22, 2015 8:01 am

grap0013 wrote:
VictoriaF wrote:
You are right. I cannot win this wrestling match because I don't want to spend time investigating QSPIX which I consider useless. However, I am grateful to Nisiprius and others who have looked into it and pointed out that:
1. The fund has 1.5% ER.
2. The fund prospectus is vague.

It is my duty as a Forum member to support points of view that are consistent with the Forum philosophy, clarify that this is an investing hobbyist discussion, and challenge sophistry in arguments.

Victoria


Thanks for actually admitting you did not spend time researching the fund. Those of us who have done a little more research could tell. However, how can you challenge a fallacious argument if you have not done your homework on the fund? One would not know if it's the truth or not because they have not spent the time investigating to find out what the truth is. If you are going to vehemently oppose something at least look under the hood and get your facts first.


I challenge the logic of arguments such as:
- If some smart people approve of this fund, it's a good fund.
- If someone has observed the fund execution it means that the fund performs the way it's stated.

grap0013 wrote:I am shocked at the amount of lamb blasting that this fund has taken. It has performed exactly how it was expected to perform thus far. I think there are much riskier ways to invest that take a lot less heat. For instance, would you rather have a 10% stake in the 5 largest companies in the US holding individual stocks or 10% in QSPIX? It's not even close for me that the latter is much safer with much less volatility. I do not see individual stock holders taking near this much criticism. To each their own.


The OP titled this thread, "QSPIX - thoughts on interesting fund." The discussion that ensued is about what the participants think about it. A 10% stake in the 5 largest companies is probably worse. 100% in stocks is worse still. However, discussions of individual stocks or outsized equity holdings are not presented an appropriate for Bogleheads investing.

Victoria
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Re: QSPIX - thoughts on interesting fund

Postby DaufuskieNate » Tue Sep 22, 2015 8:06 am

grap0013 wrote:For instance, would you rather have a 10% stake in the 5 largest companies in the US holding individual stocks or 10% in QSPIX? It's not even close for me that the latter is much safer with much less volatility. I do not see individual stock holders taking near this much criticism. To each their own.


Good point. Nobody gets criticized for holding an S&P 500 index fund either. Yet this fund has a little over 10% of its holdings in 5 stocks.

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Re: QSPIX - thoughts on interesting fund

Postby matjen » Tue Sep 22, 2015 8:29 am

lack_ey wrote:Most of this back-and-forth with all parties involved is really not doing anyone a favor. People need to chill out for a bit. Except for the ones who are quite chill already.

On another note, I understand that people don't have time to research every fund, but if (several of) you have time to make several posts in a thread about a particular one, it may provide useful ammunition to at least do some cursory reading of the general premise so at least you're armed with some of the facts.

I'll even tell you where to read. Go download "Investing with Style" here:
https://www.aqr.com/~/media/files/paper ... -style.pdf

and skim sections 1, 2, 3.3, and 4. It is probably sufficient to skim the first sentence of each paragraph there. It shouldn't take very long at all. The actual fund is structured a little bit differently, and there are some low-level details about trading, volatility targeting, etc. that fill in some extra details, but that should provide at least a roadmap. Certainly that should take less time than was put into the posts.


Here is a collection I posted on June 8th for those that are interested. If you don't feel like reading all or most of this, I would strongly urge those interested to watch the Ilmanen presentation.

viewtopic.php?f=10&t=167241&start=50#p2516243


Complete holdings and all the Prospectus stuff: https://funds.aqr.com/our-funds/alterna ... fund#qspix

Arizona Pension System Info
https://www.azasrs.gov/sites/default/fi ... -18-14.pdf


Understanding Style Premia: http://scholar.google.com/scholar_url?u ... s=1920x911

Antii Ilmanen presentation:
Beyond the Equity Premium
http://video.cfainstitute.org/services/ ... 7796306001

Style Investing: The Long and the Long/Short of It
https://www.aqr.com/library/books-perio ... hort-of-it
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Re: QSPIX - thoughts on interesting fund

Postby understandingJH » Tue Sep 22, 2015 8:50 am

With a passive 80/20 allocation to stocks/bonds, what effect would be achieved by putting 10% of the portfolio into this fund? If adding this fund would the 10% come from stocks? bonds? even or proportional split between them? Would adding this be expected to minimize fat tails? If so how does one quantify this? How much should this fund reduce volatility due to low/negative correlation with stocks and bonds? Would any benefit be gained to adding this to a passive typical 2-fund boggle-head portfolio? Or, would it be better served in as part of a "Larry portfolio" or a slice and dice portfolio?

Using portfoliovisualizer's back testing, it appears to have had a positive effect, though somewhat negligible impact. Too bad I can't run a Monte Carlo simulation on the fund.

(1=10% QSPIX + 70/20 US 2-fund portfolio,
2= 80/20 US 2-fund portfolio)

Code: Select all

    Initial     Final       CAGR    StdDev        Best Year    Worst Year    Max. Drawdown    
1    $10,000    $10,894    5.27%    7.21%        10.98%        -1.84%        -4.36%           
2    $10,000    $10,872    5.15%    8.14%        11.09%        -2.13%        -5.03%           

Sharpe Ratio    Sortino Ratio    US Mkt Correlation
0.75            1.22            0.99
0.66            1.08            1.00

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Re: QSPIX - thoughts on interesting fund

Postby Maynard F. Speer » Tue Sep 22, 2015 8:57 am

DaufuskieNate wrote:
grap0013 wrote:For instance, would you rather have a 10% stake in the 5 largest companies in the US holding individual stocks or 10% in QSPIX? It's not even close for me that the latter is much safer with much less volatility. I do not see individual stock holders taking near this much criticism. To each their own.


Good point. Nobody gets criticized for holding an S&P 500 index fund either. Yet this fund has a little over 10% of its holdings in 5 stocks.


S&P 500 trackers often used to carry 1.5% ERs and sometimes 5% front-loads to boot

And I think Larry's point about viewing fund charges in context is probably central to this debate .. It makes sense to compare fees on a like-for-like basis - but a fund like QSPIX isn't meant to replace stocks or bonds in a portfolio, but rather to act as a diversifier ... As I've learnt from investing in alternatives - it's how well they perform that function that counts, and how cheap they are compared to their equivalents
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Re: QSPIX - thoughts on interesting fund

Postby Maynard F. Speer » Tue Sep 22, 2015 9:07 am

understandingJH wrote:With a passive 80/20 allocation to stocks/bonds, what effect would be achieved by putting 10% of the portfolio into this fund? If adding this fund would the 10% come from stocks? bonds? even or proportional split between them? Would adding this be expected to minimize fat tails? If so how does one quantify this? How much should this fund reduce volatility due to low/negative correlation with stocks and bonds? Would any benefit be gained to adding this to a passive typical 2-fund boggle-head portfolio? Or, would it be better served in as part of a "Larry portfolio" or a slice and dice portfolio?

Using portfoliovisualizer's back testing, it appears to have had a positive effect, though somewhat negligible impact. Too bad I can't run a Monte Carlo simulation on the fund.

(1=10% QSPIX + 70/20 US 2-fund portfolio,
2= 80/20 US 2-fund portfolio)

Code: Select all

    Initial     Final       CAGR    StdDev        Best Year    Worst Year    Max. Drawdown    
1    $10,000    $10,894    5.27%    7.21%        10.98%        -1.84%        -4.36%           
2    $10,000    $10,872    5.15%    8.14%        11.09%        -2.13%        -5.03%           

Sharpe Ratio    Sortino Ratio    US Mkt Correlation
0.75            1.22            0.99
0.66            1.08            1.00


Obviously it's only able to measure from 2014 ... Minimising fat tails is exactly the reason these types of funds exist - so it's difficult markets (when equities and/or bonds may struggle) that are the real test

Here's a look from BlackRock's guide to Alternatives at how a 15% allocation to hedge funds would have compared with traditional stock/bond portfolios, over 10 years from 2004 ... Bearing in mind these hedge funds mostly carry 2% ERs and 20% performance fees, and are much more actively managed, meaning QSPIX's performance could look very different over the longer-term

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Re: QSPIX - thoughts on interesting fund

Postby nisiprius » Tue Sep 22, 2015 9:17 am

Maynard F. Speer wrote:...S&P 500 trackers often used to carry 1.5% ERs and sometimes 5% front-loads to boot...
You've said this before, but I'd like to see your data. I don't think that well-known, familiar, S&P 500 funds carried that kind of ER.

OK, found something.

Here's a table from Kiplinger's for 1989 and an ad from 1990. It looks as if we were both right: expense ratios of 1.5% and up did exist, but Vanguard's "Index Trust 500 Portfolio" was 0.26%, Fidelity Spartan at 0.28%, both no-load. (And notice that the DFA Small Company Portfolio was only 0.62%.)

So anyone buying funds with a 1.5% expense ratio in 1990 or later had to be unaware of two big major retail mutual funds that were changing 1/5th of that, and running big ads in places like Kiplinger's. (Or, perhaps, they had no other choice).

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Johno
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Re: QSPIX - thoughts on interesting fund

Postby Johno » Tue Sep 22, 2015 9:35 am

VictoriaF wrote:You are right. I cannot win this wrestling match (if it is a match), because I don't want to spend time investigating QSPIX which I consider useless. However, I am grateful to Nisiprius and others who have looked into it and pointed out that:
1. QSPIX has 1.5% ER.
2. The fund prospectus is vague.

It is my duty as a Forum member to support points of view that are consistent with the Forum philosophy, clarify that this is an investing hobbyist discussion and not a Bogleheads recommendation, and challenge sophistry in arguments.

An idea such as that long-only equity investors as a whole will get the index return before expenses, therefore on average such investors with higher expenses will get will get lower returns after expenses, isn't given special deference because it's 'consistent with the Forum philosophy'. It stands on its own because it's axiomatic.

Those assumptions don't necessarily apply when it comes a non-long equity investment as part of a portfolio, an alternative, which is the role QSPIX would play. It could improve risk and return, and if so would have to be compared to other ways of doing that.

If you have further arguments against those 'smart people' saying it's good idea, besides prospectus is vague and ER is 1.5%, then present them. Nobody is saying any smart guys' opinion is to be taken on authority (let alone Asness or Ilmanen, obviously very smart guys but who have a pecuniary interest, but I don't believe anyone posting here does). But if you don't know anything else about the fund, you can't effectively challenge the pro-QSPIX opinion. And I don't see any evidence of pervasive 'sophistry' in the pro-QSPIX argument. I'd have to say it's the opposite, just IMHO. But either way proponents must present actual arguments, and people admitting they don't want to research the background of the ideas in the fund, besides the fund itself, are in an inherently weak position to do that. 'Isn't consistent with Forum philosophy' as an excuse not to make an informed argument doesn't fly IMO.

Although if an investor doesn't know and doesn't want to know about this fund then obviously they themselves shouldn't invest in it.
Last edited by Johno on Tue Sep 22, 2015 9:40 am, edited 1 time in total.

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

Postby Maynard F. Speer » Tue Sep 22, 2015 9:39 am

nisiprius wrote:
Maynard F. Speer wrote:...S&P 500 trackers often used to carry 1.5% ERs and sometimes 5% front-loads to boot...
You've said this before, but I'd like to see your data. I don't think that well-known, familiar, S&P 500 funds carried that kind of ER.

I owned the Vanguard 500 Index Fund circa 1987, and I am quite sure I remember getting a mailing piece about the newly-launched Vanguard Extended Index Fund which at that time tracked the Wilshire 4500 Completion Index. It described how you could add it to the 500 Index fund (which was called something else at the time, I think) if you wanted to "own the market." Now I could be mistaken but I think the ER of the Extended Index Fund at that time was about 0.50%, and I remember thinking that was a bit expensive, which if true suggests that the ER of the 500 Index fund at the time was in the 0.30% ballpark.

John C. Bogle records that the expense ratio for Wellington was 0.49% in 1976, peaking at 0.69% in 1982, and I do not believe that the expense ratio for the 500 Index fund was ever higher than Wellington.

As for other companies, the Fidelity Spartan 500 Index Fund began in 1988. I wasn't paying attention to it then, but in 1994 it was offered in my employer's 401(k) plan and I remember noting that it was competitive with the Vanguard 500 Index fund. I can't find the exact numbers, but I'm thinking something less than 0.3% when most of the Fidelity funds in the plan were like 0.9%, 1.2%, etc.

If I can find hard numbers I'll be back, but I don't think any typical competitive S&P 500 index funds ever carried 1.5% expense ratios.

Here's a table from Kiplinger's for 1989. It looks as if we were both right: expense ratios of 1.5% and up were common, but Vanguard and DFA's small-cap fund were nowhere near that. 0.26% for the "Vanguard Index Trust 500 Portfolio." Notice that the DFA Small Company Portfolio is only 0.62%.

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Might be the Vanguard effect then ... I'm amazed Wellington was that cheap in '76 - I remember an American investing book from the 80s saying you should try to avoid funds with ERs over 7% (might have been front-loads)

Over here in the UK we've still got index trackers like Allianz UK index with an ER of 1.24%, Virgin FTSE All Share tracker 1% - so they're still out there ... But Vanguard have certainly made things much cheaper
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VictoriaF
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Re: QSPIX - thoughts on interesting fund

Postby VictoriaF » Tue Sep 22, 2015 10:26 am

Johno wrote:Nobody is saying any smart guys' opinion is to be taken on authority (let alone Asness or Ilmanen, obviously very smart guys but who have a pecuniary interest, but I don't believe anyone posting here does).


My objection to using "smart people" as an argument in favor of QSPIX is based on the following statements:

In viewtopic.php?f=10&t=167241&start=700#p2630356 ,
larryswedroe wrote: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?


In viewtopic.php?f=10&t=167241&start=750#p2630816 ,
larryswedroe wrote:Third, I noted many smart people I know invest in the fund because they have looked at the evidence and done the do diligence.



Johno wrote:But if you don't know anything else about the fund, you can't effectively challenge the pro-QSPIX opinion.


I can't challenge QSPIX based on its facts, because I don't know these facts. This thread has decreased my interest in QSPIX, and thus it would be imprudent of me to study a fund that I will never use. However, I read Nisiprius's comments and found them significant enough to use them as grounds for my objection to QSPIX. Unlike me, Nisiprius has actually read about this fund and demonstrated it in his messages. I also posed a question about this fund to the Bogleheads Expert Panel, asking for their take on it.

Johno wrote:And I don't see any evidence of pervasive 'sophistry' in the pro-QSPIX argument. I'd have to say it's the opposite, just IMHO. But either way proponents must present actual arguments, and people admitting they don't want to research the background of the ideas in the fund, besides the fund itself, are in an inherently weak position to do that. 'Isn't consistent with Forum philosophy' as an excuse not to make an informed argument doesn't fly IMO.

Although if an investor doesn't know and doesn't want to know about this fund then obviously they themselves shouldn't invest in it.


The reason I bring up the "Forum philosophy" is that there are many lurkers and financial advisers reading this Forum. The public at large is confused about investing. If the Forum provides a consistent message that fees matter and broad diversification serves most of the investors' needs, this guidance is easy to follow.

If, on the other hand, a fund such as QSPIX is positioned as an offering consistent with the Bogleheads philosophy, unsophisticated investors will buy it without reading about it and without understanding it. Furthermore, there will be financial advisers using the logic, "The Bogleheads are recommending QSPIX with 1.5% ER, and this XXXXX fund has ER of only 1.2%."

Victoria
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Re: QSPIX - thoughts on interesting fund

Postby lack_ey » Tue Sep 22, 2015 10:51 am

VictoriaF wrote:[...]The reason I bring up the "Forum philosophy" is that there are many lurkers and financial advisers reading this Forum. The public at large is confused about investing. If the Forum provides a consistent message that fees matter and broad diversification serves most of the investors' needs, this guidance is easy to follow.

If, on the other hand, a fund such as QSPIX is positioned as an offering consistent with the Bogleheads philosophy, unsophisticated investors will buy it without reading about it and without understanding it. Furthermore, there will be financial advisers using the logic, "The Bogleheads are recommending QSPIX with 1.5% ER, and this XXXXX fund has ER of only 1.2%."

Victoria


You can oversimplify a lot of messages and take them out of context in a way that makes them dangerous or creates the potential to be misused. The disclaimers are all over the place here in this thread. Hopefully people can be trusted to read and understand the information for themselves, or stay away. In fact, I expect many to stay even further away after reading the information. Also, if you actually read what is written, you will see that the message from the advocates is about fees and broad diversification. They are saying that fees matter, and that they want to diversify even more broadly (in some senses) with additional return sources (they hope) harvested in more asset classes than just stocks and bonds. Fees and costs have to be considered against and balanced with other considerations. After all, that is why many people have and do invest stocks and/or bonds internationally, despite it being cheaper to invest solely in the US. No, I'm not saying the difference in fees is comparable, but the thinking is not radically different. It is about evaluating value added in the proper context.

And for that matter, conflicting opinions are all over the rest of the board. People already freak out over Bogle (and Warren Buffett, if you want to go there) not really recommending international stocks, despite what a lot of people here say. Larry Swedroe also said he doesn't like the total bond index, primarily because of the MBS and the fact that credit risk in the corporates has not been well rewarded historically, especially as a complement to equities. Are advisers going to say that Bogleheads don't recommend total bond, so they should own *insert high-yield bond fund with high ER* instead? Maybe? And they can even say that Rick Ferri recommends (some) high yield bonds!

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Re: QSPIX - thoughts on interesting fund

Postby VictoriaF » Tue Sep 22, 2015 11:08 am

lack_ey wrote:
VictoriaF wrote:[...]The reason I bring up the "Forum philosophy" is that there are many lurkers and financial advisers reading this Forum. The public at large is confused about investing. If the Forum provides a consistent message that fees matter and broad diversification serves most of the investors' needs, this guidance is easy to follow.

If, on the other hand, a fund such as QSPIX is positioned as an offering consistent with the Bogleheads philosophy, unsophisticated investors will buy it without reading about it and without understanding it. Furthermore, there will be financial advisers using the logic, "The Bogleheads are recommending QSPIX with 1.5% ER, and this XXXXX fund has ER of only 1.2%."

Victoria


You can oversimplify a lot of messages and take them out of context in a way that makes them dangerous or creates the potential to be misused. The disclaimers are all over the place here in this thread. Hopefully people can be trusted to read and understand the information for themselves, or stay away. In fact, I expect many to stay even further away after reading the information.


Excellent. If my messages helped to heed the warning, my participation in this thread was not in vain.

lack_ey wrote:And for that matter, conflicting opinions are all over the rest of the board. People already freak out over Bogle (and Warren Buffett, if you want to go there) not really recommending international stocks, despite what a lot of people here say.


No, I don't want to go there. I am not interested in Buffett's investing advice. Jack is skeptical about international stocks but he is humble about it and expresses it as his opinion.

lack_ey wrote:Larry Swedroe also said he doesn't like the total bond index, primarily because of the MBS and the fact that credit risk in the corporates has not been well rewarded historically, especially as a complement to equities. Are advisers going to say that Bogleheads don't recommend total bond, so they should own *insert high-yield bond fund with high ER* instead? Maybe? And they can even say that Rick Ferri recommends (some) high yield bonds!


The value of this Forum is in people raising various arguments and other posters supporting or refuting these arguments. I entered this thread when I read Nisiprius's arguments and thought that they were dismissed. If I stumble on another thread where the discussion is unbalanced, I will express my opinion accordingly.

Victoria
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Re: QSPIX - thoughts on interesting fund

Postby larryswedroe » Tue Sep 22, 2015 11:22 am

Just thought I would make sure I was clear
First, this fund isn't for everywhere as it is complex. And one should not invest in things they don't understand, And most investors will not understand it.
That doesn't mean investors who have the ability to understand how the fund works and how it fits in with a portfolio and reduces risks in efficient manner shouldn't consider it. And having examined the fund they can then judge whether they should add it or not.
Second, yes the fund is more expensive and as I said I wish it were cheaper and hope that other competitors will enter. With that said very few funds have the capabilities to run such a fund. And there is very limited capacity for such products. So likely that means that you won't see the commodity like pricing you get where there is large capacity and easy replication of products. That too should mean that the premiums might be more persistent/larger seeing less erosion as we tend to see over time as assets follow the research and what was once alpha gets converted into beta.
Hopefully through the discussion people have seen why it's foolish to think about the fund having expenses of 1.5% in isolation---simply by seeing that it's actually cheaper than the similar fund with 0.85% expenses!!! And showing how wrong even M* for saying the 85bp fund isn't high cost but the 1.5% one is. Perfect example of why looking only at fund expenses without considering what the fund is providing doesn't make sense.

Finally, keep in mind that a long short fund not only provides you with full exposure to the premium (vs. half at most for a long only fund) but by using also the short side it changes the correlations in a very good way, making the fund a better diversifier.

Larry

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Re: QSPIX - thoughts on interesting fund

Postby Maynard F. Speer » Tue Sep 22, 2015 11:23 am

VictoriaF wrote:
lack_ey wrote:
VictoriaF wrote:[...]The reason I bring up the "Forum philosophy" is that there are many lurkers and financial advisers reading this Forum. The public at large is confused about investing. If the Forum provides a consistent message that fees matter and broad diversification serves most of the investors' needs, this guidance is easy to follow.

If, on the other hand, a fund such as QSPIX is positioned as an offering consistent with the Bogleheads philosophy, unsophisticated investors will buy it without reading about it and without understanding it. Furthermore, there will be financial advisers using the logic, "The Bogleheads are recommending QSPIX with 1.5% ER, and this XXXXX fund has ER of only 1.2%."

Victoria


You can oversimplify a lot of messages and take them out of context in a way that makes them dangerous or creates the potential to be misused. The disclaimers are all over the place here in this thread. Hopefully people can be trusted to read and understand the information for themselves, or stay away. In fact, I expect many to stay even further away after reading the information.


Excellent. If my messages helped to heed the warning, my participation in this thread was not in vain.


I think the issue is it feels as if you've stomped into the thread in your size 12s and started howling about fees ... rather than taking the time to listen and understand what's been discussed over the preceding 15 pages

Whether QSPIX can continue to deliver - whether the global stock market continues to deliver - the aim should be first understanding, then debate and informed decision-making ... Trying to discuss something with someone who doesn't seem interested in understanding may be a little frustrating to some participants
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Re: QSPIX - thoughts on interesting fund

Postby VictoriaF » Tue Sep 22, 2015 11:32 am

Maynard F. Speer wrote:
VictoriaF wrote:
lack_ey wrote:
VictoriaF wrote:[...]The reason I bring up the "Forum philosophy" is that there are many lurkers and financial advisers reading this Forum. The public at large is confused about investing. If the Forum provides a consistent message that fees matter and broad diversification serves most of the investors' needs, this guidance is easy to follow.

If, on the other hand, a fund such as QSPIX is positioned as an offering consistent with the Bogleheads philosophy, unsophisticated investors will buy it without reading about it and without understanding it. Furthermore, there will be financial advisers using the logic, "The Bogleheads are recommending QSPIX with 1.5% ER, and this XXXXX fund has ER of only 1.2%."

Victoria


You can oversimplify a lot of messages and take them out of context in a way that makes them dangerous or creates the potential to be misused. The disclaimers are all over the place here in this thread. Hopefully people can be trusted to read and understand the information for themselves, or stay away. In fact, I expect many to stay even further away after reading the information.


Excellent. If my messages helped to heed the warning, my participation in this thread was not in vain.


I think the issue is it feels as if you've stomped into the thread in your size 12s and started howling about fees ... rather than taking the time to listen and understand what's been discussed over the preceding 15 pages

Whether QSPIX can continue to deliver - whether the global stock market continues to deliver - the aim should be first understanding, then debate and informed decision-making ... Trying to discuss something with someone who doesn't seem interested in understanding may be a little frustrating to some participants


People stumble across threads all the time; that's the nature of the Forum. The issue of the QSPIX 1.5% ER is so salient that one does not need to read all 700 comments or research papers to challenge its suitability for the Bogleheads.

Victoria
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Re: QSPIX - thoughts on interesting fund

Postby lack_ey » Tue Sep 22, 2015 11:47 am

VictoriaF wrote:People stumble across threads all the time; that's the nature of the Forum. The issue of the QSPIX 1.5% ER is so salient that one does not need to read all 700 comments or research papers to challenge its suitability for the Bogleheads.

Yes, the ER should give anyone pause and should be challenged (and has been many, many times by many different people with the same reaction, most of which never took more than a cursory look at what the fund does; it has also been challenged by those who believe in factor investing and those currently invested in the fund, too). What could possibly be worth paying that much for? There needs to be a very good case made. The points have been laid out throughout the thread, both for and against.

Now you are "challenged" to respond to the arguments about the potential benefits and considering whether or not the fund could have some use in spite of the ER. As pointed out before:
Johno wrote:If you have further arguments against those 'smart people' saying it's good idea, besides prospectus is vague and ER is 1.5%, then present them. Nobody is saying any smart guys' opinion is to be taken on authority (let alone Asness or Ilmanen, obviously very smart guys but who have a pecuniary interest, but I don't believe anyone posting here does). But if you don't know anything else about the fund, you can't effectively challenge the pro-QSPIX opinion. And I don't see any evidence of pervasive 'sophistry' in the pro-QSPIX argument. I'd have to say it's the opposite, just IMHO. But either way proponents must present actual arguments, and people admitting they don't want to research the background of the ideas in the fund, besides the fund itself, are in an inherently weak position to do that. 'Isn't consistent with Forum philosophy' as an excuse not to make an informed argument doesn't fly IMO.


You said that the forum is about other posters supporting or refuting arguments. It's your turn.

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Re: QSPIX - thoughts on interesting fund

Postby VictoriaF » Tue Sep 22, 2015 11:54 am

lack_ey wrote:Now you are "challenged" to respond to the arguments about the potential benefits and considering whether or not the fund could have some use in spite of the ER. As pointed out before:
Johno wrote:If you have further arguments against those 'smart people' saying it's good idea, besides prospectus is vague and ER is 1.5%, then present them. Nobody is saying any smart guys' opinion is to be taken on authority (let alone Asness or Ilmanen, obviously very smart guys but who have a pecuniary interest, but I don't believe anyone posting here does). But if you don't know anything else about the fund, you can't effectively challenge the pro-QSPIX opinion. And I don't see any evidence of pervasive 'sophistry' in the pro-QSPIX argument. I'd have to say it's the opposite, just IMHO. But either way proponents must present actual arguments, and people admitting they don't want to research the background of the ideas in the fund, besides the fund itself, are in an inherently weak position to do that. 'Isn't consistent with Forum philosophy' as an excuse not to make an informed argument doesn't fly IMO.


You said that the forum is about other posters supporting or refuting arguments. It's your turn.


I have already responded to Johno here.

Victoria
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Re: QSPIX - thoughts on interesting fund

Postby lack_ey » Tue Sep 22, 2015 12:16 pm

If that's the response you're sticking with, then that's the point. If you don't have the facts and you don't have an argument of substance or questions about what the fund is and does, then what are you doing here?

As I said, it is your turn to respond to the arguments about the potential benefits and considering whether or not the fund could have some use in spite of the ER.

If your only real point is to say that this is not the Bogleheads way, then that has been addressed, though to varying degrees you've deflected arguments about potential double standards regarding (1) other threads about unconventional tactics and investments, (2) disagreement being everywhere else in the forum and inconsistencies appearing in what Bogleheads believe, (3) total portfolio cost (for example, my point about the 30/30/40 portfolio of traditional tilts vs. 50/10/40 using something like this if both have roughly equivalent cost), among others. Not to mention that some 3rd parties (oneleaf, newsole) seem to not have an issue with the discussion.

Anyway, this isn't about any kind of "gotcha." It's just that all this flailing around is derailing any more productive discussion. Please attempt to contribute something substantive (an argument or question or whatever), or in the least, if you can't, then stay away.

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Re: QSPIX - thoughts on interesting fund

Postby Johno » Tue Sep 22, 2015 12:35 pm

VictoriaF wrote:1. My objection to using "smart people" as an argument in favor of QSPIX is based on the following statements:

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?

Third, I noted many smart people I know invest in the fund because they have looked at the evidence and done the do diligence.

2. I can't challenge QSPIX based on its facts, because I don't know these facts. ...

3. However, I read Nisiprius's comments and found them significant enough to use them as grounds for my objection to QSPIX. Unlike me, Nisiprius has actually read about this fund and demonstrated it in his messages.

4. If, on the other hand, a fund such as QSPIX is positioned as an offering consistent with the Bogleheads philosophy, unsophisticated investors will buy it without reading about it and without understanding it. Furthermore, there will be financial advisers using the logic, "The Bogleheads are recommending QSPIX with 1.5% ER, and this XXXXX fund has ER of only 1.2%."

1. I agree that kind of comment has been made, but is not central to the discussion; it's obviously (from 'thirdly') from a *list* of reasons Larry Swedroe gave. And in any case as I suggested earlier, there's a difference between accepting the merits of the fund because Asness is very smart (that's been discussed back and forth on this thread and other threads about him and his research), which he obviously is, and third parties who have no pecuniary interest, but are smart and/or experienced in markets. And I also mentioned Ilmanen. My opinion of QSPIX is influenced by the general findings in his book "Expected Returns". That's a brilliant book IMO, and it's not blindly following someone in a cult of personality to read and absorb their take on the history of markets and think about things a bit differently after doing so (I read it a few years before this fund appeared). It's also not ignoring the fact that Asness and Ilmanen and their organization are trying to make money with this fund, that's capitalism.

2. That's a fundamental flaw in your position insofar as arguing against the fund on this thread IMO, though it's an entirely sufficient condition for you not to buy it.

3. With due respect to that poster and contribution on other topics, I don't agree in this case.

4. I believe the risk you mention is a rather far fetched. The person would have to lack not only investment experience but reading comprehension, not to note the constant repetition that this fund would only serve as a diversifier and is not to be considered a one for one replacement for long equity exposure. They'd also have to lack common sense to invest without understanding in something no proponent has claimed is entirely simple. Indeed a good deal of the debate has been (justified IMO) criticism of critics of the fund for refusing to do their homework. How is that an encouragement to invest without doing one's homework?

And if somebody blindly invested some small to moderate % in this fund, it would be a limited downside move anyway. The arguments that the fund is particularly risky have tended to follow the form 'prove you're not a camel'. There isn't actually a fact based reason to think it likely this fund is risky compared equity long-only. The reasonable question is whether or not it churns out (non-ERP correlated) positive real returns or just churns around and does nothing much.
Last edited by Johno on Tue Sep 22, 2015 12:49 pm, edited 1 time in total.


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