I believe people say that's a straw man whenever you do it...because it clearly is. Just finding a marketing blurb where AQR leave themselves open to that kind of straw man argument doesn't mean your aren't.nisiprius wrote: ↑Sat Nov 10, 2018 7:24 am
If QSPIX has "equity like expected return," then it is fair to say that since inception, it has failed dismally to meet that expectation. (It's perfectly reasonable to add "but of course, five years is far to be soon to be making a judgement.")
Average annual return (CAGR) QSPIX, 4.85%, VFAIX (S&P 500 index fund) 11.30%.
Total money made by a $10,000 investment since inception, QSPIX about $3,000, VFIAX about $7,000. That's not some technicality.
Now when I've said things like that in past, IIRC posters (not you) have accused me of setting up a straw man.
With funds like this you are not concentrating your risk in market beta, you're taking little or none, though are taking other risks. But risks which have shown so far to in fact be nearly uncorrelated to stock market beta. They might not always be, and the return might also be higher or lower than it has been, but on the same basis that the fund has not kept up with the (US) stock market, which in fact no reasonable investor would use as the go/no go to evaluate the fund, it has achieved greater than bond return with low correlation to beta.
I don't see a point in trying to find an esoteric benchmark for QSPIX that actually matched what it was trying to do in the mechanics. That would just tend to move the problem of evaluating it to understanding the specifics of the benchmark...and how in all likelihood it wasn't really a match for QSPIX. The US, or if one were less biased against it, global equity return is also clearly not the right benchmark. Nor is there any reason I can see to compare QSPIX's peformance in a given period to the return from taking significant duration risk. That leaves the 'risk free' return, like T-bills. But, it's then a benchmark the fund has to beat by a significant margin. Just the binary 'it beat it's benchmark' would be meaningless. Because obviously there is significant expected std dev of return albeit uncorrelated with beta, and an unknown risk factor (in the complexity and agency issues) which is reasonably presumed negligible with T-bills. But what the benchmark does gauge is how the fund has to do better if riskless rates are higher.
My answer to the question 'what's good performance for this fund' would be something like 2% real return. Bonds are around 1% now, I believe the equity E[r] is maybe 3%-4% real, something well towards the middle with low correlation to beta would be OK, IMO. For whatever that's worth because projecting an expected return for this is much more difficult than stocks, for which E[r] is still a more ambiguous concept than high grade bonds. Whereas analyzing based on short term past realized returns is fraught, for anything. But I would say it has performed at least not that poorly inception to date, for what it is.