QSPIX - thoughts on interesting fund

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Theoretical
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Re: QSPIX - thoughts on interesting fund

Post by Theoretical » Thu Sep 06, 2018 11:22 pm

Wow, that’s a really impressive fund by its prospectus. You get value, carry, and momentum in equities, bonds, currencies, and commodities, with an on-off option to include short equity volatility for an ER of 1.16% and with a targeted volatility of 8-16%. More interestingly, the find explicitly talks about limiting its transaction costs.

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nedsaid
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Re: QSPIX - thoughts on interesting fund

Post by nedsaid » Thu Sep 06, 2018 11:54 pm

Elysium wrote:
Thu Sep 06, 2018 9:40 pm
Random Walker wrote:
Thu Sep 06, 2018 8:11 am
As I’ve noted before, I’m a client of his firm. I post his writings only because I think they are so valuable to us amateur individual investors, and they serve as excellent starting points for Boglehead discussions. He takes current academic literature and makes it accessible, understandable, and usable for us non professionals. By “we”, I simply mean us investors looking to create better portfolios for ourselves.
Dave
I am sorry Dave, but not everyone agrees with this, many are too polite to say it including myself. But I must say since the topic came up, Larry's advice has not been benefitial to the average amateur investor on this forum for quite a while now. It is true that he espoused passive investing and brought discussions on academic theory to the forum in the early days, however, since 2007-08 onwards it has taken a turn when he started backing alternative investments such as PIMCO CCF Fund (PCRIX), and the latest bunch of alternatives thereafter. Most of these funds are not only high cost to the investors, but they have been losing money. In fact, he simply stopped supporting CCF without even explaining about it on this forum, and many people who would have followed his advice had lost a lot of money on that investment alone. The current bunch of alternatives are likely to have same effect. I do not believe many people here follow Larry's opinions anymore, which is sort of unfortunate because he had a lot to offer once upon a time.
Actually, Larry has explained his changed position on Collateralized Commodity Futures on this forum. He also has explained why he once recommended them and the factors that caused him to change his mind. Somewhere here, there is a thread where Larry Swedroe and Rick Ferri had a spirited debate about CCFs. Larry was for them and Rick was against them. He also has explained in detail why he changed his mind about REITs as well.

The 2008-2009 financial crisis really changed a lot of things. First, Value has been on an extended vacation since then. So this has been a big factor in causing Small/Value tilted portfolios to underperform the Taylor Larimore 3 fund portfolio. Second, the diversifiers that worked during the 2000-2002 bear market were a big fail in 2008-2009. REITs, Smaller Stocks, Value, and even TIPS fell hard. Commodities and Precious Metal Stocks also helped during 2000-2002 but crashed hard in 2008-2009. Pretty much, the big financial crisis ended the commodities bull market.

In the recovery after the financial crisis and the Great Recession, REITs and TIPS ran up so much in price that many Bogleheads lost interest in them. Commodities never really recovered. So a lot of the old fashioned alternatives fell out of favor. Hence the search for new diversifiers.

Larry's journey into the new alternatives such as QSPIX has been controversial. He also has recommend Variance Risk Premium, Alternative Lending, and Reinsurance. Larry has put a lot of his own money in these investments, so his money is where his mouth is. For the record, I have not purchased any such alternative funds though I believe them to be worthy of consideration. It really is a matter of philosophy.

But no one here is above critique. I recall a lot of spirited discussions that Larry had here with forum members. We should examine his ideas just as we examine anyone else's.
A fool and his money are good for business.

hdas
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Re: QSPIX - thoughts on interesting fund

Post by hdas » Fri Sep 07, 2018 5:34 am

nedsaid wrote:
Thu Sep 06, 2018 11:54 pm
We should examine his ideas just as we examine anyone else's.
Its remarkable how many ppl in this worthy forum pay attention to these personages. The sagacious marketers are prevalent and have been prevalent in the world of investment, nutrition, fitness, anti-aging. Why ppl should care about self-serving opinions? ......Likely not everybody can think for themselves and focus on principles, they need a guru, pastor, coach, advisor. I wish one could be more hopeful that the younger generation of investors will end up transferring less % of their assets to the marketers and middleman.

The only prescription is to refer ppl to Dimson et al. https://press.princeton.edu/titles/7239.html

Cheers :greedy

Elysium
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Re: QSPIX - thoughts on interesting fund

Post by Elysium » Fri Sep 07, 2018 7:58 am

nedsaid wrote:
Thu Sep 06, 2018 11:54 pm
Elysium wrote:
Thu Sep 06, 2018 9:40 pm
Random Walker wrote:
Thu Sep 06, 2018 8:11 am
As I’ve noted before, I’m a client of his firm. I post his writings only because I think they are so valuable to us amateur individual investors, and they serve as excellent starting points for Boglehead discussions. He takes current academic literature and makes it accessible, understandable, and usable for us non professionals. By “we”, I simply mean us investors looking to create better portfolios for ourselves.
Dave
I am sorry Dave, but not everyone agrees with this, many are too polite to say it including myself. But I must say since the topic came up, Larry's advice has not been benefitial to the average amateur investor on this forum for quite a while now. It is true that he espoused passive investing and brought discussions on academic theory to the forum in the early days, however, since 2007-08 onwards it has taken a turn when he started backing alternative investments such as PIMCO CCF Fund (PCRIX), and the latest bunch of alternatives thereafter. Most of these funds are not only high cost to the investors, but they have been losing money. In fact, he simply stopped supporting CCF without even explaining about it on this forum, and many people who would have followed his advice had lost a lot of money on that investment alone. The current bunch of alternatives are likely to have same effect. I do not believe many people here follow Larry's opinions anymore, which is sort of unfortunate because he had a lot to offer once upon a time.
Actually, Larry has explained his changed position on Collateralized Commodity Futures on this forum. He also has explained why he once recommended them and the factors that caused him to change his mind. Somewhere here, there is a thread where Larry Swedroe and Rick Ferri had a spirited debate about CCFs. Larry was for them and Rick was against them. He also has explained in detail why he changed his mind about REITs as well.

The 2008-2009 financial crisis really changed a lot of things. First, Value has been on an extended vacation since then. So this has been a big factor in causing Small/Value tilted portfolios to underperform the Taylor Larimore 3 fund portfolio. Second, the diversifiers that worked during the 2000-2002 bear market were a big fail in 2008-2009. REITs, Smaller Stocks, Value, and even TIPS fell hard. Commodities and Precious Metal Stocks also helped during 2000-2002 but crashed hard in 2008-2009. Pretty much, the big financial crisis ended the commodities bull market.

In the recovery after the financial crisis and the Great Recession, REITs and TIPS ran up so much in price that many Bogleheads lost interest in them. Commodities never really recovered. So a lot of the old fashioned alternatives fell out of favor. Hence the search for new diversifiers.

Larry's journey into the new alternatives such as QSPIX has been controversial. He also has recommend Variance Risk Premium, Alternative Lending, and Reinsurance. Larry has put a lot of his own money in these investments, so his money is where his mouth is. For the record, I have not purchased any such alternative funds though I believe them to be worthy of consideration. It really is a matter of philosophy.

But no one here is above critique. I recall a lot of spirited discussions that Larry had here with forum members. We should examine his ideas just as we examine anyone else's.
The larger point here is, to put it very bluntly, he has flip flopped on CCF, REIT, Alternatives, and has been all over the place. This forum is for DIY investors who mostly are inspired by the work of Jack Bogle, and while there is room for spirited academic discussions, we cannot let that influence our portfolios every time there is something new. Therefore, his advice is not benefitial to the average DIY investor here. In fact, in order to follow his advice you have to be a client of his firm where they make these decisions for you and you trust them with your money, no matter what. I don't, and making a reasonable guess most on this forum do not need it. It may work very well for Dave since he is a client of Larry, and that is the only way in my conclusion someone is going to benefit from his work. It is neither actionable, or advisable for the average DIY investor here. Just my humble opinion.

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Re: QSPIX - thoughts on interesting fund

Post by marcopolo » Fri Sep 07, 2018 8:43 am

nedsaid wrote:
Thu Sep 06, 2018 11:54 pm

Actually, Larry has explained his changed position on Collateralized Commodity Futures on this forum. He also has explained why he once recommended them and the factors that caused him to change his mind. Somewhere here, there is a thread where Larry Swedroe and Rick Ferri had a spirited debate about CCFs. Larry was for them and Rick was against them. He also has explained in detail why he changed his mind about REITs as well.
I feel like I have had this conversation before (on the "four horseman" thread?).
But, I will try to briefly state my concerns again.

On the surface the explanation for the change of position makes sense. Where i have concerns is that we are repeatedly told that these ALTs, Factors, etc. require patience. They can often under-perform, sometimes for long periods of time, but if one stays patient, they will eventually be rewarded.

But, then we are told, well CCF, REITS, etc. that we once recommended to serve this purpose are no longer the right answer, but here, try these shiny new things. This is AFTER someone who followed the recommendation suffered through the long period of under performance, but never stuck around long enough to reap the supposed rewards.

What is to say that the new recommendation will not suffer a similar fate. They are already under performing, so that part is working as advertised. Will we also be told to bail again for the a new, new thing before we get the promised payoff from the current new thing?

All for the low price of 2+% expense ratio plus whatever the FA is charging to provide access to the funds...

Perhaps, in the long run it does improve portfolio efficiency, but it seems to come at a very steep cost that is certain for a gain that is theoretical, at best.
Once in a while you get shown the light, in the strangest of places if you look at it right.

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Re: QSPIX - thoughts on interesting fund

Post by marcopolo » Fri Sep 07, 2018 9:05 am

nedsaid wrote:
Thu Sep 06, 2018 11:54 pm

But no one here is above critique. I recall a lot of spirited discussions that Larry had here with forum members. We should examine his ideas just as we examine anyone else's.
That is an interesting point. I respect a lot of the advice Larry has provided over the years.

I do wonder how this conversation would be going if we substituted Edward Jones for Larry in these latest ALT recommendations.

"After their previous ALT recommendations under performed for years, EJ now recommends selling them and buying these new ALTs that charge 2+% ER, with the same promised equity like returns with lower variance."

I suspect we would be hearing a lot more howling about churning, high fees, etc.
Once in a while you get shown the light, in the strangest of places if you look at it right.

Random Walker
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Re: QSPIX - thoughts on interesting fund

Post by Random Walker » Fri Sep 07, 2018 9:36 am

It’s good to read critical, but too much skepticism can blind one from learning something valuable. Larry’s posts, articles, and books simply are not the self serving marketing many suppose them to be. Way too much work for I believe virtually no monetary return. As I said above, people need to look at the specific recommendations over time in the context of modern portfolio theory and portfolio efficiency. They also need to appreciate that finance evolves and new products become available. We only have limited space in our portfolios, especially tax advantaged space, so difficult decisions sometimes need to be made in dumping one investment for another. And is it that horrible if a guy keeps half an eye on valuations? As stated above, he has talked very specifically about the CCF’s issue.

Costs are certain and the advantages of more complex portfolios only potential. But if one is going to choose the simpler and cheaper portfolio, way better to do so understanding the potential advantages he is choosing against. If a TSM investor understands the potential advantages of more complex and expensive portfolios and actively chooses the low cost TSM approach, he will have more conviction to stick to his plan when the markets tank.

Dave

Elysium
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Re: QSPIX - thoughts on interesting fund

Post by Elysium » Fri Sep 07, 2018 10:32 am

marcopolo wrote:
Fri Sep 07, 2018 8:43 am
But, then we are told, well CCF, REITS, etc. that we once recommended to serve this purpose are no longer the right answer, but here, try these shiny new things. This is AFTER someone who followed the recommendation suffered through the long period of under performance, but never stuck around long enough to reap the supposed rewards.

What is to say that the new recommendation will not suffer a similar fate. They are already under performing, so that part is working as advertised. Will we also be told to bail again for the a new, new thing before we get the promised payoff from the current new thing?

All for the low price of 2+% expense ratio plus whatever the FA is charging to provide access to the funds...

Perhaps, in the long run it does improve portfolio efficiency, but it seems to come at a very steep cost that is certain for a gain that is theoretical, at best.
Exactly!

In my view his judgement has been very off, and quite detrimental to the well being of DIY investor. I have said enough, and going to move on from this topic.

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Re: QSPIX - thoughts on interesting fund

Post by nisiprius » Fri Sep 07, 2018 10:48 am

nedsaid wrote:
Thu Sep 06, 2018 11:54 pm
...Actually, Larry has explained his changed position on Collateralized Commodity Futures on this forum. He also has explained why he once recommended them and the factors that caused him to change his mind...
But he then changed his mind again. (That's a caricature of his views and people should read his articles to get his complete views in context.) His 2018 article, "Don't Count Out Commodities," was introduced in this forum by Random Walker here.

1) Favorable: The Gorton and Rouwenhorst era. Following the publication of a couple of influential articles in 2006, one of them being Facts and Fantasies about Commodity Futures, by Gary Gorton and K. Geert Rouwenhorst, there was something in between a bandwagon and a consensus in favor of adding commodities to general-purpose retirement savings portfolios. Fidelity added a 10% allocation to all of its target-date Freedom Funds, for example. Larry Swedroe was part of that broad consensus. There followed a pronounced example of a hot asset class mysteriously cooling off just when ordinary retail investors began to invest in it.

2) Unfavorable: "Financialization of commodities," marked in this forum by discussion of William J. Bernstein's 2012 "Skating Where the Puck Was." In 2017 Larry Swedroe wrote Financializing Commodities, in which he spoke favorably about two articles, the second entitled “Is Financialization Killing Commodity Investments?” He concluded that "The evidence suggests that financialization has led to changes" and that "the diversification benefits—which justify investors’ inclusion of commodities in a diversified portfolio—have been reduced."

3) Favorable. In 2018 he wrote--the article originally appeared in ETF.com, but I can't seem to find it on that site: Don't Count Out Commodities. Read the whole article to get his complete views in context. Selected snippets, and my boldfacing:
The asset class with the worst performance over the past 10 years is collateralized commodity futures (CCFs)... To examine results from the proper perspective, I’ll review the reasons I’ve recommended that investors consider adding a small allocation to CCFs to their portfolios.... In Appendix H to the 2005 edition of my book “The Only Guide to a Winning Investment Strategy You’ll Ever Need,” I laid out the case for considering an allocation to commodities.... Remember, only fools judge strategies by outcomes without considering what alternative universes might have shown up. CCFs were meant to act as insurance, and the risks they were intended to mitigate didn't show up.... The bottom line is that the case for including commodities as a diversifier of risks, hedging against certain types of risk, still holds.
(In that article, though, he doesn't actually advocate investing in CCFs, because "Recent innovations in finance... have provided investors with options I believe are superior to commodities in diversifying risk. Four alternatives investors may consider ahead of commodities are AQR’s long/short Style Premia Alternative Fund (QSPRX), and [three Stone Ridge interval funds.]")
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Re: QSPIX - thoughts on interesting fund

Post by nedsaid » Fri Sep 07, 2018 1:06 pm

marcopolo wrote:
Fri Sep 07, 2018 9:05 am
nedsaid wrote:
Thu Sep 06, 2018 11:54 pm

But no one here is above critique. I recall a lot of spirited discussions that Larry had here with forum members. We should examine his ideas just as we examine anyone else's.
That is an interesting point. I respect a lot of the advice Larry has provided over the years.

I do wonder how this conversation would be going if we substituted Edward Jones for Larry in these latest ALT recommendations.

"After their previous ALT recommendations under performed for years, EJ now recommends selling them and buying these new ALTs that charge 2+% ER, with the same promised equity like returns with lower variance."

I suspect we would be hearing a lot more howling about churning, high fees, etc.
I try to be open to new ideas and I have tried different things over my investment career. I was an early adopter for such things as Emerging Markets, REITs and later TIPS. Later on, I ventured into International Bonds, about 2005. I try to be forward looking. So I guess that I am guilty of a lot of the same things that Larry is guilty of. If I had been 100% "stay the course" my IRA would still be in FDIC Insured Certificates of Deposit. I would be 100% in active mutual funds and individual stocks with my other accounts. But I made changes as I learned more. I suspect Larry has done the same.
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Re: QSPIX - thoughts on interesting fund

Post by nedsaid » Fri Sep 07, 2018 1:22 pm

marcopolo wrote:
Fri Sep 07, 2018 8:43 am
nedsaid wrote:
Thu Sep 06, 2018 11:54 pm

Actually, Larry has explained his changed position on Collateralized Commodity Futures on this forum. He also has explained why he once recommended them and the factors that caused him to change his mind. Somewhere here, there is a thread where Larry Swedroe and Rick Ferri had a spirited debate about CCFs. Larry was for them and Rick was against them. He also has explained in detail why he changed his mind about REITs as well.
I feel like I have had this conversation before (on the "four horseman" thread?).
But, I will try to briefly state my concerns again.

On the surface the explanation for the change of position makes sense. Where i have concerns is that we are repeatedly told that these ALTs, Factors, etc. require patience. They can often under-perform, sometimes for long periods of time, but if one stays patient, they will eventually be rewarded.

But, then we are told, well CCF, REITS, etc. that we once recommended to serve this purpose are no longer the right answer, but here, try these shiny new things. This is AFTER someone who followed the recommendation suffered through the long period of under performance, but never stuck around long enough to reap the supposed rewards.

What is to say that the new recommendation will not suffer a similar fate. They are already under performing, so that part is working as advertised. Will we also be told to bail again for the a new, new thing before we get the promised payoff from the current new thing?

All for the low price of 2+% expense ratio plus whatever the FA is charging to provide access to the funds...

Perhaps, in the long run it does improve portfolio efficiency, but it seems to come at a very steep cost that is certain for a gain that is theoretical, at best.
What you are describing is the "late to the party" problem. David Swenson at Yale was an early adopter of alternative investment strategies and putting a lot of the endowment into semi-liquid or illiquid investments. Other college endowments trying Swenson's strategies did not enjoy his success. Swenson was the early bird that got the worm and the later comers were left scratching in the dirt.

This is a concern, and a legitimate one about Larry's recommendations. First, the Hedge Funds and Arbitrageurs find out about market anomalies that can be exploited. After that, the academic researchers discover it. Then investment companies offer products available through advisors. Finally, fellows like Larry start recommending these products to clients. The question is if Larry is still early enough that market inefficiencies can be exploited. We haven't reached the point where these products are available to retail investors at which point the party is probably over.

A second question to be raised is whether or not these premiums will disappear, or be financialized away. In other words, at some point so much money flows in that historical relationships between asset classes disappear.

I remember, vaguely, in the foggiest reaches of my memory banks, that Dr. Bill Bernstein said that over very long periods of time that stocks and bonds have identical returns. As societies get richer and richer, investment returns decrease over time, particularly in the equity markets. So it is possible that given enough time that even the equity risk premium could disappear.

What Larry has said is that he expects the premiums for the alternatives to narrow but not disappear.
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matjen
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Re: QSPIX - thoughts on interesting fund

Post by matjen » Fri Sep 07, 2018 1:23 pm

Rather than focus on Larry (who I admire and has been a valuable resource to this forum), I would rather focus on QSPIX! Cliff Asness/AQR just came out with something FWIW.

Liquid Alt Ragnarök?
https://www.aqr.com/Insights/Perspectiv ... t-Ragnarok

In short, don't fall for the FUD from critics who can't even get something as basic as the ER correct.
Introduction
This is one of those notes. You know, one from an investment manager who has recently been doing crappy. I’ve
written them before, but not for a while and so I am a bit out of practice. I must admit up front that they all sound
kind of alike to me. Performance attribution sounds like an excuse; as if describing what’s causing the pain is an
attempt to avoid responsibility for it. There is often at least a dash of a tone of “we’re losing because everyone
else is an idiot.” Optimism for the future often sounds forced and self-serving. I write this in full knowledge that
some will react that same way to this note. I might, were I the one reading not writing it. That said, I do hope the
below is different from the norm.

For instance, this note is less about specific recent events and more about tough times in general, the psychology
that makes them so tough, and what to do during such times.2
It’s mostly not about specific performanceattribution (we do that in lots of other places). It doesn’t claim that you better hurry up and get in or stay investednow as a big rebound is coming any day. It does more basic (and hopefully more useful) things. It makes the case
for including liquid alts from scratch, something we can all need reminding of during tough times. It argues that
this case is still strong and unchanged by recent travails.3 It discusses at length the psychology that makes
sticking with a good investment process through bad times so difficult, often using my own psychology as an
example of how hard this can be (and, admittedly, a bit of a cathartic admission for me).4
I hope that this note provides useful discussion of some very important and very general issues in investing that also happens to accurately convey my honest conviction that well-constructed, low-correlated liquid alternatives are an important
part of a portfolio. Recent performance does not change this fact. But I’m conscious of what I’m up against, unless
you readers are less cynical than I am!
and
It seems obvious that when you have strategies that have worked long-term, in historical simulations and in
real life, and that are experiencing a painful but not off-the-charts period, performance alone shouldn’t change
your views on what to do going forward. If you believed in something before a bad 6-8 months 34, it’s frankly just odd to change your view because of the tough period. Yet it’s incredibly common and very difficult to combat.35
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 nisiprius » Fri Sep 07, 2018 2:09 pm

matjen wrote:
Fri Sep 07, 2018 1:23 pm
...critics who can't even get something as basic as the ER correct...
Please clarify what you mean by that.

According to AQR, the total expenses for QSPIX amount to 2.32% net; and the total expenses for QSPRX amount to 2.23% net. I mention QSPRX because QSPIX is currently closed, and QSPRX is what Larry Swedroe has been mentioning lately, but they are almost identical.

2.23% is the number Morningstar, and several other sources I've consulted, cite as the expense ratio:

Image

The number is the number. If a critic has cited a different number as "the ER," then, yes, shame on them.

If someone want to argue that the expense ratio as calculated by SEC rules is misleading, and a disservice to investors, they should make that case to the SEC.
Last edited by nisiprius on Fri Sep 07, 2018 2:16 pm, edited 5 times in total.
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Re: QSPIX - thoughts on interesting fund

Post by nedsaid » Fri Sep 07, 2018 2:10 pm

nisiprius wrote:
Fri Sep 07, 2018 10:48 am
nedsaid wrote:
Thu Sep 06, 2018 11:54 pm
...Actually, Larry has explained his changed position on Collateralized Commodity Futures on this forum. He also has explained why he once recommended them and the factors that caused him to change his mind...
But he then changed his mind again.
Well, I have been accused around here of being wishy-washy. I have said some good things about alts in some places and expressed my doubts in others. Pretty much thinking aloud, running those things through my mind, and putting those thoughts in my posts. So yes, there is a lot of hemming and hawing and thrashing around. The truth is that I am internally conflicted on certain topics, even factor tilting.

So yes, Larry has done the same thing. If you watch Jack Bogle's videos, you can see a lot of thinking aloud and going back and forth on certain topics. I could do a whole detailed post on statements that Bogle has made over his career that are both surprising and inconsistent with other statements he has made. For example, Bogle cut his equities from 70% down to, depending upon which version of the story you believe, 50% stocks or 30% stocks. Mr. Stay the Course didn't stay the course himself. Bogle once wrote an article under a pseudonym extolling the virtues of active management. Bogle made investments in his son's quant fund despite criticizing quant funds in his book on mutual funds. He took a conservative Wellington Fund and turned it into an Aggressive Growth fund and got fired in the process. You could pillory Bogle for flip flopping and for changing his mind. In reality, Bogle has been pretty consistent over the years but he has tried things and will think aloud.

Let's just let Larry be Larry. We are free to agree or disagree with his points but he has added a lot to discussions here particularly about the cutting edge of academic research. Many of us here have thrashed around more than we will admit. I would like to keep hearing from Larry and I would like to keep his valuable contributions to the forum.
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Re: QSPIX - thoughts on interesting fund

Post by matjen » Fri Sep 07, 2018 2:18 pm

Nisi I was referring to QSPIX (which is the thread title after all and referred to in my post). There has been a long history about the ER on it. Lackey mentioned as well. Check footnotes for net. 1.5 or 1.6

viewtopic.php?t=167241&start=1300

PS. If you read the Asness essay at the top of page 14 I think he covers what you were trying to do with the long-only comparison. Others have pointed this out of course as well. Has been a few days since I read any of that so may be misstating what you were getting at.
Going the other way, losing in more conventional form, as Keynes warned us about, is easier. We know this first
hand because we manage both long-only and long-short versions of these strategies. In our long-only portfolios
we use the same set of strategies to try to add value to a conventional benchmark (like the S&P 500 or MSCI
EAFE) by overweighting those securities we like and underweighting those we don’t relative to their weights in the
benchmark portfolio. We call these active or enhanced portfolios.62 In the current market, where the strategies are
suffering but stock markets are up, an active stock portfolio of this type would likely be trailing its benchmark. But
it would also quite likely still be up as U.S. stocks continue their bull run.63

In contrast, in a long-short or liquid alt portfolio, in this environment, you would actually be losing money — the
market doesn’t help you. Of course, when you win it’s generally regardless of market direction too, and this is,
of course, the actual point.
Furthermore, if the long-short portfolio takes any decent amount of risk64,65 those
losses might be significant (as the gains may be in good times). Many long-only implementations can suffer
from the opposite problem — not taking enough risk to really matter (benchmark hugging). Even though
precisely the same economics are driving the long-only relative underperformance and the long-short absolute
underperformance, many investors just find the traditional long-only much easier to live with (and to justify
to others).
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 marcopolo » Fri Sep 07, 2018 2:39 pm

matjen wrote:
Fri Sep 07, 2018 2:18 pm
Nisi I was referring to QSPIX (which is the thread title after all and referred to in my post). There has been a long history about the ER on it. Lackey mentioned as well. Check footnotes for net. 1.5 or 1.6

viewtopic.php?t=167241&start=1300
I guess i am one of those idiots you were referring to who can't even compute a basic ER. That is why I rely on a set of rules that have been standardized across the industry. You know, exactly how AQR themselves report the ER. But, i guess if that does not suit your narrative, you can always look to some other number buried in a footnote to justify whatever you want.

See, the car only cost $20,000, if you don't coun't the $10,000 we have to pay for the engine that goes in it.
Once in a while you get shown the light, in the strangest of places if you look at it right.

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Re: QSPIX - thoughts on interesting fund

Post by nisiprius » Fri Sep 07, 2018 2:45 pm

matjen wrote:
Fri Sep 07, 2018 2:18 pm
Nisi I was referring to QSPIX (which is the thread title after all and referred to in my post). There has been a long history about the ER on it. Lackey mentioned as well. Check footnotes for net. 1.5 or 1.6.
I see footnote 4. That's not total expenses. It's a number AQR thinks is relevant and that investors ought to know, but it's not total expenses. If AQR wants to say that's total expenses, let them call it "total expenses" and publish it as "total expenses." Until they do, that number in the footnote is not the expense ratio.

The "total expenses" for QSPIX amounts to 2.33% net. AQR says so. Morningstar says ER 2.33%. Google says ER 2.33%. Fidelity says ER 2.33%. Yahoo! Finance happens to be showing ER 2.31% right now as I write this. Schwab says ER 2.33%.

I get it that it is your opinion, and that of some other people, that the expense ratio is a goofy number for QSPIX that misleads investors, but it is, nevertheless, the expense ratio.

AQR:
Image

Image

Morningstar:
Image
Last edited by nisiprius on Fri Sep 07, 2018 2:54 pm, edited 4 times in total.
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Re: QSPIX - thoughts on interesting fund

Post by marcopolo » Fri Sep 07, 2018 2:47 pm

Correct me if i am wrong, but I believe these funds are only available through an advisor. So, to the consumer the fees would likely be even higher, right?
That is going to take a LOT of portfolio efficiency improvements to overcome.

I hope it works out for you true believers.

I am going to sit this one out and stick to my low-cost simple-minded portfolio cause evidently I am not that bright.
marcopolo wrote:
Fri Sep 07, 2018 2:39 pm
matjen wrote:
Fri Sep 07, 2018 2:18 pm
Nisi I was referring to QSPIX (which is the thread title after all and referred to in my post). There has been a long history about the ER on it. Lackey mentioned as well. Check footnotes for net. 1.5 or 1.6

viewtopic.php?t=167241&start=1300
I guess i am one of those idiots you were referring to who can't even compute a basic ER. That is why I rely on a set of rules that have been standardized across the industry. You know, exactly how AQR themselves report the ER. But, i guess if that does not suit your narrative, you can always look to some other number buried in a footnote to justify whatever you want.

See, the car only cost $20,000, if you don't coun't the $10,000 we have to pay for the engine that goes in it.
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Re: QSPIX - thoughts on interesting fund

Post by Ketawa » Fri Sep 07, 2018 2:51 pm

nisiprius wrote:
Fri Sep 07, 2018 2:09 pm
If someone want to argue that the expense ratio as calculated by SEC rules is misleading, and a disservice to investors, they should make that case to the SEC.
marcopolo wrote:
Fri Sep 07, 2018 2:39 pm
I guess i am one of those idiots you were referring to who can't even compute a basic ER. That is why I rely on a set of rules that have been standardized across the industry. You know, exactly how AQR themselves report the ER. But, i guess if that does not suit your narrative, you can always look to some other number buried in a footnote to justify whatever you want.

See, the car only cost $20,000, if you don't coun't the $10,000 we have to pay for the engine that goes in it.
I'll bite. Dividends paid on short sales are required to be reported as expenses. This is nonsensical. The value of a short goes up when a dividend is paid for the same reason the NAV of a mutual fund drops when a dividend is received. Do we reduce the ER of mutual funds by the amount of received dividends?

Acquired fund fees and expenses are also not real expenses incurred by the fund. Here is a post by grabiner explaining why.
grabiner wrote:
Thu Jan 26, 2017 9:42 pm
I was that poster. The way I computed the "real fee" was by looking at the prospectus, which says "Acquired fund fees and expenses." These fees should not be counted as part of the expenses when the acquired fees are on publicly traded securities (In contrast, they should be counted when the fees are on other mutual funds. Vanguard's Target Retirement funds, for example, have 0% fees of their own, and all of their fees are the acquired fees from the Vanguard funds they hold; the reported expense ratio is the real expense ratio).

In any case, the fee is no longer an issue, as these indexes no longer hold Business Development Companies. The current expense ratio is 0.20% on VTWV, which is all real, and 0.08% on VBR, which is also a real expense ratio.

This is why I prefer VBR over VIOV or VTWV, even though VBR has somewhat less exposure to small-cap value; you can hold more in VBR at less of an additional cost, to compensate for the reduced exposure.

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Re: QSPIX - thoughts on interesting fund

Post by Ketawa » Fri Sep 07, 2018 2:52 pm

marcopolo wrote:
Fri Sep 07, 2018 2:47 pm
Correct me if i am wrong, but I believe these funds are only available through an advisor. So, to the consumer the fees would likely be even higher, right?
That is going to take a LOT of portfolio efficiency improvements to overcome.

I hope it works out for you true believers.

I am going to sit this one out and stick to my low-cost simple-minded portfolio cause evidently I am not that bright.
I hold QSPIX, QSPNX, and several other AQR Funds in my Roth IRA at Fidelity and do not pay any fees.

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Re: QSPIX - thoughts on interesting fund

Post by matjen » Fri Sep 07, 2018 2:53 pm

Marcopolo, you are late to this thread and as far as I am concerned Nisi is being incredibly narrow. There were long discussions about the ER and what matters to most is what they are paying. If a car has a list price of 30K and you buy it on sale for 27.5K do you tell people you paid 30K for your new car?

I believe there was a period where you could get into the fund without advisor access. Not sure about now. Even so, you can get access to DFA/AQR, etc. for a flat 1K a year for your entire household's investment accounts (meaning husband and wife). For smaller asset amounts that would sting I suppose and I agree with you. For larger ones it is a rounding error.
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Re: QSPIX - thoughts on interesting fund

Post by packer16 » Fri Sep 07, 2018 3:05 pm

QSPIX does not need to short dividend paying stocks, it has chosen a strategy that uses this to generate its return. To get other alternative asset returns you do not need to do this, thus is this cost that AQR decides to use & paid to someone else an expense? I think it is as the investor does not care where his money goes to the manager or to someone else.

Packer
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Re: QSPIX - thoughts on interesting fund

Post by marcopolo » Fri Sep 07, 2018 3:05 pm

Ketawa wrote:
Fri Sep 07, 2018 2:52 pm
marcopolo wrote:
Fri Sep 07, 2018 2:47 pm
Correct me if i am wrong, but I believe these funds are only available through an advisor. So, to the consumer the fees would likely be even higher, right?
That is going to take a LOT of portfolio efficiency improvements to overcome.

I hope it works out for you true believers.

I am going to sit this one out and stick to my low-cost simple-minded portfolio cause evidently I am not that bright.
I hold QSPIX, QSPNX, and several other AQR Funds in my Roth IRA at Fidelity and do not pay any fees.
I just tried it to see. Fidelity gives me a message saying these funds are closed to new investors. I get the same message for QSPIX, QSPRX, and QSPNX. Maybe you are grandfathered in?
Once in a while you get shown the light, in the strangest of places if you look at it right.

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Re: QSPIX - thoughts on interesting fund

Post by Ketawa » Fri Sep 07, 2018 3:13 pm

packer16 wrote:
Fri Sep 07, 2018 3:05 pm
QSPIX does not need to short dividend paying stocks, it has chosen a strategy that uses this to generate its return. To get other alternative asset returns you do not need to do this, thus is this cost that AQR decides to use & paid to someone else an expense? I think it is as the investor does not care where his money goes to the manager or to someone else.

Packer
This is not relevant. The value of a short goes up when a dividend is paid, so the expense is exactly offset by the increased value of the fund, and it does not matter that this is the fund's strategy. The fund could choose to invest in similar, non-dividend paying stocks, and this would not affect the money the investor takes home, on average. It would then have a lower reported expense ratio, but since dividends paid on shorts are not an actual expense, it wouldn't matter.

Here are the expenses from the prospectus.

Code: Select all

                                    Class I      Class N
Management Fee                        1.35%        1.35%
Distribution (12b-1) Fee               None        0.25%
Dividends on short sales              0.72%        0.72%
All other expenses                    0.15%        0.17%
Acquired Fund Fees and Expenses       0.11%        0.11%
Total Annual Fund Operating Expenses  2.33%        2.60%
Less: Fee Waivers and/or Expense Reimbursements
                                      0.00%        0.02%
The fee waiver only applies to QSPNX and reduces its costs by 0.02%. The actual costs of investing in the funds are 1.50% and 1.75% since dividends on short sales and acquired fund fees and expenses should not be counted. If you think they should be counted, I hope you start posting about how Total Stock Market is a great deal, since you're being paid 1.5% to hold it.
marcopolo wrote:
Fri Sep 07, 2018 3:05 pm
I just tried it to see. Fidelity gives me a message saying these funds are closed to new investors. I get the same message for QSPIX, QSPRX, and QSPNX. Maybe you are grandfathered in?
This is correct, they are closed to new investors.

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Re: QSPIX - thoughts on interesting fund

Post by marcopolo » Fri Sep 07, 2018 3:17 pm

matjen wrote:
Fri Sep 07, 2018 2:53 pm
Marcopolo, you are late to this thread and as far as I am concerned Nisi is being incredibly narrow. There were long discussions about the ER and what matters to most is what they are paying. If a car has a list price of 30K and you buy it on sale for 27.5K do you tell people you paid 30K for your new car?

I believe there was a period where you could get into the fund without advisor access. Not sure about now. Even so, you can get access to DFA/AQR, etc. for a flat 1K a year for your entire household's investment accounts (meaning husband and wife). For smaller asset amounts that would sting I suppose and I agree with you. For larger ones it is a rounding error.
I agree, what matters most is what you are paying. So, even for you inexpensive solution. If an investor with $1M portfolio decides to allocate 105 to QSPIX ($100,000), and we go with your definition of ER of 1.6 for the fund. We are now at a cost to the consumer of 2.6%.

So, if you insist on defining ER to only be the actual costs, it seems you should also include your advisor fee, right? So, it seems saying the ER is well above 2% is not unreasonable either way you want to look at it.
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Re: QSPIX - thoughts on interesting fund

Post by marcopolo » Fri Sep 07, 2018 3:20 pm

Ketawa wrote:
Fri Sep 07, 2018 3:13 pm
marcopolo wrote:
Fri Sep 07, 2018 3:05 pm
I just tried it to see. Fidelity gives me a message saying these funds are closed to new investors. I get the same message for QSPIX, QSPRX, and QSPNX. Maybe you are grandfathered in?
This is correct, they are closed to new investors.
I think they are only closed to new investors through retail outlets, forcing you to go through another layer of fees to get access to them.
Which i would think in your way of defining ER should be counted as an expense, and would drive the fees above 2% again for most people.
Once in a while you get shown the light, in the strangest of places if you look at it right.

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Re: QSPIX - thoughts on interesting fund

Post by matjen » Fri Sep 07, 2018 3:22 pm

marcopolo wrote:
Fri Sep 07, 2018 3:17 pm
matjen wrote:
Fri Sep 07, 2018 2:53 pm
Marcopolo, you are late to this thread and as far as I am concerned Nisi is being incredibly narrow. There were long discussions about the ER and what matters to most is what they are paying. If a car has a list price of 30K and you buy it on sale for 27.5K do you tell people you paid 30K for your new car?

I believe there was a period where you could get into the fund without advisor access. Not sure about now. Even so, you can get access to DFA/AQR, etc. for a flat 1K a year for your entire household's investment accounts (meaning husband and wife). For smaller asset amounts that would sting I suppose and I agree with you. For larger ones it is a rounding error.
I agree, what matters most is what you are paying. So, even for you inexpensive solution. If an investor with $1M portfolio decides to allocate 105 to QSPIX ($100,000), and we go with your definition of ER of 1.6 for the fund. We are now at a cost to the consumer of 2.6%.

So, if you insist on defining ER to only be the actual costs, it seems you should also include your advisor fee, right? So, it seems saying the ER is well above 2% is not unreasonable either way you want to look at it.
LOL. Who has the "narrative" now. What if you had 5 million in assets and most of them were in DFA and AQR? Spread that 1K extra over all of that. Advisor fees are another expense for sure but not to to be confused with the ER (however you want to define that).
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Re: QSPIX - thoughts on interesting fund

Post by marcopolo » Fri Sep 07, 2018 3:34 pm

matjen wrote:
Fri Sep 07, 2018 3:22 pm
marcopolo wrote:
Fri Sep 07, 2018 3:17 pm
matjen wrote:
Fri Sep 07, 2018 2:53 pm
Marcopolo, you are late to this thread and as far as I am concerned Nisi is being incredibly narrow. There were long discussions about the ER and what matters to most is what they are paying. If a car has a list price of 30K and you buy it on sale for 27.5K do you tell people you paid 30K for your new car?

I believe there was a period where you could get into the fund without advisor access. Not sure about now. Even so, you can get access to DFA/AQR, etc. for a flat 1K a year for your entire household's investment accounts (meaning husband and wife). For smaller asset amounts that would sting I suppose and I agree with you. For larger ones it is a rounding error.
I agree, what matters most is what you are paying. So, even for you inexpensive solution. If an investor with $1M portfolio decides to allocate 105 to QSPIX ($100,000), and we go with your definition of ER of 1.6 for the fund. We are now at a cost to the consumer of 2.6%.

So, if you insist on defining ER to only be the actual costs, it seems you should also include your advisor fee, right? So, it seems saying the ER is well above 2% is not unreasonable either way you want to look at it.
LOL. Who has the "narrative" now. What if you had 5 million in assets and most of them were in DFA and AQR? Spread that 1K extra over all of that. Advisor fees are another expense for sure but not to to be confused with the ER (however you want to define that).
Just to be clear, I was not wanting to define ER, there is a well accepted definition for that. You seem to want to re-define it to leave out some things you don't consider as expenses. I was simply pointing out that if you are going to do that, it would be consistent to then include other expenses (like advisor fees needed to access the funds) as part of your new ER definition, since they are actual expenses to the consumer.

I actually don't care all that much about this since whether it is 1.6 or 2.3, is not going to sway my decision to invest in this or not. I have already wasted more energy on this discussion than i intended.

Best of luck to you.
Once in a while you get shown the light, in the strangest of places if you look at it right.

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Re: QSPIX - thoughts on interesting fund

Post by Nate79 » Fri Sep 07, 2018 3:35 pm

1.35% ER is still VERY expensive. No matter if you debate how an ER is supposed to be calculated 1.35% is ridiculous to pay in addition to requiring an advisor.

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Re: QSPIX - thoughts on interesting fund

Post by Random Walker » Fri Sep 07, 2018 4:23 pm

nisiprius wrote:
Fri Sep 07, 2018 2:45 pm
matjen wrote:
Fri Sep 07, 2018 2:18 pm
Nisi I was referring to QSPIX (which is the thread title after all and referred to in my post). There has been a long history about the ER on it. Lackey mentioned as well. Check footnotes for net. 1.5 or 1.6.
I see footnote 4. That's not total expenses. It's a number AQR thinks is relevant and that investors ought to know, but it's not total expenses. If AQR wants to say that's total expenses, let them call it "total expenses" and publish it as "total expenses." Until they do, that number in the footnote is not the expense ratio.

The "total expenses" for QSPIX amounts to 2.33% net. AQR says so. Morningstar says ER 2.33%. Google says ER 2.33%. Fidelity says ER 2.33%. Yahoo! Finance happens to be showing ER 2.31% right now as I write this. Schwab says ER 2.33%.

I get it that it is your opinion, and that of some other people, that the expense ratio is a goofy number for QSPIX that misleads investors, but it is, nevertheless, the expense ratio.

AQR:
Image

Image

Morningstar:
Image
Dividends on short sales 0.72%
I think that’s just a cost of doing the business-generating the profits. So to me it seems appropriate to subtract that from the ER. 2.33%-0.72%=1.61%

Dave

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Re: QSPIX - thoughts on interesting fund

Post by grok87 » Fri Sep 07, 2018 4:36 pm

Random Walker wrote:
Fri Sep 07, 2018 4:23 pm
nisiprius wrote:
Fri Sep 07, 2018 2:45 pm
matjen wrote:
Fri Sep 07, 2018 2:18 pm
Nisi I was referring to QSPIX (which is the thread title after all and referred to in my post). There has been a long history about the ER on it. Lackey mentioned as well. Check footnotes for net. 1.5 or 1.6.
I see footnote 4. That's not total expenses. It's a number AQR thinks is relevant and that investors ought to know, but it's not total expenses. If AQR wants to say that's total expenses, let them call it "total expenses" and publish it as "total expenses." Until they do, that number in the footnote is not the expense ratio.

The "total expenses" for QSPIX amounts to 2.33% net. AQR says so. Morningstar says ER 2.33%. Google says ER 2.33%. Fidelity says ER 2.33%. Yahoo! Finance happens to be showing ER 2.31% right now as I write this. Schwab says ER 2.33%.

I get it that it is your opinion, and that of some other people, that the expense ratio is a goofy number for QSPIX that misleads investors, but it is, nevertheless, the expense ratio.

AQR:
Image

Image

Morningstar:
Image
Dividends on short sales 0.72%
I think that’s just a cost of doing the business-generating the profits. So to me it seems appropriate to subtract that from the ER. 2.33%-0.72%=1.61%

Dave
Keep calm and Boglehead on. KCBO.

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Re: QSPIX - thoughts on interesting fund

Post by grok87 » Fri Sep 07, 2018 4:41 pm

Random Walker wrote:
Fri Sep 07, 2018 4:23 pm
nisiprius wrote:
Fri Sep 07, 2018 2:45 pm
matjen wrote:
Fri Sep 07, 2018 2:18 pm
Nisi I was referring to QSPIX (which is the thread title after all and referred to in my post). There has been a long history about the ER on it. Lackey mentioned as well. Check footnotes for net. 1.5 or 1.6.
I see footnote 4. That's not total expenses. It's a number AQR thinks is relevant and that investors ought to know, but it's not total expenses. If AQR wants to say that's total expenses, let them call it "total expenses" and publish it as "total expenses." Until they do, that number in the footnote is not the expense ratio.

The "total expenses" for QSPIX amounts to 2.33% net. AQR says so. Morningstar says ER 2.33%. Google says ER 2.33%. Fidelity says ER 2.33%. Yahoo! Finance happens to be showing ER 2.31% right now as I write this. Schwab says ER 2.33%.

I get it that it is your opinion, and that of some other people, that the expense ratio is a goofy number for QSPIX that misleads investors, but it is, nevertheless, the expense ratio.

AQR:
Image

Image

Morningstar:
Image
Dividends on short sales 0.72%
I think that’s just a cost of doing the business-generating the profits. So to me it seems appropriate to subtract that from the ER. 2.33%-0.72%=1.61%

Dave
Agree. Vanguard does the same with its market neutral fund vmnfx. See footnote with single *
https://investor.vanguard.com/mutual-fu ... view/vmnfx
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Re: QSPIX - thoughts on interesting fund

Post by nisiprius » Fri Sep 07, 2018 5:55 pm

Random Walker wrote:
Fri Sep 07, 2018 4:23 pm
Dividends on short sales 0.72%...
I think that’s just a cost of doing the business-generating the profits. So to me it seems appropriate to subtract that from the ER. 2.33%-0.72%=1.61%
The expense ratio is still 2.33%. It may be appropriate to subtract a number from it to get another number, and for some purposes that other number may be more useful, more appropriate, or a better guide to decision-making than the expense ratio, but it isn't the expense ratio.

We don't subtract income and payroll tax from salary and call it "my salary." It may be more useful for almost every purpose to subtract them, but the result isn't "salary" any more, it's something else.
grok87 wrote:
Fri Sep 07, 2018 4:41 pm
Agree. Vanguard does the same with its market neutral fund vmnfx. See footnote with single *
https://investor.vanguard.com/mutual-fu ... view/vmnfx
Neither AQR nor Vanguard calls those footnote numbers the fund's ER.

Vanguard includes a footnote because they think it's something investors ought to know, and want to know, but it is not the expense ratio. It's just an interesting number in a footnote. It's the expense ratio minus something, it's not the expense ratio.

If you want to say "the expense ratio for VMNFX is a goofy number that should be ignored in making your investing decisions," OK, but don't say it's not the expense ratio, and don't say that's something that's isn't the expense ratio is.

What is the expense ratio for VMNFX?

TD Ameritrade says it's 1.54%. See screenshot.

Google says it's 1.54%: See screenshot.

Fidelity says it's 1.54%: See screenshot.

And, of course, Vanguard says it's 1.54%: See screenshot.

It's 1.54%.

And just the same thing is true of QSPIX. The ER is 2.33%.
Last edited by nisiprius on Fri Sep 07, 2018 6:17 pm, edited 1 time in total.
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Re: QSPIX - thoughts on interesting fund

Post by triceratop » Fri Sep 07, 2018 6:09 pm

I am not sure there is any disagreement that the fund pages for all of these funds under discussion truly do accurately display the gross/net expense ratio for the funds. The pictures seem besides the point and don't actually prove anything under dispute.
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Re: QSPIX - thoughts on interesting fund

Post by nisiprius » Fri Sep 07, 2018 6:15 pm

triceratop wrote:
Fri Sep 07, 2018 6:09 pm
I am not sure there is any disagreement that the fund pages for all of these funds under discussion truly do accurately display the gross/net expense ratio for the funds. The pictures seem besides the point and don't actually prove anything under dispute.
They are illustrative of general industry practice, and evidence that there should be no disagreement as to what is meant by "the expense ratio of VMNFX" or QSPIX, but since they were using an excessive amount of vertical screen real estate, I'll replace them with links.
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Re: QSPIX - thoughts on interesting fund

Post by matjen » Fri Sep 07, 2018 6:29 pm

nisiprius wrote:
Fri Sep 07, 2018 5:55 pm

Vanguard includes a footnote because they think it's something investors ought to know, and want to know, but it is not the expense ratio. It's just an interesting number in a footnote. It's the expense ratio minus something, it's not the expense ratio.

If you want to say "the expense ratio for VMNFX is a goofy number that should be ignored in making your investing decisions," OK, but don't say it's not the expense ratio, and don't say that's something that's isn't the expense ratio is.
Sure, it' s just not the relevant number Nisi. Surely you know this (as indicated in your post above). What you call an "interesting" number is the relevant number and that is what I was trying to quickly point out. It seems to me you have your concerns out of whack. 2.33% was being used as a cudgel unfairly.


viewtopic.php?f=10&t=167241&start=1250#p4099121

viewtopic.php?f=10&t=167241&start=1250#p4096440

viewtopic.php?f=10&t=167241&start=1250#p4099134

I will forever apologize for being a bit loose with the term but it is commonly understood on the forum that the ER = what you are paying for the fund in general terms. That's how I was using it. You seem to not want to give any credence to the context of the discussion.
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Re: QSPIX - thoughts on interesting fund

Post by lack_ey » Fri Sep 07, 2018 6:47 pm

For years Morningstar listed the figure without dividends on short sales for the expense ratio for funds like these, including Vanguard Market Neutral.


As a matter of consistency, it doesn't make sense to me that this would be included in the expense ratio. It's more along the lines of brokerage expenses, transaction costs, etc. that are part of the cost of running a portfolio—these are not part of the expense ratio. Not a management or administrative expense taken away by the fund managers.

It's not like getting dividends on the long side counts as negative expenses. If a fund is 150% long and 50% short stocks, it gets about as much dividends in net as a fund that's 100% long, but the dividends on the short side are now expenses? Logically, why?

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Re: QSPIX - thoughts on interesting fund

Post by Theoretical » Fri Sep 07, 2018 7:22 pm

I really wish all funds were required to report their transaction costs like they do their administrative fees.

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Re: QSPIX - thoughts on interesting fund

Post by grok87 » Fri Sep 07, 2018 7:31 pm

lack_ey wrote:
Fri Sep 07, 2018 6:47 pm
For years Morningstar listed the figure without dividends on short sales for the expense ratio for funds like these, including Vanguard Market Neutral.


As a matter of consistency, it doesn't make sense to me that this would be included in the expense ratio. It's more along the lines of brokerage expenses, transaction costs, etc. that are part of the cost of running a portfolio—these are not part of the expense ratio. Not a management or administrative expense taken away by the fund managers.

It's not like getting dividends on the long side counts as negative expenses. If a fund is 150% long and 50% short stocks, it gets about as much dividends in net as a fund that's 100% long, but the dividends on the short side are now expenses? Logically, why?
+1
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Re: QSPIX - thoughts on interesting fund

Post by daffyd » Sat Sep 08, 2018 3:58 am

Re: performance measurement for these funds, on a long-term basis the most reasonable way I've found to do it is to consider the expected Sharpe ratio and volatility.

For example, at 8% volatility with Sharpe ratio 0.7 I'd look for long term performance around 5.6% above bills. We could argue about our expectations but somewhere in the 4-6% above bills for these funds is credible. Given bills have barely any volatility, you will see large deviations from that target in any particular period.
onetime75 wrote:
Thu Sep 06, 2018 10:52 pm
It appears there is a new fund that may implement a similar investment strategy:
Parametric Research Affiliates Systematic Alternative Risk Premia Fund (ESATX)

The fund is only about a month old, so too soon to analyze, but it's good to see some competition in this space.
The parametric/research affiliates fund looks ok. Note they don't do anything with single stocks - it's all futures and forwards - so they don't have that extra shorting expense line in their ~1% fee. That gives them less breadth but simpler implementation. They also have a lower risk-weighting on momentum/trend than they do on value and carry, which I expect will be less diversifying during "bad times" at the margin than QRPNX. I'd be comfortable with it in an IRA, if available, but would not hold it in taxable accounts.

Note there's enormous competition in this space at the moment but it's all chasing institutional money. Other than some factor-loving advisors and us factor-junkies there's just not that much interest amongst individual investors, which is probably a good thing since the level of understanding required to stay the course in these strategies is clearly more nuanced than that required to stick with something like "diversify and keep costs to a minimum" (although the threads on international shares, or 100% stocks suggest even the "diversify" part of that can be hard).

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packer16
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Re: QSPIX - thoughts on interesting fund

Post by packer16 » Sat Sep 08, 2018 7:12 am

Given its recent performance, is the current shortfall within the range of expectations? My original understanding was the fund was going to control volatility. The implication is that with lower volatility the probability for loss would be less. If that is the case then why such a large negative deviation over a low risk asset like t-bills over the last 8 months? Could the competition of harvesting of premia & thus the decline in these premia have a negative effect on this fund that is magnified with leverage? In other words, if the premiums are declining due to the market becoming more efficient does this fund have a negative bias? Or is this a bet on consistent factor premiums continuing to exist?

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Re: QSPIX - thoughts on interesting fund

Post by lack_ey » Sat Sep 08, 2018 7:26 am

packer16 wrote:
Sat Sep 08, 2018 7:12 am
Given its recent performance, is the current shortfall within the range of expectations?
Yes, everything within about let's say -15% to 25% in a year should be typical, with I'm guessing maybe 10+% of the time outside that.

Target vol on average is about 10% annualized based on position sizes (which can vary some if certain styles are more or less in agreement at a given time). But distribution of course not going to be normal, though in backtest wasn't that terribly skewed or fat-tailed.
packer16 wrote:
Sat Sep 08, 2018 7:12 am
My original understanding was the fund was going to control volatility. The implication is that with lower volatility the probability for loss would be less.
Not really? It's taking a good amount of risk, controlling volatility only in the sense to be risky all the time, rather than let risk fall when everything is calmer (or let risk rise too much when underlying assets and trades are more volatile). The expectation is losses a lot of the time and not tame ones like in intermediate-term bonds because vol is higher.

But positive returns are more likely than negative returns in a given year, and the probability gets higher with longer periods. Assuming the underlying strategies are still net positive expected value after costs, which is less clear than for traditional things like equity beta but I think still a good shot.

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Re: QSPIX - thoughts on interesting fund

Post by larryswedroe » Sat Sep 08, 2018 8:40 am

To be helpful
Let's assume you expect 7% return (or say 5% above riskless) and the fund targets 10% vol. That means 2/3 of time returns should fall in between -3 and +17, and 95% of time between -13 and +27. So certainly the returns earned since inception are well within expectations.
Second, the fund does manage volatility by scaling positions based on vol. So as vol increases, positions are cut back and vice versa. Thus, vol can be more than 10%, which is just the target.
Larry

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Taylor Larimore
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It is dangerous to try and beat the market.

Post by Taylor Larimore » Sat Sep 08, 2018 11:11 am

Yesterdaysnews wrote:
Sat Jun 06, 2015 12:59 pm
While expensive, this fund is supposed to not correlate much with stock market. Swedroe seemed to like it.

You can get into this fund in a Fido IRA for $2500 minimum. otherwise $5 M minimum in taxable account.

I am considering allocation of my IRA to this.
yesterdaysnews:

In 2015, when you wrote your Opening Post (above), QSPIX ranked #2 in its Morningstar category.

Today in 2018, QSPIX ranks #97 in category (Large Value).

Lesson learned: It is dangerous to try and "beat the market."

Best wishes.
Taylor
Last edited by Taylor Larimore on Sat Sep 08, 2018 11:15 am, edited 4 times in total.
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Theoretical
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Re: QSPIX - thoughts on interesting fund

Post by Theoretical » Sat Sep 08, 2018 11:12 am

daffyd wrote:
Sat Sep 08, 2018 3:58 am
Re: performance measurement for these funds, on a long-term basis the most reasonable way I've found to do it is to consider the expected Sharpe ratio and volatility.

For example, at 8% volatility with Sharpe ratio 0.7 I'd look for long term performance around 5.6% above bills. We could argue about our expectations but somewhere in the 4-6% above bills for these funds is credible. Given bills have barely any volatility, you will see large deviations from that target in any particular period.
onetime75 wrote:
Thu Sep 06, 2018 10:52 pm
It appears there is a new fund that may implement a similar investment strategy:
Parametric Research Affiliates Systematic Alternative Risk Premia Fund (ESATX)

The fund is only about a month old, so too soon to analyze, but it's good to see some competition in this space.
The parametric/research affiliates fund looks ok. Note they don't do anything with single stocks - it's all futures and forwards - so they don't have that extra shorting expense line in their ~1% fee. That gives them less breadth but simpler implementation. They also have a lower risk-weighting on momentum/trend than they do on value and carry, which I expect will be less diversifying during "bad times" at the margin than QRPNX. I'd be comfortable with it in an IRA, if available, but would not hold it in taxable accounts.

Note there's enormous competition in this space at the moment but it's all chasing institutional money. Other than some factor-loving advisors and us factor-junkies there's just not that much interest amongst individual investors, which is probably a good thing since the level of understanding required to stay the course in these strategies is clearly more nuanced than that required to stick with something like "diversify and keep costs to a minimum" (although the threads on international shares, or 100% stocks suggest even the "diversify" part of that can be hard).
Re: the Parametric fund, from reading the Research Affiliates paper and the prospectus, I think they’ll be using total return swaps on long/short baskets of stocks. That’s how a lot of the other risk premia funds do it (like Janus and Columbia Threadneedle). It then becomes downright critical to wait for the semi-annual or annual report to drill down and find the swap fee agreement. That is not easy to find, based on looking through well over a dozen risk premia and managed futures funds’ prospectuses and annual reports.

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matjen
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Re: It is dangerous to try and beat the market.

Post by matjen » Sat Sep 08, 2018 12:23 pm

Taylor Larimore wrote:
Sat Sep 08, 2018 11:11 am
Yesterdaysnews wrote:
Sat Jun 06, 2015 12:59 pm
While expensive, this fund is supposed to not correlate much with stock market. Swedroe seemed to like it.

You can get into this fund in a Fido IRA for $2500 minimum. otherwise $5 M minimum in taxable account.

I am considering allocation of my IRA to this.
yesterdaysnews:

In 2015, when you wrote your Opening Post (above), QSPIX ranked #2 in its Morningstar category.

Today in 2018, QSPIX ranks #97 in category (Large Value).

Lesson learned: It is dangerous to try and "beat the market."

Best wishes.
Taylor
With all due respect Taylor, this is entirely wrong. Its category is Multialternative. I suppose you could argue that roughly a third of the fund has equities which are large cap value types of things.

From Morningstar:
The fund sets its asset allocation based on a risk budget targeted to the fund's overall 10% volatility target: The result is 30% individual global equities, 20% equity country indexes, 20% fixed income, 15% currencies, and 15% commodities.
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 Elysium » Sat Sep 08, 2018 12:50 pm

lack_ey wrote:
Sat Sep 08, 2018 7:26 am
The expectation is losses a lot of the time and not tame ones like in intermediate-term bonds because vol is higher.

But positive returns are more likely than negative returns in a given year, and the probability gets higher with longer periods. Assuming the underlying strategies are still net positive expected value after costs, which is less clear than for traditional things like equity beta but I think still a good shot.
Unfortunately, the likely reality is going to be a lot of losses over the years, as the strategy continues to fail and ER keeps further eroding whatever minuscule returns, and in the end you get nothing for holding it. This type of fund is very profitable for the fund companies and the financal advisors pushing them to boost their business, not for their clients. Financial history is full of such lessons, just have to look around. But, hey, it's your money and do what you like to do with it.

I am just going to go out on a limb here and predict this fund will return less than S&P 500 Index and may barely beat the LB Aggregate Bond Index over the next 10 years.

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Re: It is dangerous to try and beat the market.

Post by Elysium » Sat Sep 08, 2018 1:01 pm

matjen wrote:
Sat Sep 08, 2018 12:23 pm
Taylor Larimore wrote:
Sat Sep 08, 2018 11:11 am
Yesterdaysnews wrote:
Sat Jun 06, 2015 12:59 pm
While expensive, this fund is supposed to not correlate much with stock market. Swedroe seemed to like it.

You can get into this fund in a Fido IRA for $2500 minimum. otherwise $5 M minimum in taxable account.

I am considering allocation of my IRA to this.
yesterdaysnews:

In 2015, when you wrote your Opening Post (above), QSPIX ranked #2 in its Morningstar category.

Today in 2018, QSPIX ranks #97 in category (Large Value).

Lesson learned: It is dangerous to try and "beat the market."

Best wishes.
Taylor
With all due respect Taylor, this is entirely wrong. Its category is Multialternative. I suppose you could argue that roughly a third of the fund has equities which are large cap value types of things.

From Morningstar:
The fund sets its asset allocation based on a risk budget targeted to the fund's overall 10% volatility target: The result is 30% individual global equities, 20% equity country indexes, 20% fixed income, 15% currencies, and 15% commodities.
Morningstar has correctly categorized it as Multialternative, and has ranked it at 97 in that category.

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Re: QSPIX - thoughts on interesting fund

Post by lack_ey » Sat Sep 08, 2018 1:40 pm

Elysium wrote:
Sat Sep 08, 2018 12:50 pm
Unfortunately, the likely reality is going to be a lot of losses over the years, as the strategy continues to fail and ER keeps further eroding whatever minuscule returns, and in the end you get nothing for holding it. This type of fund is very profitable for the fund companies and the financal advisors pushing them to boost their business, not for their clients. Financial history is full of such lessons, just have to look around. But, hey, it's your money and do what you like to do with it.

I am just going to go out on a limb here and predict this fund will return less than S&P 500 Index and may barely beat the LB Aggregate Bond Index over the next 10 years.
The outcome I am looking for in alternatives is stock-like volatility with bond-like returns (above any equity or bond betas, which are zero here... obviously stock market return - 1% but with equity beta of 1 is unacceptable). So I don't really mind your prediction. Better than that would be nice, of course. I don't expect stock-like returns (meaning historical averages, like 5% real). The key is that in any given 10 years, stock returns are frequently not stock-like, meaning the average. Maybe stock or bond returns are negative and there's some positive return here.

I would prefer a much lower cost but I'm not seeing a lot of other funds providing these exposures. But I keep looking and would consider adding others and reducing allocations here. I haven't had a chance yet to study the other one mentioned above.

I would like to have true alpha but I don't think that is publicly available anywhere in a consistent way. A lot of funds have failed to deliver there. There's a lot more history in funds failing with respect to security selection, proprietary signals, market timing, etc. This fund is not about idiosyncratic alpha at all, just long-running, known strategies that lose money a lot of the time but have gained more than lost in the past.

There is a lot of history of value managers gaining over time, of momentum trading gaining positive returns (above betas), currency carry and other strategies earning money over time (though obviously losing a lot sometimes), institutional and individual bias towards riskier assets (so defensive assets having higher risk-adjusted return, the CML not being flat). Now, many of these haven't really happened in mutual fund land, but that doesn't mean that they didn't happen. That's what the fund bets on.

For portfolios heavily dominated by traditional asset betas, I just think it's worth the cost to try to get some returns elsewhere. Hopefully stocks and bonds do just fine and any kind of diversification ends up looking like deworsification. But maybe they won't.

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Re: QSPIX - thoughts on interesting fund

Post by packer16 » Sat Sep 08, 2018 2:12 pm

I think a better way to find non correlated returns is to find bond-like (income generating) assets that are modestly leveraged. Some examples are investment grade triple-net lease real estate (equivalent to first lean claims that are growing every year on underlying businesses), investment grade BDCs that invest in first lien loans and high yielding re-insurance firms (who keep there books small). These assets all come down to good underwriting in non-standard areas of the market. If you invest in equal amounts of these you can current yield of 8% with growth of about 2.5% per year. Some of these asset classes have been identified by Larry, re-insurance & alternative lending. However, IMO there are cheaper ways to access these alternative return thus the higher expected returns of 10.5%. Another cash flow based investment is a diversified infrastructure firm like BIP which has a 4.8% dividend with built-in growth of about 7.5% per year.

Although I find QSPIX interesting, IMO there are too many levers and active decisions to be made about weightings & leverage that make it more active than the passive asset class bets described above. Another interesting strategy is to put some low cost margin debt on the portfolio above as you can generate almost 20% returns in that way. If you lever up the portfolio above you can get 20% returns with today's interest rates.

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