QSPIX - thoughts on interesting fund

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Angst
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Re: QSPIX - thoughts on interesting fund

Post by Angst » Wed Feb 21, 2018 9:26 pm

triceratop wrote:
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.
I'm not sure what you think I "think it does" show... but of course the "difference" you state does exist. I wasn't trying to deny that. QSPIX's return should have nothing to do with equity beta, or any other kind of beta. Why/how then should you or anyone else expect similar cumulative returns to equity? What I did do was wish there was a better benchmark to compare QSPIX to than 30-day treasuries. If AQR thinks it can capture a factor, they have to be able to measure its existence. If they can do that, they can create a benchmark that measures it over time and compare it to their ability to actually capture that factor. Otherwise everything is just smoke and mirrors. Why should QSPIX be "expecting cumulative returns similar to cumulative equity returns" if it has 0 correlation to equity? Isn't that just marketing-speak? And it targets other asset classes as well, long/short, but for some reason, they're/you're "expecting cumulative returns similar to cumulative equity returns" alone? How does that work? I'd be expecting returns similar to what the various factors alone of the various asset classes targeted are returning. So back to my point. Shouldn't some sort of benchmark be able to be put together for those factors' ongoing returns? And who better to do than than AQR? Success for AQR ought to be capturing the factors. If that happens to turn out returning something similar to equity over time with less volatility, then that would be great, but it doesn't necessarily make a lot of sense. Or maybe I'm missing something? Always possible. :)

cashcows
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Re: QSPIX - thoughts on interesting fund

Post by cashcows » Sat Mar 10, 2018 4:19 pm

Can QSPIX still be purchased through FPL Capital for $1,000/year in fees?

cashcows
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Re: QSPIX - thoughts on interesting fund

Post by cashcows » Sat Mar 10, 2018 4:37 pm

hilink73 wrote:
Wed Jan 18, 2017 1:59 pm
Lack_ey,

great! Thanks for this explanation.
I do see it in the Interactive Brokers test account, but there's no further info.
I'll review this at a later point in time.
Did you ever test availability through Interactive Brokers?

cashcows
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Re: QSPIX - thoughts on interesting fund

Post by cashcows » Sat Mar 10, 2018 4:40 pm

I see much discussion in this thread about the Stone Ridge offering LENDX. I've clicked around the forum for several hours today and see old recommendations about purchasing Stone Ridge funds through FPL Capital.

After digging around the FPL website, I see no mention of Stone Ridge availability. Are these funds available elsewhere at a reasonable fee?

hilink73
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Re: QSPIX - thoughts on interesting fund

Post by hilink73 » Sun Mar 11, 2018 3:37 am

cashcows wrote:
Sat Mar 10, 2018 4:37 pm
hilink73 wrote:
Wed Jan 18, 2017 1:59 pm
Lack_ey,

great! Thanks for this explanation.
I do see it in the Interactive Brokers test account, but there's no further info.
I'll review this at a later point in time.
Did you ever test availability through Interactive Brokers?
Well, IB says that mutual funds are not available for non resident aliens.
So being an NRA, I haven't tried yet.

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Re: QSPIX - thoughts on interesting fund

Post by zaboomafoozarg » Sun Mar 11, 2018 8:59 am

cashcows wrote:
Sat Mar 10, 2018 4:40 pm
After digging around the FPL website, I see no mention of Stone Ridge availability. Are these funds available elsewhere at a reasonable fee?
fplcapital.com does have the Stone Ridge logo at the bottom of the screen, and this Stone Ridge page that comes up when you search their site for "stone ridge".

onetime75
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Re: QSPIX - thoughts on interesting fund

Post by onetime75 » Thu Aug 30, 2018 4:33 pm

I am curious to hear thoughts on the recent performance of QSPIX. Both the 3-month and YTD performance as of 7/31/18 is -7.41%. Also, I'm not positive but I believe Morningstar downgraded the fund from 5 stars to 4 stars sometime in the past year. I'm thinking this is within the bounds of normal for the fund, but curious to hear if anyone has any insight.

grok87
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Re: QSPIX - thoughts on interesting fund

Post by grok87 » Thu Aug 30, 2018 4:43 pm

onetime75 wrote:
Thu Aug 30, 2018 4:33 pm
I am curious to hear thoughts on the recent performance of QSPIX. Both the 3-month and YTD performance as of 7/31/18 is -7.41%. Also, I'm not positive but I believe Morningstar downgraded the fund from 5 stars to 4 stars sometime in the past year. I'm thinking this is within the bounds of normal for the fund, but curious to hear if anyone has any insight.
From another post...

So thought it might be Interesting to compare the recent returns of the two flavors of the aqr style premium funds:

Qspix- the original fund
Qslix- the low volatility version. I think it uses half as much leverage.

1year returns as of 8/20
Qspix: -1.15%
Qslix: +0.32%

I seem to recall some discussion that folks expected qslix to return half of whatever qspix did.

To me this is some evidence that leverage is bad.

Of course probably not a good idea to read too much into short term performance numbers. But if one sTarts with an a priori position that leverage is bad this is not the sort of evidence that would lead one to update that assumption.

:)

Cheers,
Grok
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Random Walker
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Re: QSPIX - thoughts on interesting fund

Post by Random Walker » Thu Aug 30, 2018 4:48 pm

onetime75 wrote:
Thu Aug 30, 2018 4:33 pm
I am curious to hear thoughts on the recent performance of QSPIX. Both the 3-month and YTD performance as of 7/31/18 is -7.41%. Also, I'm not positive but I believe Morningstar downgraded the fund from 5 stars to 4 stars sometime in the past year. I'm thinking this is within the bounds of normal for the fund, but curious to hear if anyone has any insight.
I have owned the fund through an advisor. The advisor tells me the recent performance is within the expected range. I think he said they expect a year like this about 10% of the time. They attribute the recent poor performance to the value premium in equities. I recently tax loss harvested by selling QRPRX and buying QSPRX. QRPRX is a tax aware version of QSPRX. In addition to value, momentum, carry, defensive, it also invests in trend and variance risk premium. Unlike QSPIX, it does not use commodities.

Dave

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Re: QSPIX - thoughts on interesting fund

Post by nisiprius » Thu Aug 30, 2018 6:08 pm

Random Walker wrote:
Thu Aug 30, 2018 4:48 pm
...The advisor tells me the recent performance is within the expected range. I think he said they expect a year like this about 10% of the time...
But did they say this before it happened?Do you have anything on paper, from the time when you made the purchase decision, showing that "expected range" and how often they expected "a year like this?"
They attribute the recent poor performance to the value premium in equities.
And yet, what happened to QSPIX (blue) didn't happen to either
  • the DFA US Large Cap Value fund, DFCVX (orange) or
  • the DFA US Small Cap Value fund, DVSVX (green), or
  • the "factor-free" Vanguard Total Stock Market Index Fund, VTSMX (yellow)
QSPIX was outperformed by large-cap value and small-cap value, both year-to-date and also since inception of QSPIX.

And I thought the whole idea was to avoid dependence on any single factor by diversifying across four of them.

So, how "the recent poor performance of the value premium" an "explanation" when value was just one of the four factors, and when two other value funds made money while QSPIX was losing it? This isn't necessarily to say that it is a bad fund, and eight months means little--but it does make me wonder about the explanation you say you were given.

Source

Year-to-date
Image

Since inception of QSPIX
Image
Last edited by nisiprius on Thu Aug 30, 2018 6:40 pm, edited 1 time in total.
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garlandwhizzer
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Re: QSPIX - thoughts on interesting fund

Post by garlandwhizzer » Thu Aug 30, 2018 6:23 pm

QSPIX uses sophisticated strategies/leverage, both long and short positions, using multiple asset classes. Such a fund is expected to sometimes depart substantially from market beta as it has in this case. That departure can be in both directions, up or down. Taking a position in this fund implies that you're betting on the skill of those managing the fund to execute these complex sophisticated strategies more effectively than competitors. Options/leverage with multiple asset classes are competitive fields with a lot of hedge fund/private equity money competing there.

We used to get a lot of posts extolling QSPIX's outperformance which was impressive. It's not shocking that sometimes its bets go astray. No one always wins bets.

Garland Whizzer

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Re: QSPIX - thoughts on interesting fund

Post by Random Walker » Thu Aug 30, 2018 6:27 pm

nisiprius wrote:
Thu Aug 30, 2018 6:08 pm
Random Walker wrote:
Thu Aug 30, 2018 4:48 pm
...The advisor tells me the recent performance is within the expected range. I think he said they expect a year like this about 10% of the time...
But did they say this before it happened? Do you have anything on paper, from the time when you made the purchase decision, showing that "expected range" and how often they expected "a year like this?"
They attribute the recent poor performance to the value premium in equities.
And yet, what happened to QSPIX (blue) didn't happen to either
  • the DFA US Large Cap Value fund, DFCVX (orange) or
  • the DFA US Small Cap Value fund, DVSVX (green), or
  • the "factor-free" Vanguard Total Stock Market Index Fund, VTSMX (yellow)
QSPIX was outperformed by large-cap value and small-cap value, both year-to-date and also since inception of QSPIX.

And I thought the whole idea was to avoid dependence on any single factor by diversifying across four of them.

So, how "the recent poor performance of the value premium" an "explanation" when value was just one of the four factors, and when two other value funds made money while QSPIX was losing it? This isn't necessarily to say that it is a bad fund, and eight months means little--but it does make me wonder about the explanation you say you were given.

Source

Year-to-date
Image

Since inception of QSPIX
Image
Well, I wouldn’t have expected anything in writing. I went into the Investment with a sense of the expected return and expected standard deviation.

With regard to the value funds you mention above, they are dominated by market beta, so perhaps that dominated a negative value effect?

I agree, I’m surprised that value in equities would have that big an effect. Investing in value, momentum, defensive, carry across equities, bonds, currencies, I would expect the effect in one style within one asset class to be more diluted.

Dave

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Re: QSPIX - thoughts on interesting fund

Post by davethomas » Thu Aug 30, 2018 6:37 pm

Based on poor recent performance and skeptical of future market games, methinks ... this fund is cheap?

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nisiprius
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Re: QSPIX - thoughts on interesting fund

Post by nisiprius » Thu Aug 30, 2018 6:37 pm

Random Walker wrote:
Thu Aug 30, 2018 6:27 pm
nisiprius wrote:
Thu Aug 30, 2018 6:08 pm
Random Walker wrote:
Thu Aug 30, 2018 4:48 pm
...The advisor tells me the recent performance is within the expected range. I think he said they expect a year like this about 10% of the time...
But did they say this before it happened? Do you have anything on paper, from the time when you made the purchase decision, showing that "expected range" and how often they expected "a year like this?"
Well, I wouldn’t have expected anything in writing. I went into the Investment with a sense of the expected return and expected standard deviation.
I shouldn't have talked about "anything in writing," of course that shouldn't be expected. Dumb remark on my part. Sorry.
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Re: QSPIX - thoughts on interesting fund

Post by ofckrupke » Thu Aug 30, 2018 10:04 pm

grok87 wrote:
Thu Aug 30, 2018 4:43 pm
So thought it might be Interesting to compare the recent returns of the two flavors of the aqr style premium funds:

Qspix- the original fund
Qslix- the low volatility version. I think it uses half as much leverage.

1year returns as of 8/20
Qspix: -1.15%
Qslix: +0.32%

I seem to recall some discussion that folks expected qslix to return half of whatever qspix did.

To me this is some evidence that leverage is bad.
QSLIX's "excess" over the return of a fund with their multifactor strategy at zero leverage (hesitate to call it the risk-free return) should have been half that of QSPIX. In this case the excess was negative; just using the numbers above and adding back the expense ratios of 2.33% and 1.34% (did they give anything back?), this suggests a hypothetical fund QZSTR with the multifactor strategy turned down to zero should have returned 2.14% before expense. Rolled 13-week t-bills paid ~1.48% over ~the same period, so they could have charged 0.66% for the market-neutral no-factor fund and been all smiles about linearity in the application of leverage. But yeah, leverage is bad when the strategy's outcome is bad in a particular period...

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Re: QSPIX - thoughts on interesting fund

Post by matjen » Fri Aug 31, 2018 7:59 am

garlandwhizzer wrote:
Thu Aug 30, 2018 6:23 pm
We used to get a lot of posts extolling QSPIX's outperformance which was impressive. It's not shocking that sometimes its bets go astray. No one always wins bets.

Garland Whizzer
Nah, we used to get lots of posts by people comparing it to only the S&P or to things like Sequoia and claiming it was underperforming. People like me would say that’s nuts. If memory serves me correctly, we have a period where value is down and momentum has not been quite as good as usual to offset.

Having said that, I am now $160 down to my optimistic bogey of 60% VT and 40% IEI.
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 HomerJ » Fri Aug 31, 2018 9:08 am

https://www.forbes.com/sites/nathanvard ... ad9ee1de2a

Keep sending him your money.
Asness’ AQR Capital Management earned $530 million in 2016 on revenues of $941 million, the SEC filing shows
Forbes reported in March that Asness is one of the biggest new billionaires Wall Street has produced in years, with a net worth of $3 billion. Two of Asness’ AQR co-founders, David Kabiller and John Liew, are each worth $1 billion. With $185 billion of assets under management, AQR is one of the world’s fastest-growing asset management firms. It was managing $33 billion at end of 2010.
And you'll have a chance to make him even richer soon.
AQR’s financials show that Asness is not done selling. AQR spent $400 million on general and administrative expenses and compensation last year, up 60% in the last two years. So while revenues at AQR are up 40% in the last two years, earnings have only grown by 28% over the same period. AQR's Kabiller has 142 people working in AQR's business development group. The firm is gearing up for a push into factor-based fixed income products.
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Re: QSPIX - thoughts on interesting fund

Post by Angst » Fri Aug 31, 2018 9:43 am

garlandwhizzer wrote:
Thu Aug 30, 2018 6:23 pm
QSPIX uses sophisticated strategies/leverage, both long and short positions, using multiple asset classes. Such a fund is expected to sometimes depart substantially from market beta as it has in this case. That departure can be in both directions, up or down. Taking a position in this fund implies that you're betting on the skill of those managing the fund to execute these complex sophisticated strategies more effectively than competitors. Options/leverage with multiple asset classes are competitive fields with a lot of hedge fund/private equity money competing there.

We used to get a lot of posts extolling QSPIX's outperformance which was impressive. It's not shocking that sometimes its bets go astray. No one always wins bets.

Garland Whizzer
(my bold above)

Just to be clear, QSPIX is not expected to either depart from or adhere to beta; both of which would imply it was related to equity market beta in some way. QSPIX is expected to be independent of market beta.

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Re: QSPIX - thoughts on interesting fund

Post by JackoC » Fri Aug 31, 2018 4:32 pm

nisiprius wrote:
Thu Aug 30, 2018 6:08 pm
And yet, what happened to QSPIX (blue) didn't happen to either
  • the DFA US Large Cap Value fund, DFCVX (orange) or
  • the DFA US Small Cap Value fund, DVSVX (green), or
  • the "factor-free" Vanguard Total Stock Market Index Fund, VTSMX (yellow)
QSPIX was outperformed by large-cap value and small-cap value, both year-to-date and also since inception of QSPIX.

And I thought the whole idea was to avoid dependence on any single factor by diversifying across four of them.

So, how "the recent poor performance of the value premium" an "explanation" when value was just one of the four factors, and when two other value funds made money while QSPIX was losing it? This isn't necessarily to say that it is a bad fund, and eight months means little--but it does make me wonder about the explanation you say you were given.
The funds you are comparing to are long only equity funds. Even the value ones are not based on the value factor alone, to be based on that they would have to be long/short to isolate that factor the way QSPIX does (isolate that and other factors). As long only funds they are going up because the stock market is going up, albeit lagging the 'factorless' fund recently because value is lagging. If value is not doing well relatively in a rising stock market and all other QSPIX factors are neutral that's what you expect to see qualitatively: QSPIX goes down, value long only stock funds go up but less than the overall stock market. Whether the magnitudes jibe with value lag as the main/sole explanation of how much QSPIX has gone down I don't know. Since that's an explanation at second hand from a disembodied voice on the internet (which I am too :happy ) I'm not sure how relevant. But your analysis seems to suggest a benchmark for QSPIX as keeping up with value stock funds, which is not correct and seems like that's been pointed out a lot of times for literally years on this same thread, just going back and skimming it.

Your graph shows QSPIX behaving quite differently all along. It's sometimes going up when the stock market is going down, other times the opposite, sometimes going in the same direction in an apparently random way eyeing the graph, in mathematical terms its return appears to have a low correlation to the return of the stock market. Which is the basic idea.

Again just reviewing some of this long and interesting thread, it has also been repeatedly pointed out that it *is* somewhat difficult to come up with a return benchmark for saying this fund is doing what it's supposed to do or not. If it makes nothing for a long time but is uncorrelated with the stock market is that OK? (if as a realized return the stock market crashes and can't get up but QSPIX returns zero that probably is OK; but if the expected return of QSPIX were zero even with zero correlation to the stock market that's probably not OK). It probably must do better than bonds to be worthwhile. It's 3 yr return is ~3.5% (per Morningstar) now v VBTLX's (Vanguard total bond) ~1.4% (per Vang), but that's a short time still and one could reasonably debate if that's better enough than bonds were it to persist. But it's meaningless to say it's been outperformed by the stock market or a sector of the stock market long only. And that not only *would* have been said before the recent bad streak, it *is* said in posts years back on this thread. :happy

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matjen
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Re: QSPIX - thoughts on interesting fund

Post by matjen » Fri Aug 31, 2018 6:41 pm

JackoC wrote:
Fri Aug 31, 2018 4:32 pm
nisiprius wrote:
Thu Aug 30, 2018 6:08 pm
And yet, what happened to QSPIX (blue) didn't happen to either
  • the DFA US Large Cap Value fund, DFCVX (orange) or
  • the DFA US Small Cap Value fund, DVSVX (green), or
  • the "factor-free" Vanguard Total Stock Market Index Fund, VTSMX (yellow)
QSPIX was outperformed by large-cap value and small-cap value, both year-to-date and also since inception of QSPIX.

And I thought the whole idea was to avoid dependence on any single factor by diversifying across four of them.

So, how "the recent poor performance of the value premium" an "explanation" when value was just one of the four factors, and when two other value funds made money while QSPIX was losing it? This isn't necessarily to say that it is a bad fund, and eight months means little--but it does make me wonder about the explanation you say you were given.
The funds you are comparing to are long only equity funds. Even the value ones are not based on the value factor alone, to be based on that they would have to be long/short to isolate that factor the way QSPIX does (isolate that and other factors). As long only funds they are going up because the stock market is going up, albeit lagging the 'factorless' fund recently because value is lagging. If value is not doing well relatively in a rising stock market and all other QSPIX factors are neutral that's what you expect to see qualitatively: QSPIX goes down, value long only stock funds go up but less than the overall stock market. Whether the magnitudes jibe with value lag as the main/sole explanation of how much QSPIX has gone down I don't know. Since that's an explanation at second hand from a disembodied voice on the internet (which I am too :happy ) I'm not sure how relevant. But your analysis seems to suggest a benchmark for QSPIX as keeping up with value stock funds, which is not correct and seems like that's been pointed out a lot of times for literally years on this same thread, just going back and skimming it.

Your graph shows QSPIX behaving quite differently all along. It's sometimes going up when the stock market is going down, other times the opposite, sometimes going in the same direction in an apparently random way eyeing the graph, in mathematical terms its return appears to have a low correlation to the return of the stock market. Which is the basic idea.

Again just reviewing some of this long and interesting thread, it has also been repeatedly pointed out that it *is* somewhat difficult to come up with a return benchmark for saying this fund is doing what it's supposed to do or not. If it makes nothing for a long time but is uncorrelated with the stock market is that OK? (if as a realized return the stock market crashes and can't get up but QSPIX returns zero that probably is OK; but if the expected return of QSPIX were zero even with zero correlation to the stock market that's probably not OK). It probably must do better than bonds to be worthwhile. It's 3 yr return is ~3.5% (per Morningstar) now v VBTLX's (Vanguard total bond) ~1.4% (per Vang), but that's a short time still and one could reasonably debate if that's better enough than bonds were it to persist. But it's meaningless to say it's been outperformed by the stock market or a sector of the stock market long only. And that not only *would* have been said before the recent bad streak, it *is* said in posts years back on this thread. :happy
+1 Excellent post. :beer
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nedsaid
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Re: QSPIX - thoughts on interesting fund

Post by nedsaid » Fri Aug 31, 2018 7:24 pm

My expectation from alternatives like QSPIX would be bond like returns with low correlation to the stock market. When I say "bond like", I remember what you used to get from bonds in the days before the 2008-2009 financial crisis and the new normal, that is 5% to 6%. It isn't enough to just have something that is non-correlating. Money stuffed in my mattress doesn't correlate with the stock market but also provides zero nominal returns and a negative real return. I want return too.

American Century Investments has pretty good videos explaining Alternative Investments. They say that historically you should expect 7% with low correlation to stocks. If I really could get that from funds like AQR Style Premia, I would consider this to be an excellent addition to the portfolio. I would prefer equity like returns but am skeptical those type of returns would materialize. 5% to 6% is what I would expect and 7% would be even better.

If bonds return 3% with low correlation to the stock market, a fund like QSPIX is going to have to deliver more than that or you may as well just be in bonds. There really would be no rationale for investing in these type of funds, particularly when you take on the additional risks of leverage and shorting.

I suppose another way of saying this is that funds like QSPIX are a bond substitute, a substitute for bonds in the good old days when yields were 5-6%. I still remember buying 3 US Treasury 10 year Zero Coupon bonds that yielded 8% back in 1988. Those were the days. I remember when Zero Coupon Bonds were very popular. No one talks about them today.
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Re: QSPIX - thoughts on interesting fund

Post by nisiprius » Fri Aug 31, 2018 7:50 pm

garlandwhizzer wrote:
Thu Aug 30, 2018 6:23 pm
...Taking a position in this fund implies that you're betting on the skill of those managing the fund to execute these complex sophisticated strategies more effectively than competitors...
Three somewhat varied observations:
  • according to GarlandWhizzer, you are "betting on the skill of those managing the fund..."
  • the fund's summary prospectus says "The Fund is actively managed and the Fund’s exposures to Styles and Asset Groups will vary based on the Adviser’s ongoing evaluation of investment opportunities," but
  • Larry Swedroe has said that according to his definition of "passive," it is passive. He notes that "passive can seem like active" and says the QSPIX is "a good example of a fund that many would consider active, yet meets all" of his criteria for considering it passive.
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Re: QSPIX - thoughts on interesting fund

Post by Random Walker » Fri Aug 31, 2018 9:03 pm

nedsaid wrote:
Fri Aug 31, 2018 7:24 pm
My expectation from alternatives like QSPIX would be bond like returns with low correlation to the stock market. When I say "bond like", I remember what you used to get from bonds in the days before the 2008-2009 financial crisis and the new normal, that is 5% to 6%. It isn't enough to just have something that is non-correlating. Money stuffed in my mattress doesn't correlate with the stock market but also provides zero nominal returns and a negative real return. I want return too.
As has been said many times before, the fund is expected to have equity like returns, about half the SD of equities, and virtually no correlation to either stocks or bonds. I think those equity like returns are about 6-7% PRE TAX. QSPIX is not very tax efficient at all and should be held in tax advantaged space when possible. When one creates the alternative position with QSPIX, he needs to decide where he is creating the position from and what he is trying to accomplish. In my case I created the position from tax free municipal bonds in my taxable account. My rationale was that QSPIX should be uncorrelated to both stocks and bonds, the expected after tax return is higher than my munis, and portfolio efficiency should increase. I would not have created this position from equities in a taxable account. I believe the after tax return of QSPIX should be between equities and muni bonds in a taxable account.

Of note, AQR now has a tax aware fund very similar to QSPIX, called QRPRX. It is slightly different. QSPIX invests in 4 styles: value, momentum, carry, defensive. QRPRX invests in those 4 and adds trend and variance risk premium. QSPIX uses commodities as one of its asset classes but QRPRX does not.

Dave

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Re: QSPIX - thoughts on interesting fund

Post by JackoC » Fri Aug 31, 2018 9:29 pm

nedsaid wrote:
Fri Aug 31, 2018 7:24 pm
My expectation from alternatives like QSPIX would be bond like returns with low correlation to the stock market. When I say "bond like", I remember what you used to get from bonds in the days before the 2008-2009 financial crisis and the new normal, that is 5% to 6%. It isn't enough to just have something that is non-correlating. Money stuffed in my mattress doesn't correlate with the stock market but also provides zero nominal returns and a negative real return. I want return too.

American Century Investments has pretty good videos explaining Alternative Investments. They say that historically you should expect 7% with low correlation to stocks. If I really could get that from funds like AQR Style Premia, I would consider this to be an excellent addition to the portfolio. I would prefer equity like returns but am skeptical those type of returns would materialize. 5% to 6% is what I would expect and 7% would be even better.

If bonds return 3% with low correlation to the stock market, a fund like QSPIX is going to have to deliver more than that or you may as well just be in bonds. There really would be no rationale for investing in these type of funds, particularly when you take on the additional risks of leverage and shorting.

I suppose another way of saying this is that funds like QSPIX are a bond substitute, a substitute for bonds in the good old days when yields were 5-6%. I still remember buying 3 US Treasury 10 year Zero Coupon bonds that yielded 8% back in 1988. Those were the days. I remember when Zero Coupon Bonds were very popular. No one talks about them today.
I was just pointing out, indirectly, that lots of people judge things by realized return. Would they be happy if the stock market crashed, bonds delivered negative returns because of unexpected inflation (recency bias makes some people think bond returns will be good if stock returns are poor, but sometimes both were poor in the past) and QSPIX returned zero. Well, no they wouldn't be happy obviously, but might not be unhappy with QSPIX relatively.

But of course zero % as an expected return doesn't cut it for this fund or really anything. Other than that though I think you might be quoting the 'wished for return'. I'd put the US equity E[r] somewhere in the range of 5-6% nominal (CAPE~33, 1/33+expected inflation, won't have a big off topic argument if somebody says it's a point higher). So this fund I agree should probably needs more than the bond E[r] of 3% but I think things are compressed where if QSPIX's E[r] was really 4% and uncorrelated, and without the downside of bonds under unexpected inflation (that recency bias again) that would be tolerable in a gloomy world of low expected returns. The realized is 3.5% on a quick lookup for 3yrs (maybe somebody can give the inception to date), but bonds are 1.4% in the last 3 yrs with Vang TBM as the comparison. Anyway putting an E[r] on this seems a lot more speculative than on conventional assets where people argue all day about E[r].

I'm not chiming is as huge booster of this, just interesting how the discussion goes around in circles for years with some pretty clearly wrong analysis (not yours) and themes repeated over and over when it's been pretty well explained why they are wrong. It's fairly clear this fund is not very correlated with stocks (save for the 'risk' of a future complete transformation of its behavior, I guess anything is possible) so does not make sense to ding it for lagging stocks in a rising stock market. What it 'should' make is open to a lot more question though I'd grant.

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Re: QSPIX - thoughts on interesting fund

Post by nedsaid » Fri Aug 31, 2018 10:11 pm

Random Walker wrote:
Fri Aug 31, 2018 9:03 pm
nedsaid wrote:
Fri Aug 31, 2018 7:24 pm
My expectation from alternatives like QSPIX would be bond like returns with low correlation to the stock market. When I say "bond like", I remember what you used to get from bonds in the days before the 2008-2009 financial crisis and the new normal, that is 5% to 6%. It isn't enough to just have something that is non-correlating. Money stuffed in my mattress doesn't correlate with the stock market but also provides zero nominal returns and a negative real return. I want return too.
As has been said many times before, the fund is expected to have equity like returns, about half the SD of equities, and virtually no correlation to either stocks or bonds. I think those equity like returns are about 6-7% PRE TAX. QSPIX is not very tax efficient at all and should be held in tax advantaged space when possible. When one creates the alternative position with QSPIX, he needs to decide where he is creating the position from and what he is trying to accomplish. In my case I created the position from tax free municipal bonds in my taxable account. My rationale was that QSPIX should be uncorrelated to both stocks and bonds, the expected after tax return is higher than my munis, and portfolio efficiency should increase. I would not have created this position from equities in a taxable account. I believe the after tax return of QSPIX should be between equities and muni bonds in a taxable account.

Of note, AQR now has a tax aware fund very similar to QSPIX, called QRPRX. It is slightly different. QSPIX invests in 4 styles: value, momentum, carry, defensive. QRPRX invests in those 4 and adds trend and variance risk premium. QSPIX uses commodities as one of its asset classes but QRPRX does not.

Dave
Okay, let's say semi-equity returns. Historically, US Stocks have long term nominal returns of 8-12% depending when you look. 10% is the number I think of when I think of stock returns. Bonds return historically more like 5-7%, going from memory here. I think of bond returns as being 6%. Going forward from here, they will be more like 3%.

I don't think of 6% to 7% returns as equity like, at least based on historical returns. I am showing my age, I remember those 10 year Zero Treasuries that yielded 8%, of course those days are long gone. I still think bonds should return 6% but that isn't reality now.

Larry and Buckingham are projecting future expected returns for stocks based upon current valuations. Yes, looking at future expected returns, equity like returns would be 6-7%.
Thus I am thinking of QSPIX as being a substitute for bonds as they used to be and not as they are now. 3% projected bond returns are about 1/2 of historic returns.

Some alternatives are more bond like and some are more stock like. Thus it makes sense to take 10% from stocks and 10% from bonds in order to allocate 20% of a portfolio to alternatives. Thus a traditional 60% stocks/40% bonds portfolio would be 50% stocks/30% bonds/20% alternatives. I would argue that Variance Risk Premium and Reinsurance would be more equity like and that Alternative Lending and Factor funds using shorts and leverage would be more bond like. Plus, if you can get 6%-7% from alternatives you are getting closer to splitting the difference between stock and bond returns, particularly if bond returns going forward will be 3%.

Larry's basic point is that he is expecting both stocks and bonds to have future expected returns lower than historical returns. He says that adding the alts should both add to returns and reduce volatility. The alts are doing some of the heavy lifting of acceptable returns plus lower volatility that good old bonds once accomplished. Pretty much, Larry is saying bonds ain't what they used to be so investors need a slice of alts. Good old stocks and bonds might not be good enough in Larry's view. We will see.

In my opinion, disciplined rebalancing will really help you with the risk control and lowering volatility. Sometimes this will boost returns and sometimes not. The biggest benefit here is risk control which is one of the two big rationales for investing in alts, the other being the returns.

I know Larry is pretty committed to these as he has made a substantial personal investment. Not sure I will try this for myself but I am trying to understand these products and their role in a portfolio.
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Re: QSPIX - thoughts on interesting fund

Post by Angst » Fri Aug 31, 2018 10:20 pm

nedsaid wrote:
Fri Aug 31, 2018 7:24 pm
My expectation from alternatives like QSPIX would be bond like returns with low correlation to the stock market. When I say "bond like", I remember what you used to get from bonds in the days before the 2008-2009 financial crisis and the new normal, that is 5% to 6%. [Snip...]
Random Walker wrote:
Fri Aug 31, 2018 9:03 pm
As has been said many times before, the fund is expected to have equity like returns, about half the SD of equities, and virtually no correlation to either stocks or bonds. I think those equity like returns are about 6-7% PRE TAX. [Snip...]
I find the above expectations for QSPIX to be unsupportable and illogical non sequiturs.

The whole point of QSPIX is to pull out "premia" by going long/short various assets, including equity and bonds. Why on earth should anyone expect either "bond-like" or "equity-like" returns at all from QSPIX? It's returns are not supposed to relate to either of these assets, nor commodities or anything else QSPIX is going long/short in. Having read some promotional piece quoting this marketing speak doesn't justify it. Does AQR say this explicitly anywhere? I believe I can recall Larry writing it, but I don't buy it at all. It makes no sense to me. Why would it make any sense to anyone? As it is, AQR benchmarks QSPIX to 30-day TBills, I believe. Not the S&P, not Barclays.

What bothers me most though is that no one (AQR?) has teased the historical data to show us what hypothetical past returns from pursuing the same strategies as QSPIX would have returned. At least I'm unaware of these having been published. But if this strategy is truly passive and rules-based as I recalled having been told before, shouldn't we have some numbers telling us what past "premia-like" returns would have been? "Premia-like" returns are what we should be expecting for this fund, not "equity-like" or "bond-like" returns. That's the whole point of the fund.

I'd be happy to see some nice graphically presented data of historical premia returns. Any help? Then we'd know what we should be expecting from QSPIX.

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Re: QSPIX - thoughts on interesting fund

Post by nedsaid » Fri Aug 31, 2018 10:23 pm

JackoC wrote:
Fri Aug 31, 2018 9:29 pm
nedsaid wrote:
Fri Aug 31, 2018 7:24 pm
My expectation from alternatives like QSPIX would be bond like returns with low correlation to the stock market. When I say "bond like", I remember what you used to get from bonds in the days before the 2008-2009 financial crisis and the new normal, that is 5% to 6%. It isn't enough to just have something that is non-correlating. Money stuffed in my mattress doesn't correlate with the stock market but also provides zero nominal returns and a negative real return. I want return too.

American Century Investments has pretty good videos explaining Alternative Investments. They say that historically you should expect 7% with low correlation to stocks. If I really could get that from funds like AQR Style Premia, I would consider this to be an excellent addition to the portfolio. I would prefer equity like returns but am skeptical those type of returns would materialize. 5% to 6% is what I would expect and 7% would be even better.

If bonds return 3% with low correlation to the stock market, a fund like QSPIX is going to have to deliver more than that or you may as well just be in bonds. There really would be no rationale for investing in these type of funds, particularly when you take on the additional risks of leverage and shorting.

I suppose another way of saying this is that funds like QSPIX are a bond substitute, a substitute for bonds in the good old days when yields were 5-6%. I still remember buying 3 US Treasury 10 year Zero Coupon bonds that yielded 8% back in 1988. Those were the days. I remember when Zero Coupon Bonds were very popular. No one talks about them today.
I was just pointing out, indirectly, that lots of people judge things by realized return. Would they be happy if the stock market crashed, bonds delivered negative returns because of unexpected inflation (recency bias makes some people think bond returns will be good if stock returns are poor, but sometimes both were poor in the past) and QSPIX returned zero. Well, no they wouldn't be happy obviously, but might not be unhappy with QSPIX relatively.

But of course zero % as an expected return doesn't cut it for this fund or really anything. Other than that though I think you might be quoting the 'wished for return'. I'd put the US equity E[r] somewhere in the range of 5-6% nominal (CAPE~33, 1/33+expected inflation, won't have a big off topic argument if somebody says it's a point higher). So this fund I agree should probably needs more than the bond E[r] of 3% but I think things are compressed where if QSPIX's E[r] was really 4% and uncorrelated, and without the downside of bonds under unexpected inflation (that recency bias again) that would be tolerable in a gloomy world of low expected returns. The realized is 3.5% on a quick lookup for 3yrs (maybe somebody can give the inception to date), but bonds are 1.4% in the last 3 yrs with Vang TBM as the comparison. Anyway putting an E[r] on this seems a lot more speculative than on conventional assets where people argue all day about E[r].

I'm not chiming is as huge booster of this, just interesting how the discussion goes around in circles for years with some pretty clearly wrong analysis (not yours) and themes repeated over and over when it's been pretty well explained why they are wrong. It's fairly clear this fund is not very correlated with stocks (save for the 'risk' of a future complete transformation of its behavior, I guess anything is possible) so does not make sense to ding it for lagging stocks in a rising stock market. What it 'should' make is open to a lot more question though I'd grant.
Yes, if stocks fell by 50% and QSPIX stayed even, I would be very pleased with it. Too unrealistic to expect QSPIX to be up 50% when stocks are down 50%. But still, over long periods of time I would expect at least a 5% to 6% return.

If stocks rose 50% and QSPIX lost 10%, it would be disappointing but not unexpected. A big selling point for QSPIX is its non-correlation to the stock market.

And yes, if the addition of QSPIX lowered volatility of the portfolio without sacrificing return, I would still be pleased. We all want smoother and more predictable returns. I know Random Walker is trying to minimize volatility drag as much as he can. Time will tell if all of this works in real life market conditions. Past history suggests it will.

Unfortunately, institutional investors can read too. They are well aware of the Academic research. We don't have exclusive knowledge here at Bogleheads. A concern about alts is that the big players might take away a lot of the benefits folks were trying to achieve. A problem of too much money chasing the same strategies. It could be that this will cause traditional 60/40 portfolios to continue to perform well. That is another thing to think about.

What I am trying to say here, is Cliff Asness and his team smarter than the Hedge Funds. Can AQR better succeed at this than the hedgies? Hard to say.
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Re: QSPIX - thoughts on interesting fund

Post by nedsaid » Fri Aug 31, 2018 10:42 pm

Angst wrote:
Fri Aug 31, 2018 10:20 pm
nedsaid wrote:
Fri Aug 31, 2018 7:24 pm
My expectation from alternatives like QSPIX would be bond like returns with low correlation to the stock market. When I say "bond like", I remember what you used to get from bonds in the days before the 2008-2009 financial crisis and the new normal, that is 5% to 6%. [Snip...]
Random Walker wrote:
Fri Aug 31, 2018 9:03 pm
As has been said many times before, the fund is expected to have equity like returns, about half the SD of equities, and virtually no correlation to either stocks or bonds. I think those equity like returns are about 6-7% PRE TAX. [Snip...]
I find the above expectations for QSPIX to be unsupportable and illogical non sequiturs.
Well, if all you got were 3% returns, what would be the point of owning QSPIX in the first place? Why not just own bonds?

To establish an expection for future returns is not the same as the returns you are actually going to get. Someone (AQR? Larry?) projected returns based on historical data but of course we don't know the future. For heaven's sake, we don't even know for sure that stocks will have greater return than bonds in the future. The point is that we all make assumptions and we base those assumptions upon market history.

I would consider American Century Investments to be a pretty good source. They say that hedge fund like investments have about a 7% historical return. I saw an article that showed hedge funds had a 9% return but someone mentioned that was probably before fees charged to investors. After the 2% AUM and 20% of profits charged, 7% sounds about right. So projecting returns of 6% or 7% for QSPIX is not irrational. There is support for this. It didn't just come out of thin air.

It is a valid criticism to say that there is really no benchmark for this fund. Perhaps the index of hedge funds would be a place to start.

So there is logic and support for the numbers but the case for them is not 100% airtight. In the world of finance, nothing is 100%. If you insist upon metaphysical certainty on everything then I suppose about everything discussed here is unsupportable and illogical. As I have said many times here, there is a certain slipperiness to financial data. If you can't come to grips with this, you will be endlessly frustrated. Investing is not just a formula to be solved for.
Last edited by nedsaid on Fri Aug 31, 2018 11:06 pm, edited 1 time in total.
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Re: QSPIX - thoughts on interesting fund

Post by nedsaid » Fri Aug 31, 2018 10:53 pm

Here is an excerpt from the Wikipedia article on hedge funds and their performance:
Performance statistics for individual hedge funds are difficult to obtain, as the funds have historically not been required to report their performance to a central repository and restrictions against public offerings and advertisement have led many managers to refuse to provide performance information publicly. However, summaries of individual hedge fund performance are occasionally available in industry journals and databases and investment consultancy Hennessee Group.

One estimate is that the average hedge fund returned 11.4% per year, representing a 6.7% return above overall market performance before fees, based on performance data from 8,400 hedge funds. Another estimate is that between January 2000 and December 2009 hedge funds outperformed other investments and were substantially less volatile, with stocks falling an average of 2.62% per year over the decade and hedge funds rising an average of 6.54% per year; this was an unusually volatile period with both the 2001-2002 dot-com bubble and a recession beginning mid 2007. However, more recent data show that hedge fund performance has declined and underperformed the market from about 2009 to 2016.
https://en.wikipedia.org/wiki/Hedge_fund

So the projections of performance for QSPIX does have some basis in reality. We just have to look at hedge fund performance. There is an index that tracks hedge funds.
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Re: QSPIX - thoughts on interesting fund

Post by Angst » Fri Aug 31, 2018 11:27 pm

nedsaid wrote:
Fri Aug 31, 2018 10:42 pm
Angst wrote:
Fri Aug 31, 2018 10:20 pm
nedsaid wrote:
Fri Aug 31, 2018 7:24 pm
My expectation from alternatives like QSPIX would be bond like returns with low correlation to the stock market. When I say "bond like", I remember what you used to get from bonds in the days before the 2008-2009 financial crisis and the new normal, that is 5% to 6%. [Snip...]
Random Walker wrote:
Fri Aug 31, 2018 9:03 pm
As has been said many times before, the fund is expected to have equity like returns, about half the SD of equities, and virtually no correlation to either stocks or bonds. I think those equity like returns are about 6-7% PRE TAX. [Snip...]
I find the above expectations for QSPIX to be unsupportable and illogical non sequiturs.
Well, if all you got were 3% returns, what would be the point of owning QSPIX in the first place? Why not just own bonds?

To establish an expection for future returns is not the same as the returns you are actually going to get. AQR projected returns based on historical data but of course we don't know the future. For heaven's sake, we don't even know for sure that stocks will have greater return than bonds in the future. The point is that we all make assumptions and we base those assumptions upon market history.

I would consider American Century Investments to be a pretty good source. They say that hedge fund like investments have about a 7% historical return. I saw an article that showed hedge funds had a 9% return but someone mentioned that was probably before fees charged to investors. After the 2% AUM and 20% of profits charged, 7% sounds about right. So projecting returns of 6% or 7% for QSPIX is not irrational. There is support for this. It didn't just come out of thin air.

It is a valid criticism to say that there is really no benchmark for this fund. Perhaps the index of hedge funds would be a place to start.

So there is logic and support for the numbers but the case for them is not 100% airtight. In the world of finance, nothing is 100%. If you insist upon metaphysical certainty on everything then I suppose about everything discussed here is unsupportable and illogical. As I have said many times here, there is a certain slipperiness to financial data. If you can't come to grips with this, you will be endlessly frustrated. Investing is not just a formula to be solved for.

nedsaid, I don't know where to begin. I'll try to keep it short, but clearly I haven't explained myself well enough; my point appears to have escaped you.

- If I were investing in some sort of basket of stocks, comparing myself to historical equities data would be a reasonable place to start in terms of benchmarking my expectations, because both of them are equity.

- If I were investing in some sort of basket of bonds, same thing.

- b/c people have characterized QSPIX as "hedge fund-like" you're saying it's not unreasonable to similarly look at average historical performance of hedge funds. This is wrong thinking to me in so many ways I don't know where to begin. Hedge funds can and do invest in anything and everything and in every way imaginable - it's so vague a term it's almost laughable. To say it's reasonable to say it's a good proxy for what QSPIX is specifically doing is unsupportable to me. I would never invest in QSPIX for hopes of matching average hedge fund performance.

I want to see good data that show what "premia" returns have been historically, and I don't recall having seen that. That is what people should be expecting from QSPIX. I can easily see what stocks have done over history, both on average and in terms of SD. Same with bonds. I supposed I could do that for "hedge funds" in aggregate too, but I couldn't care less about that. I'm disappointed in the apparent lack of historical premia returns data. Therein would the place to go for determining avg returns and SD expectations for QSPIX. My apologies nedsaid if my mind is too strictly reading all of this. I don't mean to be so difficult.

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Re: QSPIX - thoughts on interesting fund

Post by nisiprius » Sat Sep 01, 2018 7:11 am

Random Walker wrote:...They attribute the recent poor performance to the value premium in equities.
I posted a chart showing that neither large-cap value nor small-cap value funds had shown any similar decline, and questioned that attribution.
With regard to the value funds you mention above, they are dominated by market beta, so perhaps that dominated a negative value effect?
JackoC wrote:
Fri Aug 31, 2018 4:32 pm
...The funds you are comparing to are long only equity funds.
The theory as I understand it is that QSPIX takes four assorted, diversified factors, which are all supposed to have low correlation with each other. It then purifies them by constructing long-short portfolios for each, then magnifies them with leverage. The risk of leverage is supposed to be offset by the risk reduction of not putting more than 1/4 of your eggs in any one factor.

If it is an issue with the value factor, and it didn't show up in value funds because they are not pure enough in the value factor, then it should show up in relative underperformance of value funds compared with similar blend funds.

Year-to-date, there has been some lag of small-cap value (orange, DFSVX) relative to small-cap blend (blue, DFSCX). To my eye, not much.
Source
Image

A good deal more lag, large-cap value (orange, DFLVX) relative to large-cap blend (blue, DFUSX):
Source

Image

So, yes, I did see underperformance in value relative to blend--a lot in large, not much in small. But it is hard to ignore the fact that even if we look only at large-cap value,

--only $637.61 was forgone by choosing large-cap value over large-cap blend, while
--about $1,818.54 was foregone by choosing QSPIX over large-cap blend (all your eggs in market beta).

In my simple analysis, it seems to me that only about $637.61 out of that $1,818.54, or 35% of the shortfall, ought to be "attributed" to the value factor.

My hypothesis would be that most of the shortfall was due to a) the use of leverage, and b) failure of the three other factors to behave as expected. Yes, it's only eight months, could be just a chance glitch.
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Re: QSPIX - thoughts on interesting fund

Post by matjen » Sat Sep 01, 2018 8:17 am

Angst wrote:
Fri Aug 31, 2018 11:27 pm


I want to see good data that show what "premia" returns have been historically, and I don't recall having seen that. That is what people should be expecting from QSPIX. I can easily see what stocks have done over history, both on average and in terms of SD. Same with bonds. I supposed I could do that for "hedge funds" in aggregate too, but I couldn't care less about that. I'm disappointed in the apparent lack of historical premia returns data. Therein would the place to go for determining avg returns and SD expectations for QSPIX. My apologies nedsaid if my mind is too strictly reading all of this. I don't mean to be so difficult.
Here you go Angst. This Antti Ilmanen presentation should have what you want. There is also a huge packet of info AQR presented to the Arizona Pension Plan floating around the internet,

http://video.cfainstitute.org/services/ ... 7796306001
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Re: QSPIX - thoughts on interesting fund

Post by Elysium » Sat Sep 01, 2018 8:35 am

I guess folks were clamouring to get into this fund and other alt strategy funds a while back, and finding backdoors and what not. That seems to have died down of late with the continued strength in stock market and the fact that these alt strategy funds have become an endless money pit.

I have come to the conclusion that alt strategies work only when there is a serious prolonged bear market, and that too is not completely certain. There is another strategy that works in such a scenario, the more simpler approach of holding US Treasuries. Now, I know some the proponents of alt strategies say Treasuries could also go down at the same time as stocks, sure, they may have cherry picked dates for such scenarios. But there is no evidence, in such a scenario, any of the practical implementations of these alt strategies work.

My feeling is that these things are intended for super rich people who have a lot of money to throw around and then it becomes why not invest in such as thing, as opposed to why invest. That means, this isn't for most Boglehead DIY types including me.

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Re: QSPIX - thoughts on interesting fund

Post by Angst » Sat Sep 01, 2018 8:45 am

matjen wrote:
Sat Sep 01, 2018 8:17 am
Angst wrote:
Fri Aug 31, 2018 11:27 pm

I want to see good data that show what "premia" returns have been historically, and I don't recall having seen that. That is what people should be expecting from QSPIX. I can easily see what stocks have done over history, both on average and in terms of SD. Same with bonds. I supposed I could do that for "hedge funds" in aggregate too, but I couldn't care less about that. I'm disappointed in the apparent lack of historical premia returns data. Therein would the place to go for determining avg returns and SD expectations for QSPIX. My apologies nedsaid if my mind is too strictly reading all of this. I don't mean to be so difficult.
Here you go Angst. This Antti Ilmanen presentation should have what you want. There is also a huge packet of info AQR presented to the Arizona Pension Plan floating around the internet,

http://video.cfainstitute.org/services/ ... 7796306001
Thank you matjen. When I'm off work again I'm going to allocate some time to this. I'll step away until then.

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Re: QSPIX - thoughts on interesting fund

Post by nedsaid » Sat Sep 01, 2018 9:09 am

Angst wrote:
Fri Aug 31, 2018 11:27 pm

nedsaid, I don't know where to begin. I'll try to keep it short, but clearly I haven't explained myself well enough; my point appears to have escaped you.

- If I were investing in some sort of basket of stocks, comparing myself to historical equities data would be a reasonable place to start in terms of benchmarking my expectations, because both of them are equity.

- If I were investing in some sort of basket of bonds, same thing.

- b/c people have characterized QSPIX as "hedge fund-like" you're saying it's not unreasonable to similarly look at average historical performance of hedge funds. This is wrong thinking to me in so many ways I don't know where to begin. Hedge funds can and do invest in anything and everything and in every way imaginable - it's so vague a term it's almost laughable. To say it's reasonable to say it's a good proxy for what QSPIX is specifically doing is unsupportable to me. I would never invest in QSPIX for hopes of matching average hedge fund performance.

I want to see good data that show what "premia" returns have been historically, and I don't recall having seen that. That is what people should be expecting from QSPIX. I can easily see what stocks have done over history, both on average and in terms of SD. Same with bonds. I supposed I could do that for "hedge funds" in aggregate too, but I couldn't care less about that. I'm disappointed in the apparent lack of historical premia returns data. Therein would the place to go for determining avg returns and SD expectations for QSPIX. My apologies nedsaid if my mind is too strictly reading all of this. I don't mean to be so difficult.
You have raised a good point in asking what is behind the expectations for QSPIX returns. This would be a good question to ask of Larry Swedroe directly. Send him a personal message and ask him.

A couple reasons benchmarking this fund is difficult is the use of shorts and leverage across multiple asset classes. I vaguely recall discussion that goes something like this, "when volatility is low QSPIX levers up, when volatility is rising QSPIX decreases leverage." Don't know how you guard against sudden market reversals but we know Cliff Asness and his team are really smart guys. Then you have shorting in there as well. We know a lot about what they do but it is opaque as AQR doesn't want to give away its secret sauce. This type of stuff is true probably of all hedge funds, you are relying on the managers' skill and upon proprietary models that make things work.

So the best we can do is look at how hedge funds as a group perform. Yes, hedge funds invest in many things and execute all kinds of diverse strategies. You are comparings apples to oranges to bananas to pomegranats. Hard to benchmark one particular type of fund against other types of hedge funds.

I do remember a discussion, it might have been on this thread, that if you have a factor only fund and take out market beta, you are looking at about 3% returns, hardly equity-like. Larry responded yes, but if you lever up 3X you get equity like returns. But this is with stocks. Don't know what factor returns are with other asset classes.

Clearly there are risks being taken here, not sure I understand those risks 100%. What I will say is that if I invested in such a fund, it would be a small percentage of my portfolio. Pretty much what I have said is that these types of funds are interesting, they are worth a look, but I am unsure that I would invest in such funds myself. And yes, we can get a hint of how this fund might perform based upon the performance of hedge funds knowing that the comparisons are flawed. But that is what we have.

Another objection that I could raise about such funds is that markets are dynamic. There are lots of really, really smart people trying to get their edge in the markets. So what happens with so much money sloshing around is that "what works" changes, your proprietary model has to change because the market changes. Introduce leverage and shorting and you make what is hard to predict even harder. Sort of like sudden stock market drops in early 2018, the thought was that somebody was shorting the Volatility Index. You never know what bets other market participants are making. One could say that such funds are playing with fire.
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Re: QSPIX - thoughts on interesting fund

Post by nedsaid » Sat Sep 01, 2018 9:11 am

Elysium wrote:
Sat Sep 01, 2018 8:35 am
I guess folks were clamouring to get into this fund and other alt strategy funds a while back, and finding backdoors and what not. That seems to have died down of late with the continued strength in stock market and the fact that these alt strategy funds have become an endless money pit.

I have come to the conclusion that alt strategies work only when there is a serious prolonged bear market, and that too is not completely certain. There is another strategy that works in such a scenario, the more simpler approach of holding US Treasuries. Now, I know some the proponents of alt strategies say Treasuries could also go down at the same time as stocks, sure, they may have cherry picked dates for such scenarios. But there is no evidence, in such a scenario, any of the practical implementations of these alt strategies work.

My feeling is that these things are intended for super rich people who have a lot of money to throw around and then it becomes why not invest in such as thing, as opposed to why invest. That means, this isn't for most Boglehead DIY types including me.
Yes, that is the essential question. Would we be better off in Treasuries? David Swenson uses Long Treasuries to hedge the stock market.
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Re: QSPIX - thoughts on interesting fund

Post by packer16 » Sat Sep 01, 2018 9:15 am

nisiprius wrote:
Sat Sep 01, 2018 7:11 am
Random Walker wrote:...They attribute the recent poor performance to the value premium in equities.
I posted a chart showing that neither large-cap value nor small-cap value funds had shown any similar decline, and questioned that attribution.
With regard to the value funds you mention above, they are dominated by market beta, so perhaps that dominated a negative value effect?
JackoC wrote:
Fri Aug 31, 2018 4:32 pm
...The funds you are comparing to are long only equity funds.
The theory as I understand it is that QSPIX takes four assorted, diversified factors, which are all supposed to have low correlation with each other. It then purifies them by constructing long-short portfolios for each, then magnifies them with leverage. The risk of leverage is supposed to be offset by the risk reduction of not putting more than 1/4 of your eggs in any one factor.

If it is an issue with the value factor, and it didn't show up in value funds because they are not pure enough in the value factor, then it should show up in relative underperformance of value funds compared with similar blend funds.

Year-to-date, there has been some lag of small-cap value (orange, DFSVX) relative to small-cap blend (blue, DFSCX). To my eye, not much.
Source
Image

A good deal more lag, large-cap value (orange, DFLVX) relative to large-cap blend (blue, DFUSX):
Source

Image

So, yes, I did see underperformance in value relative to blend--a lot in large, not much in small. But it is hard to ignore the fact that even if we look only at large-cap value,

--only $637.61 was forgone by choosing large-cap value over large-cap blend, while
--about $1,818.54 was foregone by choosing QSPIX over large-cap blend (all your eggs in market beta).

In my simple analysis, it seems to me that only about $637.61 out of that $1,818.54, or 35% of the shortfall, ought to be "attributed" to the value factor.

My hypothesis would be that most of the shortfall was due to a) the use of leverage, and b) failure of the three other factors to behave as expected. Yes, it's only eight months, could be just a chance glitch.
I think one of the issues here is the weighting of the factors. This appears to be quite an active exercise as there a so many variable & possible weights that there is no other choice. So you are relying on the expertise of manager or the algorithm they have developed with the help of a computer to manage these weights. When things get this complex, it is difficult to see what caused underperformance vs. randomness. IMO it is also a lesson in past performance of factors is not prelude to future performance (at least over the short/intermediate term).

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Re: QSPIX - thoughts on interesting fund

Post by welderwannabe » Sat Sep 01, 2018 9:31 am

matjen wrote:
Sat Jun 06, 2015 8:15 pm
And this makes up roughly 25% of Vanguard's Total Bond which is constantly pushed by members of this forum for the "simple" 3-Fund Portfolio. So roughly 10% of a 60/40 portfolio. QSPIX makes up 5% of my portfolio and I don't think anyone has more than 10% on this board FWIW. I doubt many understand these elements of their holdings as well.

Securitized
Agency MBS Pass-Through 18.15
Agency MBS ARM 0.03
Agency MBS CMO 1.24
Non-Agency Residential MBS 0.49
Commercial MBS 2.19
Asset-Backed 0.68

We pay Vanguard and/or AQR to manage these risks based upon their reputations, knowledge, and performance. I do my best to understand it all entirely but would be less than honest of I claimed to understand all the intricacies. I read everything I can and watch any presentations on QSPIX. I don't have a finance MBA however so...
The above is exactly why I don't invest in total bond. I am all Treasuries and corporate bonds.
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Re: QSPIX - thoughts on interesting fund

Post by Random Walker » Sat Sep 01, 2018 9:58 am

Nisiprius,
1. I think the data you show comparing long only blend to long only value just shows that both funds are dominated by market beta, and that the value factor in the vsluemfund plays a much more minor role. If anything, this demonstrates the potential benefit of isolating the value factor from market beta in a long-short Fund.

2. I am not at all sure that QSPIX weights the 4 styles and / or the asset classes equally. I think value has a substantially greater weight.

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Re: QSPIX - thoughts on interesting fund

Post by Theoretical » Sat Sep 01, 2018 10:30 am

For my part, I don't really care about the periods of underperformance, especially in comparison to the S&P. I'd be more worried if it was keeping up all the time, and I personally like seeing my diversifier behave differently, even if we go into a very large run up like the late 1990s.

I'm a lot more concerned about the risks of leveraged blow-up due to concentrated positions, especially because AQR's nearly blown up twice (late 1990s and 2007). I also looked at the current holdings and 60% of the risk allocation is to individual stocks (40%) and 20% to equity indices. I think it's got some merit conceptually, but this form of concentrated leverage is concerning for its risk of ruin.

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Re: QSPIX - thoughts on interesting fund

Post by HomerJ » Sat Sep 01, 2018 8:33 pm

JackoC wrote:
Fri Aug 31, 2018 4:32 pm
Again just reviewing some of this long and interesting thread, it has also been repeatedly pointed out that it *is* somewhat difficult to come up with a return benchmark for saying this fund is doing what it's supposed to do or not.
Cliff Asness is a genius. You guys are paying him 2.33% a year, and you can't even tell if he's delivering.

He's made $3 billion dollars though, and is now the 791th richest person in the world.

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Re: QSPIX - thoughts on interesting fund

Post by marcopolo » Sat Sep 01, 2018 8:55 pm

HomerJ wrote:
Sat Sep 01, 2018 8:33 pm
JackoC wrote:
Fri Aug 31, 2018 4:32 pm
Again just reviewing some of this long and interesting thread, it has also been repeatedly pointed out that it *is* somewhat difficult to come up with a return benchmark for saying this fund is doing what it's supposed to do or not.
Cliff Asness is a genius. You guys are paying him 2.33% a year, and you can't even tell if he's delivering.

He's made $3 billion dollars though, and is now the 791th richest person in the world.

Where are the customer's yachts?
:oops: :oops: :oops:

Or even,perhaps, what factors he may be trying to deliver:
Random Walker wrote:
Sat Sep 01, 2018 9:58 am

2. I am not at all sure that QSPIX weights the 4 styles and / or the asset classes equally. I think value has a substantially greater weight.

Dave

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Re: QSPIX - thoughts on interesting fund

Post by Jebediah » Sat Sep 01, 2018 9:16 pm

Nisiprius:

I'm sorry but, as Angst has tried to explain, your morningstar charts are ridiculous here. This fund has absolutely *nothing* to do with long equity funds, value style or otherwise.

Absolutely nothing to do with them.

Charting QSPIX against long equity funds gives you zero information. No conclusions to draw. No associations. Total non-sequitur.

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Re: QSPIX - thoughts on interesting fund

Post by nisiprius » Sat Sep 01, 2018 10:34 pm

Jebediah wrote:
Sat Sep 01, 2018 9:16 pm
Nisiprius:

I'm sorry but, as Angst has tried to explain, your morningstar charts are ridiculous here. This fund has absolutely *nothing* to do with long equity funds, value style or otherwise.

Absolutely nothing to do with them.

Charting QSPIX against long equity funds gives you zero information. No conclusions to draw. No associations. Total non-sequitur.
That's why I made a second posting showing the difference between large blend and large value, and between small blend and small value, The difference between the two is the same as going long on one and short on the other.
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Re: QSPIX - thoughts on interesting fund

Post by triceratop » Sat Sep 01, 2018 10:53 pm

nisiprius wrote:
Sat Sep 01, 2018 10:34 pm
Jebediah wrote:
Sat Sep 01, 2018 9:16 pm
Nisiprius:

I'm sorry but, as Angst has tried to explain, your morningstar charts are ridiculous here. This fund has absolutely *nothing* to do with long equity funds, value style or otherwise.

Absolutely nothing to do with them.

Charting QSPIX against long equity funds gives you zero information. No conclusions to draw. No associations. Total non-sequitur.
That's why I made a second posting showing the difference between large blend and large value, and between small blend and small value, The difference between the two is the same as going long on one and short on the other.
Right, though keep in mind there are multiple targeted factors and also multiple asset classes (and factors are not correlated across asset classes necessarily).
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Re: QSPIX - thoughts on interesting fund

Post by nedsaid » Sun Sep 02, 2018 5:24 am

Jebediah wrote:
Sat Sep 01, 2018 9:16 pm
Nisiprius:

I'm sorry but, as Angst has tried to explain, your morningstar charts are ridiculous here. This fund has absolutely *nothing* to do with long equity funds, value style or otherwise.

Absolutely nothing to do with them.

Charting QSPIX against long equity funds gives you zero information. No conclusions to draw. No associations. Total non-sequitur.
That's the way to win friends and influence people.
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Re: QSPIX - thoughts on interesting fund

Post by JackoC » Sun Sep 02, 2018 8:09 am

nedsaid wrote:
Sun Sep 02, 2018 5:24 am
Jebediah wrote:
Sat Sep 01, 2018 9:16 pm
Nisiprius:

I'm sorry but, as Angst has tried to explain, your morningstar charts are ridiculous here. This fund has absolutely *nothing* to do with long equity funds, value style or otherwise.

Absolutely nothing to do with them.

Charting QSPIX against long equity funds gives you zero information. No conclusions to draw. No associations. Total non-sequitur.
That's the way to win friends and influence people.
Blunt but true is the way I would phrase it. The first post was clearly, and clearly erroneously, comparing the rise in a long only fund featuring a factor with a long/short fund isolating the factor. That's nonsensical, with no personal offense intended to anyone.

The second attempt was to convert that exposition to saying long/short factor fund went down more than the factor featuring long only fund lagged the general market. 'Maybe that's because it has leverage on that factor'. But didn't we know already it has leverage on the factors?

Not having read this whole thread, I wonder if anyone ever said that if all factors but value were neutral (just assuming, again there's no authoritative analysis saying the fund's recent bad patch is all about the value factor) and the value factor performed negatively, that QSPIX would *not* go down. Or that long only value funds would not still go up in a rising ('beta') stock market. Or that QSPIX would not go down more than the long only funds underperformed for a given notional amount (because of leverage). IOW I'm not sure what the original analysis (or the do over) is even supposed to show. The tone implied some discrepancy, but from what assumption or claim?

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Re: QSPIX - thoughts on interesting fund

Post by nedsaid » Sun Sep 02, 2018 10:54 am

JackoC wrote:
Sun Sep 02, 2018 8:09 am
nedsaid wrote:
Sun Sep 02, 2018 5:24 am
Jebediah wrote:
Sat Sep 01, 2018 9:16 pm
Nisiprius:

I'm sorry but, as Angst has tried to explain, your morningstar charts are ridiculous here. This fund has absolutely *nothing* to do with long equity funds, value style or otherwise.

Absolutely nothing to do with them.

Charting QSPIX against long equity funds gives you zero information. No conclusions to draw. No associations. Total non-sequitur.
That's the way to win friends and influence people.
Blunt but true is the way I would phrase it. The first post was clearly, and clearly erroneously, comparing the rise in a long only fund featuring a factor with a long/short fund isolating the factor. That's nonsensical, with no personal offense intended to anyone.

The second attempt was to convert that exposition to saying long/short factor fund went down more than the factor featuring long only fund lagged the general market. 'Maybe that's because it has leverage on that factor'. But didn't we know already it has leverage on the factors?

Not having read this whole thread, I wonder if anyone ever said that if all factors but value were neutral (just assuming, again there's no authoritative analysis saying the fund's recent bad patch is all about the value factor) and the value factor performed negatively, that QSPIX would *not* go down. Or that long only value funds would not still go up in a rising ('beta') stock market. Or that QSPIX would not go down more than the long only funds underperformed for a given notional amount (because of leverage). IOW I'm not sure what the original analysis (or the do over) is even supposed to show. The tone implied some discrepancy, but from what assumption or claim?
Well, I don't know why QSPIX has disappointed some folks lately. Not sure what drove its performance. An easy guess would name Value as one of the culprits. My understanding is that QSPIX not only diversifies across factors but also asset classes. There is more to the performance of QSPIX than Value stocks. The fund also uses leverage and shorts. So lots of things at work here.

But still, I couldn't believe that someone basically stated that one of the most respected members of the forum was an idiot. What they should have said is that his argument didn't go nearly far enough to explain things. But it was just an attack on members' intelligence and it has come from a couple posters in this thread. In the words of one contributor on this thread, I don't know where to begin. The idea of the forum is that people can put ideas out there and we can discuss them. Sometimes folks are a bit mistaken but the give and take is how we learn here.

If someone makes an error, just make a counter point and explain that other things might be in play here. I guess not completely understanding how a complex retail hedge fund works is a capital offense around here. We all have been wrong about things or at least not completely right. As for me, I am only right about anything around here about every six months or so.
Last edited by nedsaid on Sun Sep 02, 2018 10:59 am, edited 1 time in total.
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Re: QSPIX - thoughts on interesting fund

Post by nedsaid » Sun Sep 02, 2018 10:58 am

I guess what someone needs to do is go to the AQR website and look at the quarterly and annual reports for the AQR Style Premia Fund. The reports should give some detail as to what happened and what factors drove performance or lack thereof. Maybe go to the source and see what they have to say.
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Re: QSPIX - thoughts on interesting fund

Post by garlandwhizzer » Sun Sep 02, 2018 1:13 pm

matjen wrote:
Nah, we used to get lots of posts by people comparing it to only the S&P or to things like Sequoia and claiming it was underperforming. People like me would say that’s nuts. If memory serves me correctly, we have a period where value is down and momentum has not been quite as good as usual to offset.

Having said that, I am now $160 down to my optimistic bogey of 60% VT and 40% IEI.
The optimistic bogey of 60% VT and 40% IEI is not a bad place for investors to hang out. Beyond a certain point, there are limits to the usefulness of a complex arrangement of non-correlated assets IMO. One must balance expected portfolio return versus expected portfolio volatility and set that balance appropriately for one's goals and risk tolerance. Classically an appropriate stock bond mix is adequate for most of us to do this. Further complexity may not be required. Factors like cost (QSPIX 2.33% expense ratio) come into play. Important to remember that although performance varies costs are totally reliable and predictable. Diversification of assets is good but if non-correlation is the over-riding focus of investing, it may reduce expected long term portfolio return. Most of us need robust portfolio returns to meet our financial goals. it's important to remember that burying your money in the backyard provides a lot of diversification relative to the equity market and flushing your money down the toilet offers massive non-correlation. For me, adequate diversification/reduced portfolio volatility can be achieved at very low cost and high reliability with broadly based equity and high quality bonds alone. Each to his own.
From the above quote:
a period where value is down and momentum has not been quite as good as usual to offset

In theory, theory always works. In reality and practice over specific time frames, theory sometimes works.

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