QSPIX - thoughts on interesting fund

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grok87
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Re: QSPIX - thoughts on interesting fund

Post by grok87 » Wed Feb 07, 2018 5:33 am

nedsaid wrote:
Tue Feb 06, 2018 10:19 pm
matjen wrote:
Tue Feb 06, 2018 9:58 pm
nedsaid wrote:
Tue Feb 06, 2018 9:49 pm
It looks like QSPIX acted like bonds, which is okay. If I was a QSPIX investor, I would expect higher than the 2-3% return that you will get out of bonds over the next decade. If you do all the fancy stuff and still have the return of bonds, you may as well just be in bonds. If I owned this fund, I would be happy with 5% annual returns. Of course, people always say that it doesn't correlate with the stock market. My answer is that money stuffed underneath my mattress doesn't correlate with the market either. I expect some return.
Returns? I think you are confusing QSPIX with The Vanguard Market Neutral Fund which some put forward as a wiser choice. (My personal bogie (which is probably optimistic) is a 60/40 LifeStrategy Fund VSMGX). One could not ask anything more of QSPIX during its existence it seems to me. Look how it did in early 2015 when VT was wilting.

Image
I know that QSPIX is a multi-factor fund that uses shorting and leverage and I know it uses equities, fixed income, commodities, and currency. QSPIX targets returns of 7% with low correlation to the stock market. Market neutral funds seem to be benchmarked against cash. I noticed the Vanguard product trails the average for such funds and has way underperformed the Bond Index. Morningstar seems to think that Market Neutral should be benchmarked against bonds. Morningstar also says that Vanguard Market Neutral invests across five factors: valuation, growth, quality, momentum, and management decisions. I did not know this.

If you could shed more light on this, I would appreciate it.
I think vanguard benchmarks the market neutral fund -vmnfx- against
Tbills. In terms of factors vmnfx is also exposed to the small cap factor.
Keep calm and Boglehead on. KCBO.

jdb
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Re: QSPIX - thoughts on interesting fund

Post by jdb » Wed Feb 07, 2018 7:39 am

Interesting discussion. I never understood attraction of these funds that promised equity like returns during boom times while acting like bonds during recessions in return for annual high fees. This is what hedge funds live on. Why not just buy an equity index fund for the good times and a bond fund like BND for the not so good times In an allocation that allows investor to sleep well at night. But if everyone did would probably put the hedge funds out of business.

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matjen
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Re: QSPIX - thoughts on interesting fund

Post by matjen » Wed Feb 07, 2018 7:59 am

jdb wrote:
Wed Feb 07, 2018 7:39 am
Why not just buy an equity index fund for the good times and a bond fund like BND for the not so good times In an allocation that allows investor to sleep well at night. But if everyone did would probably put the hedge funds out of business.
With the major caveat that I 100% agree with you for 98% of investors, I will say the issue is that even portfolios with a large bond allocation are driven by beta exposure. We really haven't had a true bear market or barely a correction since QSPIX's inception but look at the year period from about 8/15 to 8/16 (as well as the last several days). I have included Total World (VT) and the 60/40 and 40/60 LifeStrategy Funds. So, as far as I am concerned, the best of the best for indexing. They all move in lockstep while QSPIX has managed to provide returns and not be correlated to a typical beta dominated portfolio. At least that is my take.

Though if you had an all in one fund that combined VT with QSPIX then it would look much the same as a LifeStrategy fund I suppose. Difference would be at the margins. ;-)

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Sammy_M
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Re: QSPIX - thoughts on interesting fund

Post by Sammy_M » Thu Feb 08, 2018 6:58 am

There is an article in WSJ today, Is This Obscure Wall Street Invention Responsible for the Market Selloff?, that mentions AQR and its use of risk-parity strategies.
So-called risk-parity funds aim to reduce the danger from a collapse in any one market by limiting bets on more volatile assets like stocks and commodities and using leverage to load up on safer assets like government bonds.
critics say a prolonged period of volatility could force risk-parity funds to sell, which could exacerbate declines in the market. The argument against risk-parity goes like this: If volatility in one asset picks up, managers must shrink that position to maintain the fund’s overall risk, either by reducing leverage or shifting client money between asset classes. Both involve selling an asset that is under stress.
“The biggest issue with risk parity, and all systematic, semi-passive strategies, is they all act simultaneously when the market is on autopilot,” said hedge fund manager...
grok mentions the same concern with risk-parity here viewtopic.php?f=10&t=167241&p=2629985&h ... y#p2629985

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matjen
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Re: QSPIX - thoughts on interesting fund

Post by matjen » Thu Feb 08, 2018 7:35 am

That WSJ article is incredibly weak sauce IMO. I mean credentials and experience aren't the only thing in the world but they are basing the article around a person who manages 200 mil (though she did work at Bridgewater for a spell). More importantly the facts/logic doesn't seem to be there. Markets go up. Markets go down. I hear rumor that this happened long before Risk Parity and the rise of the machines.

https://www.aqr.com/cliffs-perspective/ ... t-syndrome

Risk Parity Derangement Syndrome
To be clear, it’s not unreasonable to think that strategies that target volatility in a long-biased portfolio are likely to sell into the higher market volatility that often coincides with market losses. Nor is it unreasonable to think that strategies that explicitly follow trends are likely to sell into bear markets (that’s kind of obvious). So I guess they get the direction right. But, size matters. To make a statement about this you have to have a vague idea about how many dollars are in such strategies and what they are likely to sell in a down draft. You may notice a conspicuous lack of relevant estimates from the many “machine” haters. This isn’t surprising because the facts show “the machines” can’t possibly be the culprit.
and,

https://www.aqr.com/library/aqr-publica ... rity-funds

Not Risk Parity Funds
We believe that risk parity strategies in aggregate hold about $70 billion of global equities,2 maybe even less, mostly in the form of index futures. We think it is very unlikely that more than a small fraction of that would be sold, even if very high volatility continues for a while. With their total equity holdings summing to only about 10% of one day’s global market volume,3 it would be difficult to imagine risk parity managers ever selling more than a low single-digit percentage of a day’s volume even if they went mad; they just don’t hold enough stock.
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packer16
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Re: QSPIX - thoughts on interesting fund

Post by packer16 » Thu Feb 08, 2018 8:45 am

One interesting alternative to QSPIX is Vanguard Balanced Fund. It has provided about the same return with lower fees & thus if QSPIX's quant algos stop working then you have removed that risk. In the end I really wonder if these alternatives add anything you can get from a balanced fund. The alts do not provide equity like returns (after fees) but about balanced fund returns. I will post some actual return data from Larry's recommended funds to support the balanced fund returns with balanced fund volatility (& IMO higher black swan risk due the leverage & black boxiness of these strategies).

One interesting side note on some of these alternatives is that the returns are not low because they have not worked in the past, it is because of fees. These strategies may be more expensive to implement than indexing but the profits of these "fund providers" are huge (much higher than active management firms margins are). So IMO what is happening when you invest in these alternatives is the manager is getting any alpha here & providing you with the risk and lower portion of the returns.

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grok87
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Re: QSPIX - thoughts on interesting fund

Post by grok87 » Fri Feb 09, 2018 8:57 pm

packer16 wrote:
Thu Feb 08, 2018 8:45 am
One interesting alternative to QSPIX is Vanguard Balanced Fund. It has provided about the same return with lower fees & thus if QSPIX's quant algos stop working then you have removed that risk. In the end I really wonder if these alternatives add anything you can get from a balanced fund. The alts do not provide equity like returns (after fees) but about balanced fund returns. I will post some actual return data from Larry's recommended funds to support the balanced fund returns with balanced fund volatility (& IMO higher black swan risk due the leverage & black boxiness of these strategies).

One interesting side note on some of these alternatives is that the returns are not low because they have not worked in the past, it is because of fees. These strategies may be more expensive to implement than indexing but the profits of these "fund providers" are huge (much higher than active management firms margins are). So IMO what is happening when you invest in these alternatives is the manager is getting any alpha here & providing you with the risk and lower portion of the returns.

Packer
right

so Year-to-date 2018 provides an interesting perspective on your suggestion. VBINX (balanced fund) is down 2.74%. Stocks and bonds have both been selling off. Alternatives like QSPIX, VMNFX and TIAA real estate (QREARX) are basically flat or slightly up.

Obviously a very short period...
Keep calm and Boglehead on. KCBO.

Theoretical
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Re: QSPIX - thoughts on interesting fund

Post by Theoretical » Fri Feb 09, 2018 9:02 pm

Balanced fund won't do anything positive in an inflationary environment. The test for alts is really going to boil down to weather they beat cash in an inflationary cycle.

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Re: QSPIX - thoughts on interesting fund

Post by randomguy » Fri Feb 09, 2018 10:01 pm

packer16 wrote:
Thu Feb 08, 2018 8:45 am
One interesting alternative to QSPIX is Vanguard Balanced Fund. It has provided about the same return with lower fees & thus if QSPIX's quant algos stop working then you have removed that risk. In the end I really wonder if these alternatives add anything you can get from a balanced fund. The alts do not provide equity like returns (after fees) but about balanced fund returns. I will post some actual return data from Larry's recommended funds to support the balanced fund returns with balanced fund volatility (& IMO higher black swan risk due the leverage & black boxiness of these strategies).

One interesting side note on some of these alternatives is that the returns are not low because they have not worked in the past, it is because of fees. These strategies may be more expensive to implement than indexing but the profits of these "fund providers" are huge (much higher than active management firms margins are). So IMO what is happening when you invest in these alternatives is the manager is getting any alpha here & providing you with the risk and lower portion of the returns.

Packer
If you are getting the same returns, do you really care about the fees?:) If you could give me 20 nonCorrelated funds that gave me the same return after fees of a 60/40 fund, I would hold all of them and be thrilled beyond belief.:) And yes I wish the fees were lower so my returns were higher. But that isn't an option.

grok87
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Re: QSPIX - thoughts on interesting fund

Post by grok87 » Sat Feb 10, 2018 7:48 am

randomguy wrote:
Fri Feb 09, 2018 10:01 pm
packer16 wrote:
Thu Feb 08, 2018 8:45 am
One interesting alternative to QSPIX is Vanguard Balanced Fund. It has provided about the same return with lower fees & thus if QSPIX's quant algos stop working then you have removed that risk. In the end I really wonder if these alternatives add anything you can get from a balanced fund. The alts do not provide equity like returns (after fees) but about balanced fund returns. I will post some actual return data from Larry's recommended funds to support the balanced fund returns with balanced fund volatility (& IMO higher black swan risk due the leverage & black boxiness of these strategies).

One interesting side note on some of these alternatives is that the returns are not low because they have not worked in the past, it is because of fees. These strategies may be more expensive to implement than indexing but the profits of these "fund providers" are huge (much higher than active management firms margins are). So IMO what is happening when you invest in these alternatives is the manager is getting any alpha here & providing you with the risk and lower portion of the returns.

Packer
If you are getting the same returns, do you really care about the fees?:) If you could give me 20 nonCorrelated funds that gave me the same return after fees of a 60/40 fund, I would hold all of them and be thrilled beyond belief.:) And yes I wish the fees were lower so my returns were higher. But that isn't an option.
The fees DO matter. The lesson that is clear from the bond fund world is that funds with higher fees often take extra risk to overcome the higher fee drag. This works for a while until a crisis hits. Think various fidelity bond funds and subprime, or say Oppenheimer muni bond funds and Puerto Rico.

I think qspix playing this same game with the extra risk being its high leverage.
Keep calm and Boglehead on. KCBO.

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packer16
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Re: QSPIX - thoughts on interesting fund

Post by packer16 » Sat Feb 10, 2018 8:27 am

Although Larry has some good advice & is a really nice guy, he has some weaknesses. He appears to be in the hunt for alternative assets to generate returns, just like the active managers he rails on. This quest IMO leads him to risky & expensive alternative which IMO have little or no place in a Boglehead type of portfolio. I could see if after his recommendation the funds he suggested provided equity like returns with less correlation. However, this is not the case.

First, lets start with SCV and the Larry Portfolio. This was published in 2011. So lets look at the returns of the 60/40 non-tilted portfolio to the 40/60 SCV tilted portfolio from 2012 to 2107. Both portfolio have about the same SD but the returns the tilted LP is 8.1% per year to 10.5% per year. So here we got the same risk & lower retuns thusfar.

Second, lets look at Commodities. Using the PCRIX fund as a proxy, the returns over the past 5 years have been -9.4% per year versus 15.6% per year for VFINX.

Third, lets look at the alternative fund recommended. These were beginning to be recommended in 2013, so lets use 2014 as the starting point. If you use a an average of SRRIX, QSPIX & LENDX (when it became available) what would the returns be from 2014 to 2017? By may calculations the returns would be 6.1% per year. How does this compare to equities & balanced portfolio? Equities have an 11.7% return per year & the balanced fund 7.9%. So what we are getting so far (similar to the SCV tilted portfolio & PCRIX above) is lower than equity returns & given the expense ratios of the alternatives holding a balanced fund would be better. Now if you add back the fess of these alternative funds they may become more interesting. Given how they are currently configured they are more like the fund Larry (& rightfully so) rails against high cost active funds. (Note: fees make all the difference here as whether the strategy is a contender - smaller fees (lets, say 50bp which would add 200bp to 250bp to the returns) or out of the running against the balanced fund). Also, note these types of fees are obtainable as the margins on these types of products are astronomical.

From the above either a) Larry is terribly unlucky in his timing or b) the quest for equity like returns & lower risk is like looking for the fountain of youth, not really there in an ever more efficient market. The other note is the amount Larry has discussed allocating these strategies. Initially, I thought it was 5 to 10% which may not impact the portfolio very much one way or the other, however, the recommendation to go to 20% is more concerning as the past record here has not been good.

I also wonder how the expected returns are estimated as the actual returns have been so much lower than expectations in the past. Just my 2 cents.

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packer16
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Re: QSPIX - thoughts on interesting fund

Post by packer16 » Sat Feb 10, 2018 8:37 am

randomguy wrote:
Fri Feb 09, 2018 10:01 pm
packer16 wrote:
Thu Feb 08, 2018 8:45 am
One interesting alternative to QSPIX is Vanguard Balanced Fund. It has provided about the same return with lower fees & thus if QSPIX's quant algos stop working then you have removed that risk. In the end I really wonder if these alternatives add anything you can get from a balanced fund. The alts do not provide equity like returns (after fees) but about balanced fund returns. I will post some actual return data from Larry's recommended funds to support the balanced fund returns with balanced fund volatility (& IMO higher black swan risk due the leverage & black boxiness of these strategies).

One interesting side note on some of these alternatives is that the returns are not low because they have not worked in the past, it is because of fees. These strategies may be more expensive to implement than indexing but the profits of these "fund providers" are huge (much higher than active management firms margins are). So IMO what is happening when you invest in these alternatives is the manager is getting any alpha here & providing you with the risk and lower portion of the returns.

Packer
If you are getting the same returns, do you really care about the fees?:) If you could give me 20 nonCorrelated funds that gave me the same return after fees of a 60/40 fund, I would hold all of them and be thrilled beyond belief.:) And yes I wish the fees were lower so my returns were higher. But that isn't an option.
People pay way too much IMO for asset classes that they think are not correlated but actually are. The gold standard in non correlation is short-term bonds. The rest are based upon past relationships holding & folks paying up (through higher fees) to obtain access. What I find amazing is folks who are concerned about active management fees are not concerned about alternative fees. I would be willing to make a bet that the alternative asset managers could reduce their fees by 50%+ & still make a very nice profit but there is no clamoring for this & thus these alternatives are closer to the active mindset than the passive one. Remember the correlation story is based upon conjecture not what will happen when the next equity shock hits.

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matjen
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Re: QSPIX - thoughts on interesting fund

Post by matjen » Sat Feb 10, 2018 9:36 am

I invite those new to this thread to read some of the past posts and predictions. Amazing how a fund that has done everything it promised to do and acted as expected is still getting railed on (as is Larry Swedroe for some reason). And no, that doesn't mean QSPIX is for everyone or should be.

Never Forget:

viewtopic.php?f=10&t=167241&p=2587312&h ... a#p2587312
IMO this fund belongs in the equity basket in terms of risk and given the fees, I highly doubt they can beat the S&P 500 or other skilled active managers like Sequoia. This is a large black box and anyone thinking that is not is fooling themselves.
and..

viewtopic.php?f=10&t=167241&hilit=Sequo ... 0#p2587413
packer16 wrote:
Thu Aug 13, 2015 9:01 am
With Sequoia you are paying for a realized outperformance versus for QSPIX you are paying more for a simulated performance. I know which one I would choose.

Packer
Uh, there was this thing with Valeant some may have remembered shortly after these posts...the 30% of SEQUX's holdings thing...implosion and resignations thing. The Congressional investigation thing. Which fund was the black box again?

https://www.kiplinger.com/article/inves ... leant.html

What I Learned From Sequoia Fund's Tragic Love Affair With Valeant
The lesson I’ve learned from the Sequoia disaster is that I need to redouble my efforts to examine the risks a fund is taking, especially when it has a fabulous record.
8-)

And the defense of Third Avenue's Marty Whitman and his craptastic high yield junk bond fund...may it RIP.


viewtopic.php?f=10&t=175567&p=2653827&h ... n#p2653827
packer16 wrote:
Mon Oct 12, 2015 8:13 pm
IMO if you examine Marty Whitman's process it is sound and he does have some unique exposures that you typically do not find a certain types of funds. Marty Whitman is a distressed investor who has done well over time and via the 3rd Ave High Yield fund provides expose to bankruptcy restructuring found in few places. Now over time this space has become more competitive so returns have declined like we have all observed in other situations, like small caps and value...

Packer
https://www.ft.com/content/d319da8c-9f9 ... e211ea5317

Third Avenue Management said on Thursday it was shutting the doors of its $800m high-yield bond fund because it had run out of money to pay redeeming investors without having to dump bonds at fire-sale prices.

The Third Avenue Focused Credit Fund (FCF) had slumped 27 per cent this year amid fears for its future, and its failure is the largest in the mutual fund industry since the Reserve Primary money market fund in the days after Lehman Brothers’ collapse in 2008.

Also on Thursday, Lipper reported the worst week for outflows from junk bond funds since August 2014, with $3.5bn withdrawn by investors, pushing junk funds into negative territory for the year.

FCF investors were informed that they will no longer be able to take their money out, and will instead get a stake in a wind-down vehicle that will sell assets in an orderly fashion over time.
Perhaps just some bad luck with timing. 8-)

To repeat, comparing QSPIX to SEQUX is rather silly but here it is. VMNFX is the reasonable comparison (thanks Grok). I know which I would rather own...

Image
Last edited by matjen on Sat Feb 10, 2018 10:17 am, edited 3 times in total.
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Re: QSPIX - thoughts on interesting fund

Post by scone » Sat Feb 10, 2018 9:47 am

I have questions, which might be naive, IDK. Since QSPIX is closed to new investors, what happens if you sell? Does the buyer have to be a current owner of QSPIX, and doesn't that limit the number of potential buyers pretty drastically? Is that the point of closing the fund, to limit buyers and sellers to steady out the price? TIA.
"My bond allocation is the amount of money that I cannot afford to lose." -- Taylor Larimore

grok87
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Re: QSPIX - thoughts on interesting fund

Post by grok87 » Sat Feb 10, 2018 9:49 am

matjen wrote:
Sat Feb 10, 2018 9:36 am


To repeat, comparing QSPIX to SEQUX is rather silly but here it is. VMNFX is the reasonable comparison (thanks Grok). I know which I would rather own...

Image
thanks for the chart.
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Re: QSPIX - thoughts on interesting fund

Post by Theoretical » Sat Feb 10, 2018 10:11 am

scone wrote:
Sat Feb 10, 2018 9:47 am
I have questions, which might be naive, IDK. Since QSPIX is closed to new investors, what happens if you sell? Does the buyer have to be a current owner of QSPIX, and doesn't that limit the number of potential buyers pretty drastically? Is that the point of closing the fund, to limit buyers and sellers to steady out the price? TIA.
Not at all. There's a lot of existing shareholders who look to add to their holdings while someone sells. And there's a lot more pent-up demand if a lot of shareholder sold and the fund was reopened. It was closed chiefly due to a lack of capacity for the strategies. Now it's different if it's closed to all investors, meaning you can only sell and not buy more.

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Re: QSPIX - thoughts on interesting fund

Post by Theoretical » Sat Feb 10, 2018 10:34 am

packer16 wrote:
Sat Feb 10, 2018 8:37 am

People pay way too much IMO for asset classes that they think are not correlated but actually are. The gold standard in non correlation is short-term bonds. The rest are based upon past relationships holding & folks paying up (through higher fees) to obtain access. What I find amazing is folks who are concerned about active management fees are not concerned about alternative fees. I would be willing to make a bet that the alternative asset managers could reduce their fees by 50%+ & still make a very nice profit but there is no clamoring for this & thus these alternatives are closer to the active mindset than the passive one. Remember the correlation story is based upon conjecture not what will happen when the next equity shock hits.

Packer
There is something to this. Vanguard's fund, after all, is implemented at a .22% ER (the rest of the 1.6% is actual shorting costs). Its alternative strategies fund is also going to be coming out and it's at something like .42. What's one of the more ironical/comical things is that there is a major asset manager that is doing precisely what you said, and that's JP Morgan of all people.

So far, you have:

JPHF - Multialternative fund that combines equity long/short, event-driven, and Managed futures - 0.85% Net ER (high gross one though at 6%)
JPED - Event Driven fund (includes merger arbitrage and spinoffs among others) - .85% Net ER, 1.12% Gross ER
JPMF - Managed Futures (also includes Carry strategies) - 0.59% Net ER, 1.02% Gross - just launched
JPLS - Equity Long/Short - 0.67% Net and .97% Gross - also just launched

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Re: QSPIX - thoughts on interesting fund

Post by scone » Sat Feb 10, 2018 10:41 am

Theoretical wrote:
Sat Feb 10, 2018 10:11 am
scone wrote:
Sat Feb 10, 2018 9:47 am
I have questions, which might be naive, IDK. Since QSPIX is closed to new investors, what happens if you sell? Does the buyer have to be a current owner of QSPIX, and doesn't that limit the number of potential buyers pretty drastically? Is that the point of closing the fund, to limit buyers and sellers to steady out the price? TIA.
Not at all. There's a lot of existing shareholders who look to add to their holdings while someone sells. And there's a lot more pent-up demand if a lot of shareholder sold and the fund was reopened. It was closed chiefly due to a lack of capacity for the strategies. Now it's different if it's closed to all investors, meaning you can only sell and not buy more.
So you're saying an owner of QSPIX can only sell to current owners of QSPIX? And if those owners are not buying then you're stuck? How many people own this thing, anyway? A few thousand? A few million? What's the size of the market?
"My bond allocation is the amount of money that I cannot afford to lose." -- Taylor Larimore

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Re: QSPIX - thoughts on interesting fund

Post by packer16 » Sat Feb 10, 2018 10:49 am

In terms of comparisons, you need to reference the dates the comments were made. If you look at performance since 9/30/2015, the story is not a clear as the chart presented implies. Since Sept 2015, QPSIX returned 4.4% per year versus 17.2% for the S&P 500 & 2.2% for SEQUX. Now SEQUX was half way through the Valeant issue which I agree was a mistake.

Also as a follow-up, if you track performance since Goldfarb left Sequoia (1H 2015), the performance of SEQUX is 18.9% per year versus 21% for S&P 500 and only 8.4% per year for QSPIX.

Have I made mistakes with these managers? Yes. What have I learned. Markets are more efficient than I thought and the mutual fund structure is a difficult way to capture excess returns because the amount of capital deployed by funds is large and by definition large inefficiencies are almost impossible to find as the competition makes the markets efficient. On the other hand alternative funds IMO invest despite this observation somehow thinking they have little or no competition. IMO this is not the case. IMO QSPIX will deliver balanced fund or lower returns with black swan risk than the whole thing could blow up like other AQR funds did in the GFC. Would your opinion of QSPIX change if you obtain what has been obtained to date, a return between bonds & a balanced fund? If your expected returns for QSPIX is somewhere between bonds and balanced funds & you feel that the black swan risk is small then this fund is fine but my impression is that these alternatives are being touted as equity like return with non correlated risk which is misleading.

My observations about Larry are not personal, they are just an observation & that is the value of a community - to provide observations & have folks challenge them with facts & see where the argument leads. Larry is a nice guy & has gone out of his way to explain & share his ideas which I think is great but we also need to challenge these & see if there is data to disprove any hypothesis I or anyone else posts here. I appreciate your observations and have made IMO appropriate course corrections.

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Re: QSPIX - thoughts on interesting fund

Post by matjen » Sat Feb 10, 2018 10:53 am

Theoretical wrote:
Sat Feb 10, 2018 10:34 am

There is something to this. Vanguard's fund, after all, is implemented at a .22% ER (the rest of the 1.6% is actual shorting costs). Its alternative strategies fund is also going to be coming out and it's at something like .42. What's one of the more ironical/comical things is that there is a major asset manager that is doing precisely what you said, and that's JP Morgan of all people.

So far, you have:

JPHF - Multialternative fund that combines equity long/short, event-driven, and Managed futures - 0.85% Net ER (high gross one though at 6%)
JPED - Event Driven fund (includes merger arbitrage and spinoffs among others) - .85% Net ER, 1.12% Gross ER
JPMF - Managed Futures (also includes Carry strategies) - 0.59% Net ER, 1.02% Gross - just launched
JPLS - Equity Long/Short - 0.67% Net and .97% Gross - also just launched
Goldman GDIFX looks to be their version. 1.14% ER.

https://www.gsam.com/content/gsam/us/en ... b=overview
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Re: QSPIX - thoughts on interesting fund

Post by lack_ey » Sat Feb 10, 2018 11:52 am

matjen wrote:
Sat Feb 10, 2018 10:53 am
Theoretical wrote:
Sat Feb 10, 2018 10:34 am

There is something to this. Vanguard's fund, after all, is implemented at a .22% ER (the rest of the 1.6% is actual shorting costs). Its alternative strategies fund is also going to be coming out and it's at something like .42. What's one of the more ironical/comical things is that there is a major asset manager that is doing precisely what you said, and that's JP Morgan of all people.

So far, you have:

JPHF - Multialternative fund that combines equity long/short, event-driven, and Managed futures - 0.85% Net ER (high gross one though at 6%)
JPED - Event Driven fund (includes merger arbitrage and spinoffs among others) - .85% Net ER, 1.12% Gross ER
JPMF - Managed Futures (also includes Carry strategies) - 0.59% Net ER, 1.02% Gross - just launched
JPLS - Equity Long/Short - 0.67% Net and .97% Gross - also just launched
Goldman GDIFX looks to be their version. 1.14% ER.

https://www.gsam.com/content/gsam/us/en ... b=overview
That Goldman fund is really tripping me up.
Effective after the close of business on October 30, 2017, the Goldman Sachs Dynamic Allocation Fund (the Fund) was renamed the Goldman Sachs Alternative Premia Fund and changed its investment objective, benchmark and principal investment strategy. Post-change performance is highlighted in table above.
They turned some kind of market timing-based balanced allocation fund into a multialternative fund, effective a few months ago? Looks like it had almost 0.5 market beta on global equities before the switch. Didn't bother checking old annual reports or other sources to see actual holdings.

Here's the attribution and strategy exposures:
https://www.gsam.com/content/dam/gsam/p ... ?sa=n&rd=n


As for the JP Morgan ETFs, they're still a bit small. The oldest of the four, the diversified alternatives ETF, is still under $200M. Here's the attribution and strategy exposures:
https://am.jpmorgan.com/blob-gim/138341 ... cale=en_US

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Re: QSPIX - thoughts on interesting fund

Post by matjen » Sat Feb 10, 2018 12:24 pm

lack_ey wrote:
Sat Feb 10, 2018 11:52 am

That Goldman fund is really tripping me up.
Effective after the close of business on October 30, 2017, the Goldman Sachs Dynamic Allocation Fund (the Fund) was renamed the Goldman Sachs Alternative Premia Fund and changed its investment objective, benchmark and principal investment strategy. Post-change performance is highlighted in table above.
They turned some kind of market timing-based balanced allocation fund into a multialternative fund, effective a few months ago? Looks like it had almost 0.5 market beta on global equities before the switch. Didn't bother checking old annual reports or other sources to see actual holdings.
Exactly Lack_ey. I learned about it a little while ago because on Twitter Asness was throwing shade at it. ;-) Something to the effect of there goes Goldman trying to copy us again.
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Re: QSPIX - thoughts on interesting fund

Post by Random Walker » Sat Feb 10, 2018 5:31 pm

Packer16 wrote
Although Larry has some good advice & is a really nice guy, he has some weaknesses. He appears to be in the hunt for alternative assets to generate returns, just like the active managers he rails on. This quest IMO leads him to risky & expensive alternative which IMO have little or no place in a Boglehead type of portfolio.
I disagree with the above assessment. I would say that Larry is in the hunt to improve portfolio efficiency. How a potential investment affects a portfolio depends on returns, volatility, correlations, costs. Active managers are performing stock selection or market timing. All of Larry’s recommendations are passive formulaic strategies that have the potential to positively effect the behavior of the portfolio as a whole. Really need to look at how these potential portfolio additions affect returns, Sharpe ratios, maximal drawdowns, and costs. Unfortunately just not enough history to meaningfully look backwards. Intuitively they all make sense. So much so, that I’ve invested big time. I too though am wary that the market is ruthlessly efficient and that costs matter a lot. Eager to see how It all plays out over my Investing horizon.

Dave

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Re: QSPIX - thoughts on interesting fund

Post by packer16 » Sat Feb 10, 2018 6:27 pm

What is the difference between portfolio efficiency and seeking alpha (both trying to get equity like returns for less risk or more returns for equity like risk). IMO, unless I missed something, we have had 5 years + to evaluate some of these approaches & it has yet to be shown it can be done. All folks have been doing is paying managers larger fees for balanced fund performance. Given this record, what is curious to me is why is Larry recommending increasing the allocation of these from 10% to 20%?

I agree that some of the strategies are formulaic but they are not passive in the sense of others making the market efficient so the quoted price in the best estimate of value & on average will result in a low cost higher return strategy. How is QSPIX passive when the weights & securities are constantly changing? It probably has more trades than some LT active managers. How is SRRIX passive when they are betting disasters around the world? How is LENDX passive when they underwrite the credit of the borrowers or rely on formulas that have been corrected a few times because the results were less than expected? The question I have does it make sense to be passive in some of these markets like re-insurance & lending? You relying on the managers of SRRIX and LENDX to make good bets in the game they are playing & the most successful players I know of in these markets so vary their exposure to times of distress.

The other question I have can anyone say they can evaluate the returns based upon such a short track record? How can you intuitively say they make sense without a historical record? Re-insurance for example. How do you know what the expected return of re-insurance is (I think it varies by risk but have no clue on how estimate it in the aggregate) & whether your fund will be able to deliver that returns when the other players in the market have been doing this for hundreds of years & have proprietary risk data.

Bottom line is the returns by the time an investor get his/her cut has been worse than a balanced fund. Due to the high fees, the strategies may actual create some the higher return for lower risk it is just that by the time the returns get to the investors it is no longer that way. In an efficient market for advice/asset allocation, why would you expect anything less?

I wish I was wrong but have not been able to find any of these alternative funds that provides more than balanced fund returns. Maybe the Vanguard funds & others low fee alternative funds will increase the returns. Tilting did add value in the past (when you had less tilters) but now it appears to have about break-even returns. The nice thing about tilting is you can get it for low fees so IMO it becomes a more investable Boglehead strategy but if the premium s gone then the reason for doing this is less compelling.

Packer
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Re: QSPIX - thoughts on interesting fund

Post by Random Walker » Sat Feb 10, 2018 7:12 pm

Packer16 wrote
What is the difference between portfolio efficiency and seeking alpha (both trying to get equity like returns for less risk or more returns for equity like risk).
I would say that seeking alpha is trying to do better than the market, either through security selection or timing. One can improve the efficiency of a portfolio by adding sources of return that are less than perfectly correlated, uncorrelated, negatively correlated to other portfolio components. These additional sources of return can be accessed by taking what the market gives as opposed to beating it.

I don’t think enough people appreciate that market efficiency and portfolio efficiency are different things. Portfolio additions that move the portfolio towards the northwest corner of a risk return plot are worth some additional cost. They decrease maximal loss, decrease volatility for a given return, minimize the cost of volatility drag. I’m pretty sure we’d all agree that the best bang for the buck equity portfolio diversifier is short term high quality bonds. Beyond those, improved portfolio efficiency comes at decreasing marginal benefit and increasing marginal cost. Each one of us needs to decide where to draw the line with the marginal costs and marginal benefits.

As one evolves from a TSM/TBM portfolio to a highly torqued factorized alternativized portfolio, he is not at all giving up on market efficiency. Every new portfolio addition is simply accessing a distinct independent source of risk / source of return. The evolving investor is sticking to clear, strong, defined principles. But he is not only looking at cost. Instead he is looking at cost relative to potential value added. That value added is reflected in a more efficient portfolio. For us Bogleheads, the only way we might find alpha is through dumb luck. But we can make very informed cost / benefit choices regarding the efficiency of our portfolios.

Dave

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Re: QSPIX - thoughts on interesting fund

Post by Random Walker » Sat Feb 10, 2018 7:23 pm

I wonder how many of us Bogleheads appreciate that a typical 60% TSM / 40% TBM portfolio has at least 90% of its risk wrapped up in a single factor.

Dave

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Re: QSPIX - thoughts on interesting fund

Post by Random Walker » Sat Feb 10, 2018 7:30 pm

I would guesstimate that Larry has increased the recommendation from 10% to 20% because there are now more funds to consider: Style premia, TS Mom, alternative lending, reinsurance, variance risk premium. These are all independent sources of return that are uncorrelated with one another. Each has equity like expected returns with about half the SD. Equally weight them in a portfolio and the expected return stays the same and the expected SD goes down to 1/4 that of equities. The expected return of a portfolio is the weighted average of the expected returns of the portfolio components. The expected SD of a portfolio is less than the weighted average of expected SDs because of the low correlations.
Given current equity valuations and bond interest rates, why not allocate a small portion of the portfolio to these diversifiers?

Dave

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in_reality
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Re: QSPIX - thoughts on interesting fund

Post by in_reality » Sat Feb 10, 2018 8:04 pm

Random Walker wrote:
Sat Feb 10, 2018 7:30 pm
Given current equity valuations and bond interest rates, why not allocate a small portion of the portfolio to these diversifiers?

Dave
I don't have access and some concerns but isn't that true for all investments.

In any case, why don't you keep track of your returns here (or in a new thread)? Robert T shows his (for a small value tilt) sometimes and it's useful I think to look at actual returns.

Also, what's your plan for drawdowns? Will interval funds affect that or are they scheduled reliably enough?

Even a six month or yearly update would be interesting.

I admire your courage here.

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Re: QSPIX - thoughts on interesting fund

Post by packer16 » Sat Feb 10, 2018 8:09 pm

As to efficiency versus alpha your definition of efficiency is what value investors do. They identify pricing descrepancies and other non-correlated factors such as holding company and voting discounts which are event driven versus market driven in terms of increasing in price. The only issue with practice of the efficient portfolio theory is that most factors are correlated & increase correlations during a panic. The amount of correlation changes all the time. The only asset that is uncorrelated with stocks the strongest even in distress is short-term bonds. So the question is do you want to spend a majority of your assets return getting exposure via high fees of just use a low fee bond fund.

If someone can provide me a 5-year return of an alternative fund that has equal or better returns than a balanced fund then it becomes more interesting. But I have yet to find one. If this theory works as advertised, in reality not in theory, you would think you could find many such funds.

The reason to not allocate to the alternatives that they have not performed as advertised. Where is the idea of equity like returns can be had net of fees when we do not see this in the fund returns across the funds anyone has recommended in the alternatives space? You get less than balanced fund returns in them which are a far cry from equity returns. If you think the reduced actual returns of somewhere between balanced funds & bonds is worth the price to get some amount of uncorrelation that is fine but that is not what is being claimed (equity like returns with less volatility).

The 2 fund portfolio has probably the 2 most uncorrelated factors (ST bonds & equity) so IMO these two factors, which can be obtained cheaply, will yield superior results to partially correlated more expensive factors.

Packer
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Re: QSPIX - thoughts on interesting fund

Post by stlutz » Sat Feb 10, 2018 8:13 pm

packer: I think you're over-pushing it on your return comparisons to make your point.

Swedroe naming a portfolio after himself more recently doesn't mean the portfolio as a concept hasn't been around for a while. I first became aware of the idea back in about 1999. If you backtest from 99-02 the portfolio looks very good. Since then, well not nearly as exciting.

QSPIX has in fact performed better than I expected. Way earlier in the thread I had stated:
If I buy a Treasury bond or a CD, I can necessarily expect to produce a positive return for me. I will get interest every year and then get my principal back at maturity. Stocks also necessarily produce positive returns--companies sell things a profit and distribute those profits to shareholders.

With this fund, the return I can necessarily expect is zero. Actually it would be fairly significantly negative once the ER and costs of leverage/shorting are included. Thus the possible benefit to me comes from two possible sources:

a) the power of negative correlation will be so huge that it will overwhelm the negative returns generated by the fund. This could happen, but things definitely have to play out pretty much entirely "correctly" in order for it to work out. I don't think correlations are that predictable.

b) The style premia are pretty much guaranteed to persist. I know some here think so; I don't.
I stand by that view and I'm not investing in these types of funds now for the same reason. That doesn't mean that it hasn't done better than I had expected.

The CCF Commodity funds have been a disaster. I don't know exactly when they got moved off the "buy" list, but I'm glad I didn't jump on that one.

And the other "alternatives" Swedroe has promoted have been a mixed bag thus far. With these my arguments haven't been so much with the concepts themselves but with costs and with the risks being poo-poo'd vs. what the prospectuses have to say.

All of that said, I agree that these strategies in aggregate don't appear to be providing any advantage over a traditional balanced portfolio. I think saying that they all have not worked out is stretching it.

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Re: QSPIX - thoughts on interesting fund

Post by packer16 » Sat Feb 10, 2018 8:39 pm

My intent may be coming off too strong. It looks your expectation was not that QSPIX was not going to give you equity-like returns which is fine I just have a problem with characterizing these as equity like returns for less volatility. From a markets perspective, this does not make sense as the market does not cross sectionally reward less volatile asset classes with more return for very long. I also think some of these alternatives may generate nice non correlated returns but the net returns to the investor with funds available today I think as you say are not that good versus the good old cheap stock/bond portfolio. If costs come down on these alts, then they become more interesting.

Packer
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Re: QSPIX - thoughts on interesting fund

Post by Random Walker » Sat Feb 10, 2018 8:52 pm

Packer16 wrote
I just have a problem with characterizing these as equity like returns for less volatility. From a markets perspective, this does not make sense as the market does not cross sectionally reward less volatile asset classes with more return for very long.
Isn’t it possible the alternatives represent different types of risk that are not reflected in volatility? I would never say that any of the alternatives are a free lunch, just different drivers of returns. You and I are in complete agreement that short high quality bonds are the best diversification and even better when looked at as diversification per unit cost.

Dave

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Re: QSPIX - thoughts on interesting fund

Post by Lieutenant.Columbo » Sat Feb 10, 2018 9:22 pm

stlutz wrote:
Sat Feb 10, 2018 8:13 pm
Swedroe naming a portfolio after himself
but on Dec 24 2013...
larryswedroe wrote:On December 23, 2011, Ron Lieber, financial columnist for the New York Times, wrote an article entitled "Taking a Chance on the Larry Portfolio" - and the "Larry Portfolio" (LP) was born.
Lt. Columbo: Well, what do you know. Here I am talking with some of the smartest people in the world, and I didn't even notice!

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Re: QSPIX - thoughts on interesting fund

Post by Random Walker » Sun Feb 11, 2018 11:10 am

In_reality,
I would like to post my returns here, but there are a few reasons I can’t, won’t, probably shouldn’t. Firstly, I’m in accumulation phase, so would require IRR calculation and I’d probably screw that up. Secondly, my total time frame is only about a decade since I started down the factor road. As we know, a decade is fairly meaningless. Thirdly, over this short decade, my portfolio has evolved. I’ve taken risk off the table moving from 20% bonds to 38% bonds, increased the tilt to international and SV, added the alternatives as they’ve become available. So the portfolio has migrated a lot. 10 years ago I was 80/20 with fairly significant tilt. Currently I’m 42% equities/ 38% bonds/ 20% alternatives from AQR and Stone Ridge. The equities are 50% International and highly torqued to SV. I would anticipate no new changes, so perhaps some posted results could be more meaningful looking forward.
Even so, probably not. For example AQR just came out with a more tax efficient version of the Style Premia Fund, and although my strategy is not changing, I am transitioning to that fund. All these changes (which I consider evolution of my plan rather than deviation from it) would make posted results meaningless I think.
We can only invest looking forward. I think a lot of the backward looks made on the forum are virtually pointless. Larry’s criteria for a factor (and I think really for any potential portfolio addition) are persistent, pervasive, robust, investable, intuitive. Intuitive is really the one that looks forward. When something meets all 5 criteria and a relatively new investment vehicle comes along that has a short track record, I think it can still be very worthwhile to consider despite the limited history. Of course I believe it helps to have a trusted advisor help make these decisions when my breadth and depth of knowledge is so limited.

Dave

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Taylor Larimore
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Re: QSPIX - thoughts on interesting fund

Post by Taylor Larimore » Sun Feb 11, 2018 12:50 pm

Random Walker wrote:
Sat Feb 10, 2018 7:23 pm
I wonder how many of us Bogleheads appreciate that a typical 60% TSM / 40% TBM portfolio has at least 90% of its risk wrapped up in a single factor.

Dave
Dave:

In my view, anyone who owns "60% TSM (Total U.S. Stock Market" and "40% TBM (Total U.S. Bond Market)" already has nearly all U.S. "factors" in their portfolio.
David Swensen, Yale Chief Investment Officer: "As a general rule of thumb, the more complexity that exists in a Wall Street creation, the faster and farther investors should run."
Joe Maglia, chairman and former CEO of TD Ameritrade: "Wall Street goes out of its way to make investing incredibly sophisticated and complex because they can make a tremendous amount of money by doing so."
Best wishes
Taylor
"Simplicity is the master key to financial success." -- Jack Bogle

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Re: QSPIX - thoughts on interesting fund

Post by vesalius » Sun Feb 11, 2018 1:22 pm

Taylor Larimore wrote:
Sun Feb 11, 2018 12:50 pm
Random Walker wrote:
Sat Feb 10, 2018 7:23 pm
I wonder how many of us Bogleheads appreciate that a typical 60% TSM / 40% TBM portfolio has at least 90% of its risk wrapped up in a single factor.

Dave
Dave:

In my view, anyone who owns "60% TSM (Total U.S. Stock Market" and "40% TBM (Total U.S. Bond Market)" already has nearly all U.S. "factors" in their portfolio.
Taylor:

In my view, one statement does exclude the other and both statements are correct.

Respectfully,
Vesalius

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Re: QSPIX - thoughts on interesting fund

Post by randomguy » Sun Feb 11, 2018 1:30 pm

grok87 wrote:
Sat Feb 10, 2018 7:48 am


The fees DO matter. The lesson that is clear from the bond fund world is that funds with higher fees often take extra risk to overcome the higher fee drag. This works for a while until a crisis hits. Think various fidelity bond funds and subprime, or say Oppenheimer muni bond funds and Puerto Rico.

I think qspix playing this same game with the extra risk being its high leverage.
That isn't so much an issue with the fee. Your issue is that you don't believe what they claim to be doing is possible. Remember the theoretical results of QSPIX are closer to market returns not 60/40. We will not get those because of fees. What people should expect to get is an uncorrelated asset with decent returns. There are not many of those out there. Will it work out going forward over the next 60 years and next half dozen market crashes and the like? Who knows:)

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Re: QSPIX - thoughts on interesting fund

Post by whodidntante » Sun Feb 11, 2018 1:48 pm

Taylor Larimore wrote:
Sun Feb 11, 2018 12:50 pm
In my view, anyone who owns "60% TSM (Total U.S. Stock Market" and "40% TBM (Total U.S. Bond Market)" already has nearly all U.S. "factors" in their portfolio.
No, you'd have nearly all US stocks. I don't think factor investing means what you think it means.

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Re: QSPIX - thoughts on interesting fund

Post by Random Walker » Sun Feb 11, 2018 1:52 pm

Taylor,
As you know, TSM certainly has exposure to all the stocks, but no net exposure to the factors. I completely agree with being wary of complexity. But the rationale behind most of the factors and alternatives is pretty straightforward. I’m sure you’ll agree the benefits are only potential and the increased costs are certain.

Dave

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Re: QSPIX - thoughts on interesting fund

Post by matjen » Sun Feb 11, 2018 5:05 pm

packer16 wrote:
Sat Feb 10, 2018 10:49 am
In terms of comparisons, you need to reference the dates the comments were made. If you look at performance since 9/30/2015, the story is not a clear as the chart presented implies. Since Sept 2015, QPSIX returned 4.4% per year versus 17.2% for the S&P 500 & 2.2% for SEQUX. Now SEQUX was half way through the Valeant issue which I agree was a mistake.
Who cares? Seriously, this is just cherry picking dates and serves no purpose within the context of our discussion IMO. I DID reference the dates by linking to the actual post. The date was 8/13/2015. Why would you try to move the starting point to 9/30/2015 Packer?
packer16 wrote:
Sat Feb 10, 2018 10:49 am
Also as a follow-up, if you track performance since Goldfarb left Sequoia (1H 2015), the performance of SEQUX is 18.9% per year versus 21% for S&P 500 and only 8.4% per year for QSPIX.
Who cares? Seriously, this is just cherry picking dates and serves no purpose within the context of our discussion IMO. QSPIX should not be compared to an equity fund as has been stated countless times. If you are going to do it for giggles it shouldn't be compared to solely a US fund...it should be a global fund.

From 8/13/2015 to Friday SEQUX has managed to be crushed by the S&P500 and the DOW (Hey SEQUX has only like 28 positions in giant companies generally so I think a fair comparison) and QSPIX and even Total Bond. An almost impossible feat during a raging bull market.

Image
packer16 wrote:
Sat Feb 10, 2018 10:49 am
Would your opinion of QSPIX change if you obtain what has been obtained to date, a return between bonds & a balanced fund? If your expected returns for QSPIX is somewhere between bonds and balanced funds & you feel that the black swan risk is small then this fund is fine but my impression is that these alternatives are being touted as equity like return with non correlated risk which is misleading.


Packer you write with such confidence and I have no understanding why. Where are your facts coming from? How can you say the returns have been between bonds and a balanced fund? How can you say it isn't correlated with equities? Again, QSPIX serves a difference purpose in a portfolio that equity funds or equity dominated funds but for giggles let's take a look. It has outperformed the global equity portfolio since inception with incredibly low correlation. The fund has been incredible. When it does start to suffer(and it will) I promise you equity funds will pull ahead as they should but the fact that it has done so well in comparison during a raging bull market is mightily impressive. Returning near 9% as of 1/31/2018 with a correlation to the US Equity Market of -.06 according to Portfolio Visualizer. I'm guessing you are going back to find some fund that is heavily dominated by US equities and has some bonds or some such thing. So something that is correlated and likely has a cherry picked market exposure.

Image

Image

With all due respect, I sense no course correction on your part. Honestly, it matters little to me whether you like QSPIX or not but can't we be fair in what we are comparing it to and the role it serves in a portfolio? I mean I think it has like 30% cash, 8% equities and little to no correlation after all.
A man is rich in proportion to the number of things he can afford to let alone.

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Re: QSPIX - thoughts on interesting fund

Post by SpaceCowboy » Sun Feb 11, 2018 6:23 pm

scone wrote:
Sat Feb 10, 2018 10:41 am
Theoretical wrote:
Sat Feb 10, 2018 10:11 am
scone wrote:
Sat Feb 10, 2018 9:47 am
I have questions, which might be naive, IDK. Since QSPIX is closed to new investors, what happens if you sell? Does the buyer have to be a current owner of QSPIX, and doesn't that limit the number of potential buyers pretty drastically? Is that the point of closing the fund, to limit buyers and sellers to steady out the price? TIA.
Not at all. There's a lot of existing shareholders who look to add to their holdings while someone sells. And there's a lot more pent-up demand if a lot of shareholder sold and the fund was reopened. It was closed chiefly due to a lack of capacity for the strategies. Now it's different if it's closed to all investors, meaning you can only sell and not buy more.
So you're saying an owner of QSPIX can only sell to current owners of QSPIX? And if those owners are not buying then you're stuck? How many people own this thing, anyway? A few thousand? A few million? What's the size of the market?
This is just wrong. When there are more sellers of a mutual fund's shares than buyers, QSPIX or any fund, the portfolio manager sells holdings to pay off the redemptions. When there are more buyers, the manager deploys the cash into new holdings. This is how any open ended mutual fund works, whether it is closed or open to new investors does not matter. Closing it to new investors limits the amount of new cash that the manager will have to invest.

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Re: QSPIX - thoughts on interesting fund

Post by SpaceCowboy » Sun Feb 11, 2018 7:49 pm

QSPIX is just so misunderstood. It has been an amazing fund. The appropriate benchmark for it is not global equities or a 60/40 balanced fund, it’s either cash or ST bonds. The fund has nowhere near the volatility of a 60/40 portfolio.
It has absolutely provided diversification benefits through its lack of correlation with both bonds and equities.
People somehow forget that this is a beta=0 fund. It has equal long and short positions. Despite this it has provided meaningful positive returns net of fees.
It’s really a great product and I’m glad I bought it when it was available. :happy

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Re: QSPIX - thoughts on interesting fund

Post by in_reality » Sun Feb 11, 2018 7:57 pm

Taylor Larimore wrote:
Sun Feb 11, 2018 12:50 pm
In my view, anyone who owns "60% TSM (Total U.S. Stock Market" and "40% TBM (Total U.S. Bond Market)" already has nearly all U.S. "factors" in their portfolio.
I agree that Taylor has a correct view on this.
Random Walker wrote:
Sun Feb 11, 2018 1:52 pm
Taylor,
As you know, TSM certainly has exposure to all the stocks, but no net exposure to the factors.
Net exposure isn't determining your returns though.

If I hold a 50% stock 50% treasury portfolio, I have no net exposure to equities right! Equities are still driving my returns though aren't they!

Now it's true that having a net exposure to an asset class with higher expected returns might be beneficial, but even at 50% I will get the benefit of equity returns for the portion I have invested.

The same goes for value in TSM.

If over the next 10 years the CAGR's are:

value stocks 100%
growth stocks 0%

The way you make it sound is that my return will be 0% because of "no net exposure to the value factor". That's not true though. TSM holds both and that is diversification - 50% return.

I do understand your point that value stocks have a higher expected return, and so a net exposure can be beneficial. I tilt to value stocks myself.

Still, I think the notion that "you aren't diversified until you tilt against the market" is misleading.

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Re: QSPIX - thoughts on interesting fund

Post by packer16 » Sun Feb 11, 2018 8:24 pm

matjen wrote:
Sun Feb 11, 2018 5:05 pm
packer16 wrote:
Sat Feb 10, 2018 10:49 am
In terms of comparisons, you need to reference the dates the comments were made. If you look at performance since 9/30/2015, the story is not a clear as the chart presented implies. Since Sept 2015, QPSIX returned 4.4% per year versus 17.2% for the S&P 500 & 2.2% for SEQUX. Now SEQUX was half way through the Valeant issue which I agree was a mistake.
Who cares? Seriously, this is just cherry picking dates and serves no purpose within the context of our discussion IMO. I DID reference the dates by linking to the actual post. The date was 8/13/2015. Why would you try to move the starting point to 9/30/2015 Packer?
packer16 wrote:
Sat Feb 10, 2018 10:49 am
Also as a follow-up, if you track performance since Goldfarb left Sequoia (1H 2015), the performance of SEQUX is 18.9% per year versus 21% for S&P 500 and only 8.4% per year for QSPIX.
Who cares? Seriously, this is just cherry picking dates and serves no purpose within the context of our discussion IMO. QSPIX should not be compared to an equity fund as has been stated countless times. If you are going to do it for giggles it shouldn't be compared to solely a US fund...it should be a global fund.

From 8/13/2015 to Friday SEQUX has managed to be crushed by the S&P500 and the DOW (Hey SEQUX has only like 28 positions in giant companies generally so I think a fair comparison) and QSPIX and even Total Bond. An almost impossible feat during a raging bull market.

Image
packer16 wrote:
Sat Feb 10, 2018 10:49 am
Would your opinion of QSPIX change if you obtain what has been obtained to date, a return between bonds & a balanced fund? If your expected returns for QSPIX is somewhere between bonds and balanced funds & you feel that the black swan risk is small then this fund is fine but my impression is that these alternatives are being touted as equity like return with non correlated risk which is misleading.


Packer you write with such confidence and I have no understanding why. Where are your facts coming from? How can you say the returns have been between bonds and a balanced fund? How can you say it isn't correlated with equities? Again, QSPIX serves a difference purpose in a portfolio that equity funds or equity dominated funds but for giggles let's take a look. It has outperformed the global equity portfolio since inception with incredibly low correlation. The fund has been incredible. When it does start to suffer(and it will) I promise you equity funds will pull ahead as they should but the fact that it has done so well in comparison during a raging bull market is mightily impressive. Returning near 9% as of 1/31/2018 with a correlation to the US Equity Market of -.06 according to Portfolio Visualizer. I'm guessing you are going back to find some fund that is heavily dominated by US equities and has some bonds or some such thing. So something that is correlated and likely has a cherry picked market exposure.

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With all due respect, I sense no course correction on your part. Honestly, it matters little to me whether you like QSPIX or not but can't we be fair in what we are comparing it to and the role it serves in a portfolio? I mean I think it has like 30% cash, 8% equities and little to no correlation after all.
The reason the dates were picked was that was the date of the conversation. You can state historic performance but as an investor at that time you will not receive it. The reason it was moved forward was a clean date (I doubt that the 1 month makes very little difference in returns). If you invested over the time frame you showed in the chart, congratulations but I think for discussion we need to time stamp the dates as you have done with my posts in the past (which is fair).

My facts are coming from Morningstar.com with dates referenced. As to correlation, I stated that it is more correlated than ST bonds but less than the market & correlation changes over time & is not constant. I think you statement that it has no correlation to the market is wrong, it has some it is a matter of degree. I stated if you bought the fund with balanced fund expected returns, great. A poster above had these expectations. If you have equity like expectations, like some are touting, I think you will be disappointed & returns from the date of our conversation show that to be the case to date. Now something could happen which could change this in the future but as of now you are getting better than balanced fund returns gross but not net. I understand this is different than an equity fund but you must have an expected return to determine if the fund is a success or failure? No?

Again IMO your chart is misleading in that it includes time frames before our conversations. Why I am leery of charts before stated conversation timeframes is they can fool you into a strategy that has worked in the past but may not in the future due to competition from others and other factors. This has also happened in many SCV conversations also & those who tilted SCV after seeing presentations like your chart have been underperforming since 2012 vs. TSM. I am also of the belief that by the time a strategy is implemented on a cross-sectional basis by lots of dollars, its effectiveness declines to the point that the manager get the return & the investor is left with a market or lower return with market or higher risk.

As to the SEQUX, IMO the stepping down of a long-time PM who influenced Sequoia to purchase the worst performing security of its history is relevant. IMO if you look at subsequent performance, it is closer to the S&P 500 & higher than QSPIX.

As to volatility, QSPIX has more volatility (6.58%) than Vanguards Balanced fund (6.01%) over the past 3-yrs (the longest period in Morningstar's data) and less return (7.6% per year vs. 8.8% for the balanced fund). Not that this is a prediction of the future but from the data from the data we have thusfar.

Packer
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Re: QSPIX - thoughts on interesting fund

Post by lack_ey » Sun Feb 11, 2018 8:33 pm

SpaceCowboy wrote:
Sun Feb 11, 2018 7:49 pm
QSPIX is just so misunderstood. It has been an amazing fund. The appropriate benchmark for it is not global equities or a 60/40 balanced fund, it’s either cash or ST bonds. The fund has nowhere near the volatility of a 60/40 portfolio.
It has absolutely provided diversification benefits through its lack of correlation with both bonds and equities.
People somehow forget that this is a beta=0 fund. It has equal long and short positions. Despite this it has provided meaningful positive returns net of fees.
It’s really a great product and I’m glad I bought it when it was available. :happy
By "nowhere near the volatility" you mean higher, right? It's been more volatile than 60/40 since inception.

https://www.portfoliovisualizer.com/ass ... ingDays=60

That said, the obvious point to make is that 60/40 has been less volatile than usual since 2013. But the AQR Style Premia fund has also undershot its volatility targets and been less volatile than expected. I think overall, annualized volatility around 10% might be closer to normal for both the fund and for 60/40.

But overall if a fund is likely to have low correlation to other assets, the volatility doesn't matter very much because unless you have a heavy allocation to it, it won't increase overall portfolio volatility much. So far the returns have been extremely good for a live fund considering the lack of net exposures, much better than most in the category and contrary to a lot of expectations.

As before the underlying trading strategies and positioning all make sense (in terms of fitting with others' past success and the literature) and are proven, at least as far as these things go in the world of finance. A few years of real-world validation are nice I suppose, but it's not like carry strategies or anything else are any kind of revelation.

in_reality wrote:
Sun Feb 11, 2018 7:57 pm
Taylor Larimore wrote:
Sun Feb 11, 2018 12:50 pm
In my view, anyone who owns "60% TSM (Total U.S. Stock Market" and "40% TBM (Total U.S. Bond Market)" already has nearly all U.S. "factors" in their portfolio.
I agree that Taylor has a correct view on this.
Random Walker wrote:
Sun Feb 11, 2018 1:52 pm
Taylor,
As you know, TSM certainly has exposure to all the stocks, but no net exposure to the factors.
Net exposure isn't determining your returns though.

If I hold a 50% stock 50% treasury portfolio, I have no net exposure to equities right! Equities are still driving my returns though aren't they!

Now it's true that having a net exposure to an asset class with higher expected returns might be beneficial, but even at 50% I will get the benefit of equity returns for the portion I have invested.

The same goes for value in TSM.

If over the next 10 years the CAGR's are:

value stocks 100%
growth stocks 0%

The way you make it sound is that my return will be 0% because of "no net exposure to the value factor". That's not true though. TSM holds both and that is diversification - 50% return.

I do understand your point that value stocks have a higher expected return, and so a net exposure can be beneficial. I tilt to value stocks myself.

Still, I think the notion that "you aren't diversified until you tilt against the market" is misleading.
No, that's just not right based on how the factors are defined. If you have 50% stocks and 50% Treasuries, you have a 50% exposure to stocks, according to anybody. Do a factor attribution and you'll see about 0.5 market beta (which is a factor, just not one of the factors covered by QSPIX). Well, if you don't include fixed-income factors, it may show a bit lower than 0.5, owing to the negative stock market beta of Treasury bonds we've seen in the last decade and more. But nobody says 0% except for I-don't-even-know-where-you-got-the-strawman.

Under a factor model, the total stock market is exposed to the market factor but not the other factors. That's how the construction works based on how the factors are defined.

If value stocks return 100% and growth stocks 0%, the market return will be positive, and so will the value factor return. If you hold the market, you will get that market factor return. But as stated you will not be exposed to the value factor.

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Re: QSPIX - thoughts on interesting fund

Post by Random Walker » Sun Feb 11, 2018 9:15 pm

In-reality,
It is your statements that are both incorrect and misleading. Yes, we do expect some additional premium from small and value, but that is just part of the story. As I think you know, the factors are defined as long short portfolios. Defined as such, the market factor has been eliminated. These factors on their own are independent and uncorrelated from the market factor. These independent uncorrelated drivers of returns help diversify a portfolio across sources of risk and return. As Larry says, we need to look at diversification from a different point of view. I don’t know how to calculate factor loads, but I’m sure your 50/50 and 100/0 examples are way wrong.

Dave

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Re: QSPIX - thoughts on interesting fund

Post by Random Walker » Sun Feb 11, 2018 9:25 pm

As far as comparisons go, all of the above are flawed a lot. I remember when I was signing up with an advisor who provides DFA access. I asked about benchmarks. And he said the DFA funds are “sort of their own benchmarks”. I think that is completely true. If one owns a passive formulaic fund that adheres to its own rules, then “it is what it is”.
In the case of QSPIX “it is exactly what it is”. If a fund is tied to an index or a benchmark, a rational investor should be as mad when the fund outperforms the benchmark as when it underperforms. The real measure is sticking to the benchmark. But a fund like QSPIX has no comparable reasonable public external benchmark for comparison that I know of. Just need to ensure that it stays true to its mandate. I’m not qualified to do that for QSPIX, but I do know that is how it should be measured.

Dave

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Re: QSPIX - thoughts on interesting fund

Post by grap0013 » Wed Feb 21, 2018 12:41 am

Ho ho, gotta get my comments in on page 25 of this thread! People seem to either love or hate this fund. What a polarizing topic.

QSPIX reminds me of the Lagunitas Maximus I'm drinking right now. They are both known to have about 8% returns pretty darn consistently.
There are no guarantees, only probabilities.

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Re: QSPIX - thoughts on interesting fund

Post by Angst » Wed Feb 21, 2018 1:48 pm

matjen wrote:
Sun Feb 11, 2018 5:05 pm
packer16 wrote:
Sat Feb 10, 2018 10:49 am
Also as a follow-up, if you track performance since Goldfarb left Sequoia (1H 2015), the performance of SEQUX is 18.9% per year versus 21% for S&P 500 and only 8.4% per year for QSPIX.
Who cares? Seriously, this is just cherry picking dates and serves no purpose within the context of our discussion IMO. QSPIX should not be compared to an equity fund as has been stated countless times. If you are going to do it for giggles it shouldn't be compared to solely a US fund...it should be a global fund.
randomguy wrote:
Sun Feb 11, 2018 1:30 pm
[Snip...] Remember the theoretical results of QSPIX are closer to market returns not 60/40. We will not get those because of fees. What people should expect to get is an uncorrelated asset with decent returns. There are not many of those out there. Will it work out going forward over the next 60 years and next half dozen market crashes and the like? Who knows:)
I find that proponents and opponents alike are wont to compare QSPIX to the equity market when it's convenient. As it is, AQR benchmarks the fund to 30-day treasuries. Frankly, I wish they'd publish a benchmark index derived from the historical and ongoing factor returns, net of beta, of the various asset classes that QSPIX goes long/short with. I know they have their leeway to change their proportions, but they must already derive this sort of information as it is, that's part of their expertise. How could AQR not be using, in-house, some sort of net factor benchmark that they think QSPIX ought to measure itself against? I just wish they could let us in on it too. No one here seems to be exclaiming, one way or another, over its performance vis a vis 30-day treasuries.

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Re: QSPIX - thoughts on interesting fund

Post by triceratop » Wed Feb 21, 2018 3:48 pm

Angst wrote:
Wed Feb 21, 2018 1:48 pm
matjen wrote:
Sun Feb 11, 2018 5:05 pm
packer16 wrote:
Sat Feb 10, 2018 10:49 am
Also as a follow-up, if you track performance since Goldfarb left Sequoia (1H 2015), the performance of SEQUX is 18.9% per year versus 21% for S&P 500 and only 8.4% per year for QSPIX.
Who cares? Seriously, this is just cherry picking dates and serves no purpose within the context of our discussion IMO. QSPIX should not be compared to an equity fund as has been stated countless times. If you are going to do it for giggles it shouldn't be compared to solely a US fund...it should be a global fund.
randomguy wrote:
Sun Feb 11, 2018 1:30 pm
[Snip...] Remember the theoretical results of QSPIX are closer to market returns not 60/40. We will not get those because of fees. What people should expect to get is an uncorrelated asset with decent returns. There are not many of those out there. Will it work out going forward over the next 60 years and next half dozen market crashes and the like? Who knows:)
I find that proponents and opponents alike are wont to compare QSPIX to the equity market when it's convenient. As it is, AQR benchmarks the fund to 30-day treasuries. Frankly, I wish they'd publish a benchmark index derived from the historical and ongoing factor returns, net of beta, of the various asset classes that QSPIX goes long/short with. I know they have their leeway to change their proportions, but they must already derive this sort of information as it is, that's part of their expertise. How could AQR not be using, in-house, some sort of net factor benchmark that they think QSPIX ought to measure itself against? I just wish they could let us in on it too. No one here seems to be exclaiming, one way or another, over its performance vis a vis 30-day treasuries.
This doesn't show what you think it does. There is a difference between expecting cumulative returns similar to cumulative equity returns (hopefully, with low correlation, which is the promise of this fund) from a strategy and explicitly comparing it to realized equity fund returns.
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