QSPIX - thoughts on interesting fund

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HomerJ
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Re: QSPIX - thoughts on interesting fund

Postby HomerJ » Tue Sep 22, 2015 12:45 pm

lack_ey wrote:If it performs anything close to as advertised, even just by modern portfolio theory, you should probably include an allocation, despite the cost.


This seems to be the main argument.

My counterpoint was, "sure, if it performs anything close to as advertised... but that's a pretty big if"

You guys fire back, "WE'VE done the research... We're sure this fund is legit, and it will likely perform as advertised... Here's why - (big explanation of factors and backtested data and leverage)".

I say, "I doubt you've done enough research to KNOW that it will perform as advertised. I don't even know if it's possible to know for sure. And there's leverage in there? Yikes. "

You guys reply, "Well, of course, nothing's guaranteed... but really smart people have done the research, and they say it is designed beautifully to be market-neutral. Leverage is no big deal if you do it right"

I say, "Really smart people have been wrong before... In fact, when it comes to economics, really smart people have been wrong a LOT..."

You say, "Have you done the research? Don't talk to us if you don't understand the fund"

I say, "I don't really need to understand the fund to submit that 1.5% ER is a high hurdle to overcome, and that intensively backtested portfolios designed by really smart people have failed many times in the past..."

You say, "You just don't understand THIS fund! Don't talk if you're not willing to fully understand this fund!"

There's a lot more to such a long thread, of course, and my opinion of the arguments are very biased...

You guys may be right... All I know is every complicated investing formula that has ever failed at one point back-tested very well. So I don't hold a lot of trust in back-tested formulas*. And the research you want me to do is check out how well these factors back-test. That doesn't interest me.

(*Yes, technically, investing in U.S. stock market is an investing formula based on back-tested data... but it's a very simple prediction... Stock market in general, over the long-term, goes up... Back-tested data on 4 different "styles" with 15 different variables, sprinkled with leverage, is a bit more complicated beast)

Edit: You guys are not wrong to believe in this fund, but we're not idiots for distrusting it either... You keep thinking if we were just smarter or more open-minded or spent some time researching economic theory, we would come around to believing in this fund... But I'm old enough to have seen a lot of "new" types of funds designed by "very smart people" using "math/computers/economic theories/back-tests" come and go.

I'm not trying to say you guys are wrong. The math may indeed be right. My experience leads me to believe that AQR will do a good job making themselves rich off the fees. They may also make you guys a lot of money too. I certainly hope so. I don't trust them enough to invest my money, and I see nothing wrong with voicing my concerns on a public board dedicated to low-fee simple investing. Actually, it's not that I don't trust them, it's that I don't trust that economics can be accurately modeled. I think there's too many variables and the real world always seems to throw a curve ball.

I'm sorry this thread has devolved to people shouting at each other. I truly am done now... Good luck to you all...
Last edited by HomerJ on Tue Sep 22, 2015 2:43 pm, edited 3 times in total.

boglefoot
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Re: QSPIX - thoughts on interesting fund

Postby boglefoot » Tue Sep 22, 2015 2:02 pm

Fidelity users: I've tried to purchase QSPIX in my IRA account (with more than the $2500 minimum) and received the following message: "The mutual fund you requested to trade is an Advisor Fund and is not available for retail trading. For more info, contact..." I called them and the rep said that this fund is only available through Fidelity 401Ks.

Has anyone been able to work around this, through an IRA?

pshonore
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Re: QSPIX - thoughts on interesting fund

Postby pshonore » Tue Sep 22, 2015 2:56 pm

At Fido, I have been able to buy to QSPNX which AFAIK is the same fund with no purchase fee but a slightly higher ER.

lack_ey
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Re: QSPIX - thoughts on interesting fund

Postby lack_ey » Tue Sep 22, 2015 3:06 pm

HomerJ wrote:
lack_ey wrote:If it performs anything close to as advertised, even just by modern portfolio theory, you should probably include an allocation, despite the cost.


This seems to be the main argument.

My counterpoint was, "sure, if it performs anything close to as advertised... but that's a pretty big if"

You guys fire back, "WE'VE done the research... We're sure this fund is legit, and it will likely perform as advertised... Here's why - (big explanation of factors and backtested data and leverage)".

I say, "I doubt you've done enough research to KNOW that it will perform as advertised. I don't even know if it's possible to know for sure. And there's leverage in there? Yikes. "

You guys reply, "Well, of course, nothing's guaranteed... but really smart people have done the research, and they say it is designed beautifully to be market-neutral. Leverage is no big deal if you do it right"

I say, "Really smart people have been wrong before... In fact, when it comes to economics, really smart people have been wrong a LOT..."

You say, "Have you done the research? Don't talk to us if you don't understand the fund"

I say, "I don't really need to understand the fund to submit that 1.5% ER is a high hurdle to overcome, and that intensively backtested portfolios designed by really smart people have failed many times in the past..."

You say, "You just don't understand THIS fund! Don't talk if you're not willing to fully understand this fund!"

There's a lot more to such a long thread, of course, and my opinion of the arguments are very biased...

You guys may be right... All I know is every complicated investing formula that has ever failed at one point back-tested very well. So I don't hold a lot of trust in back-tested formulas*. And the research you want me to do is check out how well these factors back-test. That doesn't interest me.

(*Yes, technically, investing in U.S. stock market is an investing formula based on back-tested data... but it's a very simple prediction... Stock market in general, over the long-term, goes up... Back-tested data on 4 different "styles" with 15 different variables, sprinkled with leverage, is a bit more complicated beast)

Edit: You guys are not wrong to believe in this fund, but we're not idiots for distrusting it either... You keep thinking if we were just smarter or more open-minded or spent some time researching economic theory, we would come around to believing in this fund... But I'm old enough to have seen a lot of "new" types of funds designed by "very smart people" using "math/computers/economic theories/back-tests" come and go.

I'm not trying to say you guys are wrong. The math may indeed be right. My experience leads me to believe that AQR will do a good job making themselves rich off the fees. They may also make you guys a lot of money too. I certainly hope so. I don't trust them enough to invest my money, and I see nothing wrong with voicing my concerns on a public board dedicated to low-fee simple investing.

I'm sorry this thread has devolved to people shouting at each other. I truly am done now... Good luck to you all...

This really isn't that far off. As you say, it's a long thread, but there is some stretching and simplifying some arguments.

Anyone investing here is interested in diversification of returns and is making a bet on that. It's one based on a reading of theory and history. Many will do the same readings and come to different conclusions, and that is just fine. (Unfortunately, too many seem to want to voice a lot of opinions without doing the reading.) It's basically the same as we see in other slice-and-dice and factor investing threads, largely because this is a bundle of factors rolled together with some leverage, shorting, and derivatives. There are few certainties and things known for sure in investing; everyone is placing a bet on perceived relative probabilities. That's not knowledge that something will work, but best guesses at what the future holds. I'm making a bet on the probability that it will work close to as advertised versus the probability that it doesn't, considering the impact of different scenarios on the total portfolio, the majority of which is broad equity index funds. Different people will assign different probabilities to those events and impacts.

As for some specific points, leverage amplifies risks, but the risks taken are small enough pre-leverage that the aggregate product is likely not all that risky (most probably less still than a diversified basket of commodities futures, for example, or the broad stock market). It's not that leverage isn't a concern but it isn't in of itself anathema. It's a dangerous tool that can be used or abused in a number of ways. You need to understand the characteristics of what it is that's being leveraged, and how that might interact over time. And really, in many key senses despite what many seem to think, the fund isn't really that complicated from a zoomed-out perspective. It is not aggressively tuned via backtests. It is not even trading all that frequently.

It seems difficult to come up with a scenario where the fund's four main styles are decently profitable but the fund itself isn't. (At least, I haven't heard how.) So a lot of the low-level details are kind of a distraction. They're important to check up on if you're leaning towards investing in the fund, as part of due diligence, but that's that. If you think the four styles will work, you may be interested, if you furthermore think that the pricing is tolerable and that AQR can execute reasonably. If you don't think the styles will work, then you stay away, and it shouldn't matter to you whether or not AQR will do what it says and so on. But people aren't really discussing those styles, getting instead bogged down in the machinery rather than seeing the big picture and if the concept is or isn't sound.


boglefoot wrote:Fidelity users: I've tried to purchase QSPIX in my IRA account (with more than the $2500 minimum) and received the following message: "The mutual fund you requested to trade is an Advisor Fund and is not available for retail trading. For more info, contact..." I called them and the rep said that this fund is only available through Fidelity 401Ks.

Has anyone been able to work around this, through an IRA?

Weird, I got some in a Fidelity Roth IRA a few months ago.

Did you also try N shares? (an extra 0.25% on the ER for QSPNX is no fun, but just saying... and for small amounts, paying N shares may be better than paying I shares with a $50 commission to buy in)

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nedsaid
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Re: QSPIX - thoughts on interesting fund

Postby nedsaid » Tue Sep 22, 2015 8:59 pm

The ultimate way of learning how certain types of investments work is to actually own them. How much I have learned by buying an investment, holding for a long time, and watching how the darned thing actually performs under different market conditions. I could go on and on about QSPIX but in reality I have never owned a fund like this. There is something about having honest to goodness hard earned dollars on the line that motivates learning.

Those of you that are brave, take the Nedsaid challenge. Buy some shares of QSPIX, watch how it performs, read the prospectus, and report back. I would be interested in hearing actual investing experience from people who actually own the fund. Again, don't endanger your portfolio by doing this. Just make it a small part of your portfolio. See what happens.

In other threads I have gotten dire "reefer madness" warnings about owning individual stocks. It is something that I have actual experience with and just smile when I hear or read the dire warnings.

Ancient philosophers used to muse about things like how many teeth does a horse have. Folks would argue and argue. One day, some poor dummy that didn't know any better actually looked in a horse's mouth and counted the teeth. Some other poor soul thought he should double check what the first one did. At some point there was enough empirical evidence that came in and the argument was settled about horses and teeth.

Could folks who own the fund weigh in? What do you expect it to do for you? Why did you buy it? How is it doing during this market correction?
A fool and his money are good for business.

lack_ey
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Re: QSPIX - thoughts on interesting fund

Postby lack_ey » Tue Sep 22, 2015 9:23 pm

I haven't been and don't usually check that much on things, though I did purchase a few more stock shares when people were freaking out last month.

By the logs, I've only had it a couple of months it looks like?
It's up 4% (could have been 4.3% if they didn't charge a management fee). Bonds pretty much flat. US stocks down 3.7%. Developed ex-US stocks down 4.3%. Emerging markets stocks down 9%.

Nothing much to say so far. Looks different from other stuff. Probably. Wake me back up when VIX hits 50 or this fund does something wacky.

At this point the "priors" are weighted a lot heavier than new information coming in from fund results, so it would take a few years of something seeming very wrong or unexpectedly good to move the needle much with respect to changing expectations.

understandingJH
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Re: QSPIX - thoughts on interesting fund

Postby understandingJH » Wed Sep 23, 2015 7:26 am

Looks like this fund is even more expensive with only QSPNX, QSLIX, and QSLNX available in IRA accounts (fidelity filtered by AQR and alternative funds). So the negatives against this fund grows (price is even worse).

Image

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grap0013
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Re: QSPIX - thoughts on interesting fund

Postby grap0013 » Wed Sep 23, 2015 7:29 am

nedsaid wrote:Could folks who own the fund weigh in? What do you expect it to do for you? Why did you buy it? How is it doing during this market correction?


Another 26 pages of thread and we'll catch the, "US stocks in freefall" thread. Let's go everybody!

I watched QSPIX for several months before purchasing and did some homework on the fund. I watched it go up from 1/2/15 for 8 days in a row. Bought some and created "the grap omen" in which QSPIX was cursed and went down while all equities went up with EM in particular climbing double digits early in the year. Stayed the course. Subsequently equities took a bath with EM doing particularly bad and QSPIX started to climb positive even more so than beloved intermed treasury bonds.

Watching this fund on a daily basis I can definitively say it is not correlated with any of my holdings or bonds. Just awesome. It has not drastically increased my overall portfolio ER (current 0.5%). Remember it's not individual ERs that matter but the sum of the total ER and incremental gain from adding additional pieces to the overall portfolio. It is an error to look at things in isolation. If QSPIX can generate a few percent real returns annualized even with the fees, due to low correlation and math it should improve overall portfolio performance and returns whether you take the chunk out of the stock or bond part of one's portfolio. So far so good.

I currently own 10% QSPIX and if 5 year returns are 4%+ real then I'm liking upping to a final allocation of 20%. If 0-4% real then holding tight. If <0% real after 5 years.....hmmmmm......I don't know.....I may sell low truth be told. I want assets that have low correlation and real expected returns.
There are no guarantees, only probabilities.

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grap0013
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Re: QSPIX - thoughts on interesting fund

Postby grap0013 » Wed Sep 23, 2015 7:32 am

understandingJH wrote:Looks like this fund is even more expensive with only QSPNX, QSLIX, and QSLNX available in IRA accounts (fidelity filtered by AQR and alternative funds). So the negatives against this fund grows (price is even worse).


If you were considering starting a new medication with your Dr. would you only look at side effects? Or would you look at benefits as well and weigh them against side effects? Once again, the whole picture must be looked at. The above casual observation is not using critical thinking.
There are no guarantees, only probabilities.

understandingJH
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Re: QSPIX - thoughts on interesting fund

Postby understandingJH » Wed Sep 23, 2015 7:40 am

The above casual observation is not using critical thinking.


That's a bit of a hasty assumption isn't it? Previously I posted some questions about this fund with regards to it's ability to minimize fat tails. Clearly I find this fund interesting. However, I couldn't help but feel the "value" of the fund is slightly less now that the barrier to entry is even higher than it was apparently a few months ago when it was available for 25 basis points less for IRA investors. I looked up the available funds after another poster said he couldn't buy QSPIX.

As regards the fund overall I still would need to do more due diligence before deciding if it's for me or not at 5 or 10% of my portfolio. I'm also a young accumulator and it doesn't matter much what I buy at the moment (savings matter more at this point). I'm just in broad market indices right now, but find techniques to minimize fat tails appealing. So eventually I will need to decide if I want to transition to a Larry-style portfolio, slice and dice, or add some of this.

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matjen
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Re: QSPIX - thoughts on interesting fund

Postby matjen » Wed Sep 23, 2015 7:43 am

HomerJ wrote:I say, "I doubt you've done enough research to KNOW that it will perform as advertised. I don't even know if it's possible to know for sure. And there's leverage in there? Yikes. "

You guys reply, "Well, of course, nothing's guaranteed... but really smart people have done the research, and they say it is designed beautifully to be market-neutral. Leverage is no big deal if you do it right"


and

lack_ey wrote:This really isn't that far off. As you say, it's a long thread, but there is some stretching and simplifying some arguments.


Come on Lack_ey you are getting soft. ;-) One crucial simplification or missing piece from HomerJ's summary is what QSPIX has actually done in real life with real money and real markets. We are at 2 years now and it has performed brilliantly. In the past it was suggested (probably by you) that it has seen really only one type of market. Since that time we have had 2 or 3 rough stretches with the most recent being by far the worst. Nothing even close to a bear or a VIX of 50 but QSPIX has passed with flying colors. Would this point be even better if we had 20 years rather than 2? Of course it would. But then, of course, many would then argue the strategy is well known and grazed away by then. No win proposition it seems to me. No one knows the future.

So with the caveat that how QSPIX integrates with your entire portfolio being the important consideration than how it does on its own (impossible for it to have not been a benefit it seems to me)...feast your eyes and wallets on this comparison to Total World, Total Bond, and Vanguard Market Neutral....mic drop.*

Image

*No, I am not predicting that QSPIX will never lose money, will never have a bad year or two, etc. I am hopeful it will do better than a 60/40 portfolio.
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lack_ey
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Re: QSPIX - thoughts on interesting fund

Postby lack_ey » Wed Sep 23, 2015 8:36 am

Statistically if a fund has a realized annual standard deviation of about 10, the current result would not be all that unusual for a wide range of actual means. For example if it has a mean of zero and standard deviation of 10, roughly maybe it got the equivalent of one standard deviation lucky twice in a row. That kind of stuff happens.

More formally, the confidence interval on the mean still is very wide, just based on inspection of live trading... though the results in non-mutual fund land before that were also good and need to be considered.

Realistically, you need to interpret the live trading data in the context of everything else known about the fund and the strategy. On the one hand, the historical simulated success and relative pervasiveness of the styles in history (though individually with droughts for years here and there) tells us that a positive return is probably what we should expect, so the live data is to a very small degree validating that. On the other, everything we know about long-short funds and this strategy in particular says to expect negative skewness over the long run. We expect more upside more of the time (but worse downside events) relative to a normal distribution.

Furthermore, we haven't even seen turmoil in the markets yet. 2012-2014 was unusually placid. 2015 is not even 1998, never mind actual crashes. Also, the direct concern is maybe less stocks and bonds but the derivatives market. Then again, even if everyone is heading for the exits, if you're long-short you're probably getting both the good and bad side of deals others desperately want to close, unless the people heading for the exits are loading on the same factors and making many of the same bets, which is very possible. That's definitely happened before.

Vanguard's market neutral fund has had lower volatility over the same period—roughly half, in fact. A fairer comparison may be the low-volatility version of AQR's fund. On the other hand, we all know how long-short equity funds can go and did go for Vanguard under the old management. Are they doing volatility targeting? If they have similar dollar allocations long vs. short all the time, the volatility will vary with the stock market, and volatility has been fairly tame overall through the comparison period. In any case, AQR's fund is about half a long-short equity fund, so that should not be any particular comfort.

I don't believe it does much good for someone to wait and see what live trading performance is like a few more years. I think significant price drops are also not likely either, so there's really not much reason to wait. If you've done the reading, that should convince you to be in now, or to stay away no matter what.

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Re: QSPIX - thoughts on interesting fund

Postby randomguy » Wed Sep 23, 2015 9:30 am

lack_ey wrote:
I don't believe it does much good for someone to wait and see what live trading performance is like a few more years. I think significant price drops are also not likely either, so there's really not much reason to wait. If you've done the reading, that should convince you to be in now, or to stay away no matter what.


Well if you stretch a few out to like 60 I might disagree but I think in general this sums it up. If you focus on the 1.5% er, none of the potential goodness matters. If you focus on that potential goodness, you can ignore the 1.5% ER.

To me the interesting question is if you buy, how much makes sense. For the typical 60/40 investor, does shoving 5-10% into this fund make any difference at all or do you need to get up to that 20% mark to start seeing differences. And as with any alternative, do you take it out of stocks, bonds or a split.

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matjen
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Re: QSPIX - thoughts on interesting fund

Postby matjen » Wed Sep 23, 2015 9:45 am

randomguy wrote: And as with any alternative, do you take it out of stocks, bonds or a split.


FWIW (which is very little), I have a tilted SCV portfolio but also had REITS and a slug of TIPS. I sold all my REITS and TIPS and replaced them with QSPIX. Now the portfolio is a typical small cap value tilt on equities and intermediate term bonds (Treasuries, corporates* and Munis) and 5% QSPIX.

My tax advantaged space is limited compared to the entire portfolio.

*Only because the Intermediate Term Bond fund in my 401(k) has a fair amount of corporates in it. I would prefer to only have government bonds in my portfolio and take the majority of my risk with equities and QSPIX.
Last edited by matjen on Wed Sep 23, 2015 10:38 am, edited 2 times in total.
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lack_ey
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Re: QSPIX - thoughts on interesting fund

Postby lack_ey » Wed Sep 23, 2015 9:46 am

Maybe one interesting point of reference is Vanguard's managed payout fund (VPGDX), which recently added more alternatives. It's actively managed and is far from Vanguard orthodoxy, but at least it's somebody's view on things. I'm not sure if it's in the middle of transitioning its portfolio or if it's done, but the allocation as of 8/31 was this:
Image

And wow, that is the first time I've seen them break out an alternatives category. That graphic used to just lump those things into stocks.

Image
That's 45% cap-weighted equities (25% international, 20% US), 15% global tilted equities (minimum volatility fund), 18% bonds (12% US, 6% ex-US USD hedged), 17% alternatives (10% alternative strategies, 7% long-short equity), 5% commodities.

Remember, their return goal is 4% real or better over the long run. Bonds are definitely not taking them to the promised land with current yields, so they have to be risky.


More generally I would say that you take from a combination of stocks and bonds. The above is just an example, and I don't know what their 'baseline' allocation without alternatives might be.


P.S. I wouldn't really frame it as "you can ignore the 1.5% ER" or call the ER a "side effect" because the ER has a direct impact on returns, and the return distribution is what we care about. But I get what is meant.

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Re: QSPIX - thoughts on interesting fund

Postby Boricua » Wed Sep 23, 2015 10:57 am

boglefoot wrote:Fidelity users: I've tried to purchase QSPIX in my IRA account (with more than the $2500 minimum) and received the following message: "The mutual fund you requested to trade is an Advisor Fund and is not available for retail trading. For more info, contact..." I called them and the rep said that this fund is only available through Fidelity 401Ks.

Has anyone been able to work around this, through an IRA?


I'm seeing the same thing now. I invested in QSPIX in my Fidelity Roth back in January. When I try today, I get the same message you're getting.

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Re: QSPIX - thoughts on interesting fund

Postby Sammy_M » Wed Sep 23, 2015 11:32 am

nedsaid wrote:Could folks who own the fund weigh in? What do you expect it to do for you? Why did you buy it?

I wanted to be in cool kid club.:) Seriously, I was attracted because I thought AQR consists of disciplined and intellegent individuals who are likely to be successful at gaining the highest exposure to value, momentum, and quality factor exposures with a small allocation (and adding "carry" was okay by me, but not a prime driver). I decreased my weighting toward long-only value funds when I purchased QSPIX and move that money into TSM at 5 bps, so I don't think the net cost increase was very high.

How is it doing during this market correction?

That's the short view. One should only buy this fund if they are looking at the long-view and are interested in pursuing the underlying factors and are willing to ride out long periods of under-performance.

According to portfoliovisualizer, so far...
Market (Bmkt) 0.23
Size (Bsmb) -0.17
Value (Bhml) 0.83
Momentum (Bmom) 0.56
Quality (Bqmj) 0.84
Alpha (α) 44.71bps

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

Postby Maynard F. Speer » Wed Sep 23, 2015 12:42 pm

randomguy wrote:To me the interesting question is if you buy, how much makes sense. For the typical 60/40 investor, does shoving 5-10% into this fund make any difference at all or do you need to get up to that 20% mark to start seeing differences. And as with any alternative, do you take it out of stocks, bonds or a split.


I've always thought of alternatives as a replacement for cash .. But between the two, given today's valuations, I'd be looking for bond replacements

Looking at today's yields, the downside risk on bonds makes holding them look very poorly compensated to me .. I'd think you could justify maybe 5% TIPS, 5% long-dated as pure 'black swan' inflation/deflation hedges ... But that's just me

Image

Normally I wouldn't have much more than 5% in a particular fund, but if you were cautiously looking for ways to diversify away from bonds, I'd think perhaps 5% QSPIX, 5% P2P lending (again, just me .. they could provide quite similar market neutral returns .. There could still be P2P lending Armageddon around the corner, but the 10% annualised I've been making from my allocation has kept my portfolio away from losses this year)
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Re: QSPIX - thoughts on interesting fund

Postby scone » Wed Sep 23, 2015 12:47 pm

O.K., let's say QSPIX has some great new ideas that really work, which IMO implies that this fund will be imitated at lower prices later. Such is capitalism. If that's so, is there some compelling advantage in being an "early adopter" right this minute, or will the competition create "me too" strategies so quickly that one can afford to wait for, so to speak, Vanguard Multialternative 2.0?
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Re: QSPIX - thoughts on interesting fund

Postby DaufuskieNate » Wed Sep 23, 2015 1:10 pm

nedsaid wrote:Could folks who own the fund weigh in? What do you expect it to do for you? Why did you buy it? How is it doing during this market correction?


For me, there has always been a strong appeal for a third leg of the asset allocation stool that is uncorrelated to both equities and fixed income and delivers a positive real return. I hesitate using the term "alternatives" because this has used to describe so many different strategies, with some very correlated to normal equity returns.

I learned of QSPIX after reading Antti Illmanen's Expected Returns. Compared to many other strategies that call themselves "alternatives", I find the fees to be reasonable. I also find the variety of strategies employed by the fund to be a strength.

So far, in a VERY limited sample, the fund has proven to be uncorrelated to my global equity and fixed income positions and has been my highest returning fund. My position is currently very small - about .3%. I have very limited tax-deferred space and this fund should not be held in a taxable account in my view. Over time, I expect to be able to increase my tax-deferred investments and plan to add to my QSPIX position as long as it continues to perform as advertised. Eventually, as is many years from now, I could envision it growing to at most 20% of my portfolio in a 40/20/40 overall allocation.

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oneleaf
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Re: QSPIX - thoughts on interesting fund

Postby oneleaf » Wed Sep 23, 2015 1:14 pm

scone wrote:O.K., let's say QSPIX has some great new ideas that really work, which IMO implies that this fund will be imitated at lower prices later. Such is capitalism. If that's so, is there some compelling advantage in being an "early adopter" right this minute, or will the competition create "me too" strategies so quickly that one can afford to wait for, so to speak, Vanguard Multialternative 2.0?


Expenses are a drag, but only relative to cheaper alternatives. For instance, we all have seen how a 1% expense ratio can make a huge difference when compounded over decades. But if the only index fund available was a 1% ER S&P500 index fund and the only alternative was cash or bonds, I think we all agree that having some stocks is better than none at all.

I think after-expenses, QSPIX still offers very decent expected returns and with low correlation to the rest of the portfolio. Of course we all wish it was cheaper, but holding onto this for a couple of years is not a huge drag on returns. If and when Vanguard MultiAlt 2.0 comes out, having held a slightly overpriced ER for a couple of years is not a big deal compared to the diversification benefit, if (and only if) you believe in its benefits.

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Re: QSPIX - thoughts on interesting fund

Postby lack_ey » Wed Sep 23, 2015 1:19 pm

Sammy_M wrote:
How is it doing during this market correction?

That's the short view. One should only buy this fund if they are looking at the long-view and are interested in pursuing the underlying factors and are willing to ride out long periods of under-performance.

According to portfoliovisualizer, so far...
Market (Bmkt) 0.23
Size (Bsmb) -0.17
Value (Bhml) 0.83
Momentum (Bmom) 0.56
Quality (Bqmj) 0.84
Alpha (α) 44.71bps

Which exact regression are you running? Regardless, it's going outside of equities in all these things and when you look at the t-stats and confidence intervals shown, basically the model has no idea what it's actually doing.


scone wrote:O.K., let's say QSPIX has some great new ideas that really work, which IMO implies that this fund will be imitated at lower prices later. Such is capitalism. If that's so, is there some compelling advantage in being an "early adopter" right this minute, or will the competition create "me too" strategies so quickly that one can afford to wait for, so to speak, Vanguard Multialternative 2.0?

The point is that it doesn't have great new ideas. If it had new ideas, people would be more skeptical of them. It's primarily just throwing a lot of old ideas into one fund, then extending a few of them into asset classes that aren't usually associated with those ideas, and managing the trading and leverage on all those ideas.

Going long value stocks and short growth stocks (or just underweight growth), long high momentum and short low momentum stocks, long low volatility stocks and short or underweight high volatility stocks, long high momentum futures of just about any asset class and short low momentum futures, currency carry trade, long commodities in backwardation and short commodities in contango, betting on bonds where the real yield is high and yield curve is steep and against those with low real yield and inverted or less steep yield curves, etc.: all this stuff is available in other hedge funds and mutual funds, directly or indirectly. They're all part of the toolbox. Some funds make use of these concepts but in a discretionary fashion, not really in a more mechanical, diversified, academic approach. Also, if you get a lot of these separately, sometimes you'll end up with positions that cancel out something in a different fund. For example, if you have a growth stock shorted in a value fund, maybe that's actually being held long in your momentum fund. So there's some value added throwing it into one managed entity.

The multialternatives space has been attracting attention and fund launches, but the problem is that basically nobody discloses their overall strategies. Maybe some are to some degree doing many of the same things. We probably won't know. Vanguard just launched a multialternatives fund for institutional clients only (VASFX). It may or may not be doing many of the same things and other concepts out there in the literature or maybe some that are in-house specials.

It's not like AQR stumbled across some entirely new concept. People could have been offering this in a fund for a long while. They just didn't for whatever reasons. Now that AQR has attracted billions in assets, do competitors really want to copy the thing? I'm not sure. Few have the clout and resources to convince investors they can execute at the same level, so a me-too clone would probably at this point need to offer a significant discount, whereupon it's not really that profitable. Better just stick with undisclosed strategies and charging comparable management fees, as that seems to be working for them already.

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Re: QSPIX - thoughts on interesting fund

Postby oneleaf » Wed Sep 23, 2015 1:22 pm

I would be very surprised if PIMCO did not offer something similar in the next couple of years. Here's hoping since Vanguard has $25k minimums for their institutional funds.

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Re: QSPIX - thoughts on interesting fund

Postby lack_ey » Wed Sep 23, 2015 1:39 pm

We'll see. I hope you're right on both counts. I may very well have the wrong read on the situation.

On a related note, I was wondering, do equity market neutral funds tend to copy each other or load on the same things? Seems not?
https://www.portfoliovisualizer.com/ass ... X+WBLFX+VT
(the VT at the bottom is just global stocks for reference)

If they were more related, you would probably expect higher daily correlations. For reference, see the equity market neutral vs. the style premia fund across more asset classes:
https://www.portfoliovisualizer.com/ass ... VT+BND+DBC

Of course, there's a lot of error on correlation estimates. Doesn't seem like much in the return charts either.

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Re: QSPIX - thoughts on interesting fund

Postby scone » Wed Sep 23, 2015 1:52 pm

So, to sum up, oneleaf says 2.0 in about two years, and lack_ey doubts it will happen at all. Hmmm.

Getting back to the "compelling advantage" issue, is there some way to measure the impact on one's own portfolio, such that one can tell if it's really going to make a big difference? I remember Larry saying something like, "if you have a small allocation to stocks, the effect will not be very pronounced, but it still has diversification benefits." (I'm paraphrasing here.)

So, while I can readily see how exposing oneself to sources of returns that are not standard-issue stocks and bonds might be a great idea, I'm not sure how much extra pizzazz I can reasonably expect, in terms of drawdowns, standard deviation, Sharpe ratios, etc. How do I measure the benefit in my particular case? The history is very short, so live backtesting doesn't necessarily mean much, and you can't "fake it" using Simba's backtester. I guess I really need to read Expected Returns?
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Re: QSPIX - thoughts on interesting fund

Postby lack_ey » Wed Sep 23, 2015 2:29 pm

You know what, on second thought, competitors having something better or equivalent has never stopped fund companies from launching their own versions, so at this point I'll just say "I don't know."

As for quantifying impact, you'd need to make some modeling assumptions about the distribution, which is difficult at best. You could just see what an uncorrelated asset with standard deviation of 10 and mean of *choose your own number* might do to a portfolio, but that's a bit of a simplification.

On average you may not see much of anything that special. The upside is highest for a case where stocks are flat or disappointing for decades where something like this might survive and do okay for a while. Though if that happened, you might see more trying to mine the same styles.

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Re: QSPIX - thoughts on interesting fund

Postby nisiprius » Wed Sep 23, 2015 2:42 pm

lack_ey wrote:....Maybe one interesting point of reference is Vanguard's managed payout fund (VPGDX), which recently added more alternatives. It's actively managed and is far from Vanguard orthodoxy, but at least it's somebody's view on things....
Admittedly the allocation to alternatives is new, but generally speaking one can say yes, this fund is far from Vanguard orthodoxy, and, 7 years after launch, it seems to me that you can say that so far it has been inferior in almost every way to their three orthodox retirement funds.

It has all the current trendy ideas in it. An aggressive stock allocation, with risks muted by low-correlation assets in lieu of bonds; a portfolio that the press has compared to university endowment-fund strategy; allocations to a long-short market neutral fund; allocations to commodities; and now a fat allocation to a fund that invests in a Cayman Islands subsidiary that is not regulated by the Investment Company Act of 1940.

And with all the fancy-schmancy sophistication, what has it achieved?

It has basically tied two of Vanguard's traditional retirement funds (LifeStrategy Income and Target Retirement Income) and underperformed one of them (Wellesley), while having over double the decline in 2008-2009. With regard to its stated goals, Vanguard was forced to cut the target payout rate from 5% to 4%.

No wonder it has only attracted $1.6 billion in assets.

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Re: QSPIX - thoughts on interesting fund

Postby lack_ey » Wed Sep 23, 2015 3:07 pm

Sure, those are certainly the right points to make about the managed payout fund. It has also tried different things over the years. It has even gotten certain timings wrong. The fund used to be a family that got merged into one.

But as always, performance results, especially those tracking single digits years, need to be evaluated in the context of the market conditions seen. For example, the period was better than expected for nominal bonds and worse than expected for commodities in part because realized inflation we got (and related underlying economic conditions associated with that) was much lower than expected, feared, and priced in. You have to evaluate based on process and forward projections and see past how the particulars of the given period biased returns.

This is why I don't make much of anything of AQR fund performance so far. Short histories tell very little of substance.

On a side note, "endowment-style" allocations generally have more of an allocation to real assets, which is not seen in the managed payout fund. The rest is perhaps similar.

And the allocation to alternatives is not new, even separating commodities from alternatives. The equity market neutral fund is an "alternatives" and not a stock fund. They've had that for a while. I'm just saying that their fund page recently broke that out as a separate category. They used to lump in the market neutral fund into the stock percentage for that graph, which is maybe a bit misleading.

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Re: QSPIX - thoughts on interesting fund

Postby scone » Wed Sep 23, 2015 3:15 pm

lack_ey wrote:You know what, on second thought, competitors having something better or equivalent has never stopped fund companies from launching their own versions, so at this point I'll just say "I don't know."

As for quantifying impact, you'd need to make some modeling assumptions about the distribution, which is difficult at best. You could just see what an uncorrelated asset with standard deviation of 10 and mean of *choose your own number* might do to a portfolio, but that's a bit of a simplification.

On average you may not see much of anything that special. The upside is highest for a case where stocks are flat or disappointing for decades where something like this might survive and do okay for a while. Though if that happened, you might see more trying to mine the same styles.


Thanks! I need to read matjen's references upthread and the book. I'm willing to put in the study time, and even if I don't buy this fund, it helps the little grey cells, and expands my knowledge base.

In a way, this fund reminds me of Jack Bogle's index fund when it first came out. Not much background, lots of haters. You almost had to take a flying leap of faith to buy it, back in the day. Maybe that's why Jack likes Asness-- they are both innovators.
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Re: QSPIX - thoughts on interesting fund

Postby nisiprius » Wed Sep 23, 2015 4:12 pm

QSPIX is one of thirty-three AQR funds, and one of ten AQR "alternative" funds. Larry Swedroe called attention to QSPIX and so far it's been pretty much the only AQR fund to get much attention. Presumably they are all managed by smart people.

They have a lot of flavors that would appeal to various coteries of the "anything-but-cap-weighted" faction, including "defensive" funds, a long-short equity fund, a "market neutral" fund, a "Multi-Strategy Alternative Fund" ("Diversified exposure to nine classic hedge fund strategies"), a "risk-balanced" fund, and many "multi-strategy" funds besides QSPIX.

One of them caught my eye because it was one of the plainest and most directly comparable to a Vanguard fund I personally hold, and thus potentially of direct interest to me. There are two "Benchmark-Oriented Equity Funds: Seek to outperform their benchmarks subject to a specified tracking-error target."

"AQR International Equity I," AQIIX, is an institutional-class fund probably not available to most individual investors, but we'll use it. We'll compare it to the fund I hold, Vanguard's International Stock Index Fund, Admiral shares, minimum $10,000 purchase. The time period is since inception of AQIIX.

Source: Morningstar

It essentially tied the benchmark and Vanguard's fund. It slightly lagged the benchmark index and slightly outperformed the Vanguard fund. The amount of the outperformance relative to Vanguard is about 0.07% annualized.

It's pretty impressive that they can virtually tie the return of the benchmark index after 0.90% expenses, but it pretty much fits a common pattern: yes, it appears that they really might have created alpha before expenses, but they took virtually all of it for themselves and gave none to their investors.

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Re: QSPIX - thoughts on interesting fund

Postby lack_ey » Wed Sep 23, 2015 4:34 pm

They have a lot of alternatives funds that have done pretty boringly or not that well so far, that is to be sure. On the other hand, they follow different strategies and most are considerably narrower. Plus they have a lot of equity funds so far about comparable to the index, some below, some above. I checked out most of them when doing some minimal research a while back.

By the way, notice that dashed line in the chart for the international equity fund? That indicates a significant change in the fund. Even without that, something looks really off to me about the fund—AQR hasn't been running mutual funds that long. Without checking SEC filings, I think that line may be where AQR took over for the fund. And in that case, they actually beat the benchmark nontrivially. Or maybe it's when a non-mutual fund got converted into mutual fund land. I don't know.

See this article about AQR getting into mutual funds:
http://archive.fortune.com/2009/03/03/m ... /index.htm

Here's another from 2011 that mentions it. Also about Asness:
http://fortune.com/2011/12/19/cliff-asn ... es-retail/

Here's a quote from the article from a familiar face:
His move into mutual funds could reshape the investing world in two important ways. First, it might well spawn a wave of imitators. AQR already offers a suite of nine mutual funds that have attracted a substantial $5.5 billion in assets. The products are proving so attractive to financial advisers that other hedgies are sure to recognize the potential in providing hedge-fund-style products to America’s 401(k) crowd. (One other large hedge fund to enter the arena thus far is Highbridge Capital, a unit of J.P. Morgan Chase JPM -0.62% , which now runs seven mutual funds.) “We’re almost certain to offer the AQR mutual funds and recommend them to our clients,” says Larry Swedroe, director of research for Buckingham Asset Management, an advisory firm in St. Louis that manages $3.5 billion. “They’re bringing sophisticated strategies to retail investors at reasonable prices. We’re convinced by the science.” [emphasis added]



edit: looks like I'm wrong, not a manager change. In fact, I'm not sure about the timeline anymore with respect to them running mutual funds. See here:
http://pdf.secdatabase.com/2631/0001193 ... 255181.pdf
Last edited by lack_ey on Wed Sep 23, 2015 4:52 pm, edited 1 time in total.

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Re: QSPIX - thoughts on interesting fund

Postby grok87 » Wed Sep 23, 2015 4:38 pm

nisiprius wrote:QSPIX is one of thirty-three AQR funds, and one of ten AQR "alternative" funds. Larry Swedroe called attention to QSPIX and so far it's been pretty much the only AQR fund to get much attention. Presumably they are all managed by smart people.

They have a lot of flavors that would appeal to various coteries of the "anything-but-cap-weighted" faction, including "defensive" funds, a long-short equity fund, a "market neutral" fund, a "Multi-Strategy Alternative Fund" ("Diversified exposure to nine classic hedge fund strategies"), a "risk-balanced" fund, and many "multi-strategy" funds besides QSPIX.

One of them caught my eye because it was one of the plainest and most directly comparable to a Vanguard fund I personally hold, and thus potentially of direct interest to me. There are two "Benchmark-Oriented Equity Funds: Seek to outperform their benchmarks subject to a specified tracking-error target."

"AQR International Equity I," AQIIX, is an institutional-class fund probably not available to most individual investors, but we'll use it. We'll compare it to the fund I hold, Vanguard's International Stock Index Fund, Admiral shares, minimum $10,000 purchase. The time period is since inception of AQIIX.

Source: Morningstar

It essentially tied the benchmark and Vanguard's fund. It slightly lagged the benchmark index and slightly outperformed the Vanguard fund. The amount of the outperformance relative to Vanguard is about 0.07% annualized.

It's pretty impressive that they can virtually tie the return of the benchmark index after 0.90% expenses, but it pretty much fits a common pattern: yes, it appears that they really might have created alpha before expenses, but they took virtually all of it for themselves and gave none to their investors.

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thanks nisi- great post.
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Re: QSPIX - thoughts on interesting fund

Postby matjen » Wed Sep 23, 2015 4:52 pm

lack_ey wrote:By the way, notice that dashed line in the chart for the international equity fund? That indicates a significant change in the fund. Even without that, something looks really off to me about the fund—AQR hasn't been running mutual funds that long. Without checking SEC filings, I think that line may be where AQR took over for the fund. And in that case, they actually beat the benchmark nontrivially...


Good catch lack_ey. Here is Nisi's Morningstar chart adjusted. This assumes/is relevant if AQR took this fund over and wasn't already running it. I'm not sure on how this works honestly but I played with the date until the dashed line went away. When dragging along the graph the two funds also had 10K each on 9/5/09. If I extended a bit to say 9/1 (my original starting point but the dashes were still there), the Vanguard fund had a head start in funds.

EDIT: According to backpacker's post below my chart isn't especially relevant.

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Last edited by matjen on Thu Sep 24, 2015 7:59 am, edited 1 time in total.
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Re: QSPIX - thoughts on interesting fund

Postby larryswedroe » Wed Sep 23, 2015 5:08 pm

Re AQIIX, that's not proper analysis IMO, its value and momentum fund, so comparing it to a total market type fund doesn't make sense. You are getting exposure to other factors and won't look like market and will depend on the premiums in those factors.
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Re: QSPIX - thoughts on interesting fund

Postby backpacker » Wed Sep 23, 2015 5:14 pm

lack_ey wrote:By the way, notice that dashed line in the chart for the international equity fund? That indicates a significant change in the fund.


This is what AQR says. Emphasis mine.

"A privately offered fund managed by the Adviser was reorganized into the International Equity Fund on August 28, 2009, the date the Fund commenced operations. This privately offered fund was organized in June 2004 and commenced operations in August 2004 and had an investment objective, investment policies and restrictions that were, in all material respects, the same as those of the Fund. However, the privately offered fund was not registered as an investment company under the 1940 Act. In addition, this privately offered fund was not subject to certain investment limitations, diversification requirements, liquidity requirements, and other restrictions imposed by the 1940 Act and the Code which, if applicable, might have adversely affected its performance. The Fund’s performance for periods prior to the commencement of operations on or about August 28, 2009 is that of the privately offered fund."

https://funds.aqr.com/our-funds/equity- ... quity-fund

If anything, the performance of the fund before the dotted line overstates how the fund investors can now buy would have performed. This because the now-public fund has the same strategy but is constrained by further regulations.
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Re: QSPIX - thoughts on interesting fund

Postby nisiprius » Wed Sep 23, 2015 6:06 pm

larryswedroe wrote:Re AQIIX, that's not proper analysis IMO, its value and momentum fund, so comparing it to a total market type fund doesn't make sense. You are getting exposure to other factors and won't look like market and will depend on the premiums in those factors.
Larry
AQR says:
Benchmark-Oriented Equity Funds

Seek to outperform their benchmarks subject to a specified tracking-error target.
The Prospectus says:
The Fund seeks to outperform, after expenses, the MSCI EAFE Index (the International Equity Benchmark) while seeking to control its tracking error relative to this benchmark. The Fund will target a forecasted tracking error generally in the range of 3-7% relative to theInternational Equity Benchmark over a long-term business cycle, but actual tracking error will vary based on market conditions, sector positioning, securities selection and other factors. The International Equity Benchmark is a free float-adjusted market capitalization index that is designed to measure the performance of equities in developed markets,excluding the United States and Canada
Therefore, regardless of the techniques they use when they "seek to outperform," it is perfectly sensible to compare it to their own stated benchmark.

It's an index-beating fund--that's its goal--and it's fair to compare it with an index fund.

I shouldn't have compared it to Vanguard Total International, however, but to the MSCI EAFE index itself or to an index fund that tracks it. The Fidelity Spartan International Index Fund, FSIVX, is just such a fund and tracks that exact index.

Despite whatever factor exposures it is using, the parallel between the AQR fund and the Fidelity Spartan simple index fund is even closer than for the Vanguard fund. In this case, AQR's fund outperformed the index fund by about 0.24%/year.

The minimum investment in AQIIX is $5 million. I'm extremely unclear on what ordinary retail investors can actually purchase what AQR funds and in what way, but the only two share classes that you can purchase at Vanguard are AQIIX (class I) and AQINX (class N), with a $1 million minimum. AQINX has an expense ratio of 1.25% and, unsurprisingly, underperforms FSIVX by 0.03% annualized.

Source: Morningstar
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Post dotted-line:

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Re: QSPIX - thoughts on interesting fund

Postby larryswedroe » Wed Sep 23, 2015 8:32 pm

Nisi
I totally disagree. Setting benchmarks by mutual funds are often totally meaningless as they are chosen in ways often to benefit them rather than being a proper risk-adjusted benchmark.The benchmarks are I think chosen for SEC reasons and the funds have wide latitude. Good example would be a fund choosing to benchmark against the Russell 2000 instead of CRSP 6-10 which is much harder to outperform.

In fact this issue was highlighted in the criticisms of the active share study which found that high active share outperformed THEIR CHOSEN BENCHMARKS.
Run the regressions and you get different answers.

In this case it's common sense that the index selected makes no sense as the fund isn't investing in the same type stocks which are more growth oriented, and this fund targets value and momentum. Very different animals. If value underperforms you would expect the fund to underperform and vice versa

The goal actually isn't to beat the index but to gain exposure to the factors as designed, while managing tracking error (so they do that I believe by weighting sectors to match index more closely).

Anyone listening to any presentation made by the firm on the fund would know this information.

As to minimums, those are for INDIVIDUAL investors I believe investing directly, like say DFA. But through advisors there are no minimums.

BTW markets of course down again and QSPIX went up 0.12 and now up almost 4% ytd, up 5% in last three months (difficult time for stocks) and up over 2% in the most recent volatile period. Of course short periods don't tell us much but it is showing how uncorrelated the fund is with the markets as they don't invest only in equity factors but also currency factors, bond factors and commodity factors and being long short lowers the correlations vs being long only.

Larry

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Re: QSPIX - thoughts on interesting fund

Postby nedsaid » Wed Sep 23, 2015 8:50 pm

larryswedroe wrote:
BTW markets of course down again and QSPIX went up 0.12 and now up almost 4% ytd, up 5% in last three months (difficult time for stocks) and up over 2% in the most recent volatile period. Of course short periods don't tell us much but it is showing how uncorrelated the fund is with the markets as they don't invest only in equity factors but also currency factors, bond factors and commodity factors and being long short lowers the correlations vs being long only.

Larry


Larry, this is what I wanted to know. We can philosophize all day about how many teeth are in a horse's mouth but it doesn't tell us anything. I am delighted that a few posters responded to my challenge and posted what the fund has actually done and their actual experience with the fund. Good that some people are opening the horse's mouth and actually counting the teeth.

It sounds to me that the fund is doing what it is supposed to do and that so far it has been an excellent diversifier for portfolios.

Of course we don't know if this will play out like the Yale strategies did which worked out well for those who adopted certain strategies early on. Copycats did not achieve Swenson's success. Will this be a case of the early bird getting the worm or will this good performance persist?
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Re: QSPIX - thoughts on interesting fund

Postby nedsaid » Wed Sep 23, 2015 8:53 pm

I will call my broker soon and ask him if this fund is available through the Pershing platform which is what his firm uses. If I could buy it from my broker with the 1.5% expense ratio, I may just bite.

Heck, if I threw out the "Nedsaid challenge" I will have to consider buying the fund myself. I will check and see if it is even available to me.
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Re: QSPIX - thoughts on interesting fund

Postby nisiprius » Wed Sep 23, 2015 9:00 pm

larryswedroe wrote:...The goal actually isn't to beat the index but to gain exposure to the factors as designed, while managing tracking error (so they do that I believe by weighting sectors to match index more closely)...
Larry, how can you say, of funds that, according to the fund company "Seek to outperform their benchmarks subject to a specified tracking-error target," that "the goal actually isn't to beat the index?"

But, for the record, in your opinion, as a core international equity holding, given a free choice between the AQR International Equity Fund, an index fund such as the Fidelity Spartan International Index Fund (FSIIX), and the Dimensional International Core Equity Portfolio (DFIEX), which would you choose, for yourself or clients? Do you feel that QSPIX is unique and interesting, but that the rest of AQR's line has nothing in particular to recommend it over any other good fund family?
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Re: QSPIX - thoughts on interesting fund

Postby backpacker » Wed Sep 23, 2015 9:02 pm

larryswedroe wrote:In fact this issue was highlighted in the criticisms of the active share study which found that high active share outperformed THEIR CHOSEN BENCHMARKS. Run the regressions and you get different answers.


We can do that. Turns out that the fund had annual negative alpha of a little over -1%, approximately the fees charged by the fund. So, once we adjust for factor exposure, the fund did worse than it did against the market as a whole. Of course, each investor needs to decide how much that factor exposure is worth and whether it can be bought for less other places. What's clear is that there is no sign of any magic AQR alpha. This sort of factor exposure is a commodity and should be treated as such. No one should pay an advisor for access.

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Re: QSPIX - thoughts on interesting fund

Postby adave » Wed Sep 23, 2015 9:23 pm

QLENX is an excellent offering from AQR in my opinion as well - easier to understand long/short equity strategy which has returned above 7% YTD with 6% yield.

ER 1.6% is steep but you are getting a well managed hedged equity product.

I would have to agree that understanding the QSPIX strategy is certainly difficult for your average investor like me.

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Re: QSPIX - thoughts on interesting fund

Postby lack_ey » Wed Sep 23, 2015 9:43 pm

adave wrote:QLENX is an excellent offering from AQR in my opinion as well - easier to understand long/short equity strategy which has returned above 7% YTD with 6% yield.

ER 1.6% is steep but you are getting a well managed hedged equity product.

I would have to agree that understanding the QSPIX strategy is certainly difficult for your average investor like me.

That is N shares of the equity market neutral fund? The "yield" is mostly just the realized capital gains being distributed, huh?

It overlaps a lot with the stock part of the style premia fund and has an even shorter track record. I think the last few attribution reports indicate a lot of the gains in the style premia fund coming from the equities program, so that squares with the outperformance of the equity market neutral fund since inception.

IMHO if you're sucking it up and paying that much for a fund, you may as well get the exposures in the other asset classes too, but that's just me.


edit: see below.
Last edited by lack_ey on Wed Sep 23, 2015 10:04 pm, edited 1 time in total.

adave
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Re: QSPIX - thoughts on interesting fund

Postby adave » Wed Sep 23, 2015 9:50 pm

Long/short equity fund, not equity market neutral.

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Re: QSPIX - thoughts on interesting fund

Postby lack_ey » Wed Sep 23, 2015 10:03 pm

Oh, oops, my bad. I forgot they had a long/short equity fund aside from the market neutral fund. I should have looked up the ticker.

So the long/short fund keeps a beta around 0.5. Okay.

It's not really easier to understand than the market neutral fund, though, is it? Just takes less short positions to keep part of the beta? So it's on the same level. It says it's using value/momentum/quality, just like the market neutral fund.

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zaboomafoozarg
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Re: QSPIX - thoughts on interesting fund

Postby zaboomafoozarg » Wed Sep 23, 2015 10:10 pm

I would consider an allocation to QSPIX if there was any easy way to buy it.

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Re: QSPIX - thoughts on interesting fund

Postby randomguy » Wed Sep 23, 2015 10:13 pm

lack_ey wrote:
P.S. I wouldn't really frame it as "you can ignore the 1.5% ER" or call the ER a "side effect" because the ER has a direct impact on returns, and the return distribution is what we care about. But I get what is meant.


Ignore might not be the right word. Accept/Jutify might work better. Yeah I would love if the ER was .5% and I got more return. But it isn't like you have that choice. You choices for investments that will have nonBeta correlated moderately high returns is pretty small. And none of them are super cheap.

Is this type of diversification necessary? Who knows. Maybe we will hit some 10 year period were stocks return 0% real and this returns 4% real. The you look like a genius by diversifing. Or you can get the more normal case were stocks return 6% real and this returns 4%, and it looks like your overpaying for poor results. The problem of course is you have no clue if you will actually get that benefit during down stock markets. That lack of correlation with beta doesn't mean that you will get positive returns while beta is struggling. It is more that you have a chance. The past correlations suggest your odds are good but their is always the chance that during the period where you want a fund like this, it will not help.

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Re: QSPIX - thoughts on interesting fund

Postby mickens16 » Thu Sep 24, 2015 7:43 am

zaboomafoozarg wrote:I would consider an allocation to QSPIX if there was any easy way to buy it.


Agreed! Apparently it has become difficult to buy in a Fidelity IRA. Scottrade may be the only brokerage to buy it.

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Re: QSPIX - thoughts on interesting fund

Postby matjen » Thu Sep 24, 2015 7:53 am

larryswedroe wrote:Nisi
I totally disagree. Setting benchmarks by mutual funds are often totally meaningless as they are chosen in ways often to benefit them rather than being a proper risk-adjusted benchmark.The benchmarks are I think chosen for SEC reasons and the funds have wide latitude. Good example would be a fund choosing to benchmark against the Russell 2000 instead of CRSP 6-10 which is much harder to outperform.


Since I own and this is a QSPIX* thread I really, really want to agree with Nisi but fear Larry is probably right.

In AQR's fact sheet and prospectus they have the Merrill Lynch 3 Month T-Bill Index as the benchmark. It has returned (as of 8/31/15) .04% since fund inception. QSPIX 8.46%...which is probably a fair bit higher as of today.

https://funds.aqr.com/our-funds/alterna ... ative-fund
Last edited by matjen on Thu Sep 24, 2015 8:07 am, edited 2 times in total.
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Re: QSPIX - thoughts on interesting fund

Postby larryswedroe » Thu Sep 24, 2015 8:03 am

Nisi
This is very simple, and you are mixing two issues. Of course if you buy a value fund your goal is to outperform the market or you wouldn't buy it. You are taking more risk, including tracking error risk. But that doesn't have anything at all to do with what the benchmark should be. Nor should you judge the success of the fund by if it beat that benchmark. The success should be judged by did it give you the exposures you wanted in efficient manner. You've decided to take the risks of being exposed to those factors. Once you do that the fund should be judged by how well it did that.

So as simple example, if DFA US LV set as benchmark the S&P 500 and it outperformed it would you say it beat the proper benchmark? I would hope not. And if it underperformed would you say it failed? I also would hope not. It's benchmark should be say a MSCI US Large Value Index. Now if a large value fund added a style of exposure to MOM and it underperformed that MSCI benchmark because value premium was strong (momentum would then be weak) you should not think the fund failed. And vice versa. You would expect that to happen in such situations. It's relative performance will depend on the size of the value and MOM premiums.

As to AQR, CURRENTLY the only funds we have approved/use are the US large style premium (value, mom, profit) and only for tax-advantaged accounts. We are waiting to see how the TM versions perform before approving them. It is relatively low cost (at I think 36bp it is bit higher than the DFA fund it replaced) and we expect the benefits will be worth the small incremental costs---you give up bit of value exposure and gain more momentum exposure and get a bit better diversifier for our value oriented portfolios without trading off lower expected returns (and reduce TE a bit). The other is QSPIX.


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