Why [was] QSPIX steadily declining?

taojaxx · Post by **taojaxx** » Sat Sep 17, 2016 12:44 am

Alternative investment dear to Larry Swedroe losing value since January, now cheapest in a year. Any known reason?

nisiprius · Post by **nisiprius** » Sat Sep 17, 2016 9:32 am

I don't think this is a fair question to ask. Please keep in mind that I personally am skeptical, even snarky about this fund--not that it matters because I don't think it's available to me anyway--but what do you expect from this fund, and what did Larry or AQR or anybody say about it? I don't think anyone ever suggested that will always go up, or that it will beat traditional investments, but that a) it will earn a decent return, b) it will have low correlation with the stock market, and c) the risk-reward of a traditional portfolio will be improved by adding this fund to it.

So far it's done all of these things. With regard to (a) since inception its done better than any fund I personally own. I don't expect that to continue and will be really annoyed if it does. However, the recent decline has been small compared to the preceding history. With regard to b, if it really has low correlation with the stock market, then when the stock market is steadily rising, this fund should not be steadily rising. With regard to (c), if we take Vanguard LifeStrategy Moderate as a "traditional portfolio" and compare a portfolio of 100% Vanguard LifeStrategy Moderate to one with 90% LifeStrategy Moderate and 10% QSPIX, adding QSPIX definitely improved it.

The portfolio with QSPIX had higher return and lower standard deviation ("risk") and a better worst year and a lower drawdown and a higher Sharpe ratio. I mean, it just did. That's the plain fact. I can of course add dismissive qualifications like "improved it so far" and "improved it by a tiny amount" and "two years means nothing" etc. etc. But the fact that it's down a small amount after being up a big amount isn't important.

Source

Portfolio 1, blue, Vanguard LifeStrategy Moderate, 100%. Portfolio 2, orange, 90% LifeStrategy Moderate, 10% QSPIX.

dbr · Post by **dbr** » Sat Sep 17, 2016 9:36 am

It isn't steadily declining. I think you are trying to create a trend out of noise.

In case someone does in fact have knowledge of a specific causal factor, I will stand corrected.

AlohaJoe · Post by **AlohaJoe** » Sat Sep 17, 2016 12:10 pm

taojaxx wrote:Alternative investment dear to Larry Swedroe losing value since January, now cheapest in a year. Any known reason?

Every mutual fund/ETF I've ever looked at published reports on a regular basis where they answer exactly these kinds of questions. When you read the AQR reports, what did they say? What questions do you have that weren't answered in their report? That would help focus the conversation.

taojaxx · Post by **taojaxx** » Sat Sep 17, 2016 2:32 pm

"I don't think this is a fair question to ask."
That's a factual question. It's been down steadily since early January. Since when is a factual question "not fair"? I have no position in this and am interested in it, hence my question on a site where it's been discussed. No need to be defensive.

am · Post by am » Sat Sep 17, 2016 5:46 pm

Don't invest in something you don't understand. Makes it hard to stick to the plan. At least when total markets go down, there is usually some reason available in the press which explains it. I remember previous black box type investments touted on here which no on one talks about anymore. Pimcos commodity fund comes to mind as one.

lack_ey · Post by **lack_ey** » Sat Sep 17, 2016 6:02 pm

There are quarterly reviews on the fund website showing the performance of each substrategy of the fund, but they're past the login. Some previous ones have been posted before. The annual report gives a less detailed account and only for the whole year.

am wrote:Don't invest in something you don't understand. Makes it hard to stick to the plan. At least when total markets go down, there is usually some reason available in the press which explains it. I remember previous black box type investments touted on here which no on one talks about anymore. Pimcos commodity fund comes to mind as one.

Which one? PIMCO Commodity Real Return Strategy? That's been fairly similar and correlated to the commodity ETPs in the space, being not too unconventional.

am · Post by am » Sat Sep 17, 2016 8:33 pm

lack_ey wrote:There are quarterly reviews on the fund website showing the performance of each substrategy of the fund, but they're past the login. Some previous ones have been posted before. The annual report gives a less detailed account and only for the whole year.

am wrote:Don't invest in something you don't understand. Makes it hard to stick to the plan. At least when total markets go down, there is usually some reason available in the press which explains it. I remember previous black box type investments touted on here which no on one talks about anymore. Pimcos commodity fund comes to mind as one.
Which one? PIMCO Commodity Real Return Strategy? That's been fairly similar and correlated to the commodity ETPs in the space, being not too unconventional.

Yes Pimco commodity. That fund is truly a black box if you try to read the prospectus and understand what they're doing

Toons · Post by **Toons** » Sat Sep 17, 2016 9:09 pm

Reversion to the Mean.
It Heads North.
It Heads South.

grap0013 · Post by **grap0013** » Mon Sep 19, 2016 10:11 am

nisiprius wrote:I don't think this is a fair question to ask. Please keep in mind that I personally am skeptical, even snarky about this fund--not that it matters because I don't think it's available to me anyway--but what do you expect from this fund, and what did Larry or AQR or anybody say about it? I don't think anyone ever suggested that will always go up, or that it will beat traditional investments, but that a) it will earn a decent return, b) it will have low correlation with the stock market, and c) the risk-reward of a traditional portfolio will be improved by adding this fund to it.

So far it's done all of these things. With regard to (a) since inception its done better than any fund I personally own. I don't expect that to continue and will be really annoyed if it does. However, the recent decline has been small compared to the preceding history. With regard to b, if it really has low correlation with the stock market, then when the stock market is steadily rising, this fund should not be steadily rising. With regard to (c), if we take Vanguard LifeStrategy Moderate as a "traditional portfolio" and compare a portfolio of 100% Vanguard LifeStrategy Moderate to one with 90% LifeStrategy Moderate and 10% QSPIX, adding QSPIX definitely improved it.

The portfolio with QSPIX had higher return and lower standard deviation ("risk") and a better worst year and a lower drawdown and a higher Sharpe ratio. I mean, it just did. That's the plain fact. I can of course add dismissive qualifications like "improved it so far" and "improved it by a tiny amount" and "two years means nothing" etc. etc. But the fact that it's down a small amount after being up a big amount isn't important.

Source

Portfolio 1, blue, Vanguard LifeStrategy Moderate, 100%. Portfolio 2, orange, 90% LifeStrategy Moderate, 10% QSPIX.

That's a big post of you Nisi considering I know this fund probably tears at your soul and you would likely enjoy seeing it go down in flames!

OP, do not worry about this fund yet. Check back in sometime in mid 2017. See what the attribution analysis for 2016 reveals. That is, is AQR doing all the tilts they are claiming to do and the tilts are just currently underperforming vs. they are robbing you blind. I think it is the former.

grayfox · Post by **grayfox** » Tue Sep 20, 2016 3:58 am

am wrote:
lack_ey wrote:There are quarterly reviews on the fund website showing the performance of each substrategy of the fund, but they're past the login. Some previous ones have been posted before. The annual report gives a less detailed account and only for the whole year.

am wrote:Don't invest in something you don't understand. Makes it hard to stick to the plan. At least when total markets go down, there is usually some reason available in the press which explains it. I remember previous black box type investments touted on here which no on one talks about anymore. Pimcos commodity fund comes to mind as one.
Which one? PIMCO Commodity Real Return Strategy? That's been fairly similar and correlated to the commodity ETPs in the space, being not too unconventional.
Yes Pimco commodity. That fund is truly a black box if you try to read the prospectus and understand what they're doing

Wow! PCRIX really stunk up the joint.

In 2008, it fell from about 41 to 12. Clawed back up to 20 in 2011, and is now below 7. Brilliant!

http://finance.yahoo.com/quote/PCRIX/?p=PCRIX

Comparing PCRIX to total stocks, total bonds, TIPS and cash, from PCRIX inception (Aug-2002 to Aug-2016)

Code: Select all

#	Initial Balance	Final Balance	CAGR	Std.Dev.	Best Year	Worst Year	Max. Drawdown	Sharpe Ratio	Sortino Ratio	US Mkt Correlation
VTSMX	$10,000	$34,503 	9.49% 	14.44%	33.35%	-37.04%	-50.89% 	0.62	0.92	1.00
VGTSX	$10,000	$27,572 	7.70% 	18.13%	42.01%	-44.10%	-58.50% 	0.44	0.64	0.89
VBMFX	$10,000	$17,996 	4.39% 	3.45%	7.58%	-2.25%	-4.00% 	0.91	1.52	-0.02
VIPSX	$10,000	$18,393 	4.56% 	6.32%	13.24%	-8.92%	-12.50% 	0.55	0.81	0.13
CASHX	$10,000	$11,783 	1.21% 	0.49%	4.81%	0.00%	0.00%	-0.69	-0.83	-0.04
PCRIX	$10,000	$11,699 	1.15% 	21.48%	39.92%	-43.33%	-63.49% 	0.11	0.14	0.45

I remember back before 2008 when everyone was recommending PCRIX as the ultimate "diversifier". It was supposed to have "equity-like" returns, but was uncorrelated to stocks. Since inception in 2002, CAGR is only 1.15%. Not even close to equity-like returns. Not even bond-like returns. Even cash had higher return!

Now that the cat's out of the bag, PCRIX is rarely mentioned.

Will this QSPIX suffer a similar fate? Can anybody explain to a second-grader what it does? Sounds like another pig in a poke!

am · Post by am » Tue Sep 20, 2016 8:06 am

I personally don't think the great majority of people can stick with factor investing given the tracking error, high costs, and increased complexity. While the data has been mined from the past, it is questionable in my opinion that all these factors will persist into the future given the information available on the internet, ease of investing, etfs, etc. Why try for more when total market investing is enough? I think we'll look back at QSPIX as another stinker that underperformed a plain vanilla 60 stock/40 bond index portfolio.

alpenglow · Post by **alpenglow** » Tue Sep 20, 2016 8:21 am

I understand what this fund does and even own a very little of it. I figured I wanted a small amount before it closed in-case I wanted to buy more in the future. At this time I have no plans to add to my holdings. I also think of PCRIX and how it was highly touted. We all know how it turned out. One think I know for sure is that QSPIX will make lots of money for AQR.

lack_ey · Post by **lack_ey** » Tue Sep 20, 2016 11:57 am

grayfox wrote:Wow! PCRIX really stunk up the joint. In 2008, it fell from about 41 to 12. Clawed back up to 20 in 2011, and is now below 7. Brilliant!

http://finance.yahoo.com/quote/PCRIX/?p=PCRIX

Comparing PCRIX to total stocks, total bonds, TIPS and cash, from PCRIX inception (Aug-2002 to Aug-2016)
Code: Select all
#	Initial Balance	Final Balance	CAGR	Std.Dev.	Best Year	Worst Year	Max. Drawdown	Sharpe Ratio	Sortino Ratio	US Mkt Correlation
VTSMX	$10,000	$34,503 	9.49% 	14.44%	33.35%	-37.04%	-50.89% 	0.62	0.92	1.00
VGTSX	$10,000	$27,572 	7.70% 	18.13%	42.01%	-44.10%	-58.50% 	0.44	0.64	0.89
VBMFX	$10,000	$17,996 	4.39% 	3.45%	7.58%	-2.25%	-4.00% 	0.91	1.52	-0.02
VIPSX	$10,000	$18,393 	4.56% 	6.32%	13.24%	-8.92%	-12.50% 	0.55	0.81	0.13
CASHX	$10,000	$11,783 	1.21% 	0.49%	4.81%	0.00%	0.00%	-0.69	-0.83	-0.04
PCRIX	$10,000	$11,699 	1.15% 	21.48%	39.92%	-43.33%	-63.49% 	0.11	0.14	0.45
I remember back before 2008 when everyone was recommending PCRIX as the ultimate "diversifier". It was supposed to have "equity-like" returns, but was uncorrelated to stocks. Since inception in 2002, CAGR is only 1.15%. Not even close to equity-like returns. Not even bond-like returns. Even cash had higher return! Now that the cat's out of the bag, PCRIX is rarely mentioned.

In any case I wonder why people point to one specific active fund individually. You can look at the whole category or the indexed products, not that these tell a different story. It's not an area where the only option for these kinds of exposures is an actively managed fund—though you can easily argue the strategies or indexes followed by the ETPs are active in some way. PIMCO's fund managed to do a lot better than others in the space, generally over those attempting a "marketlike" presence (this is a bit hard to define in commodity futures) without capping energy related exposure:

I don't think you need to run any analysis to see the correlation there.

In the long term the original proponents have still not been proven wrong. They hedged risks that didn't show up in the real world over the past 10+ years, in an environment good for both stocks and bonds. Anybody claiming then that the correlation with stocks would be zero is an idiot. Frequently it's fairly low but not always.

If you could forecast slowing global growth, reduced demand for commodities, near-zero or negative interest rates around developed markets, heavy contango on average in commodities futures, etc. then of course you would know to pick stocks and bonds over commodities. Diversification goes both ways. Sometimes you win, sometimes you lose.

grayfox wrote: Will this QSPIX suffer a similar fate? Can anybody explain to a second-grader what it does? Sounds like another pig in a poke!

It's pretty well understood where the returns of CCFs come from. You have underlying commodity spot price return, roll yield, and collateral yield. Collateral yield is basically the risk-free rate and uninteresting. The roll yield changes over time but we know what it is now. If it's working against you, you're effectively doing some kind of negative carry position. (Imagine for example investing in long-term Treasuries with the yield curve heavily inverted. Maybe it's a sign that prices are going to move in your favor soon? Or maybe you're just screwing yourself with the lower yield.) Carry hardly works all the time, and things can reverse, but that may not be a great long-term bet. It would hardly be shocking for this to go positive across more commodities again.

AQR's style premia fund is not difficult to describe at a high level. It trades in all kinds of markets, betting on (1) cheap stuff beating expensive stuff, (2) recent winners continuing on beating recent losers, (3) currently higher-yielding positions beating lower-yielding positions, and (4) lower-risk assets beating higher-risk assets in a category in risk/return. It executes this strategy by offsetting long exposures with short exposures in every asset class.

These things don't work all the time but usually don't all catastrophically fail together and shouldn't be expected to catastrophically fail with the market either (except maybe carry, especially currency carry). There are many risks here and no guarantees, but it is also a risk of sorts to concentrate more heavily in stocks and bonds, rather than look for alternative sources of return to supplement them in case they don't return as expected.

taojaxx · Post by **taojaxx** » Tue Sep 20, 2016 11:48 pm

Funny funny. Long story short is it's a complicated way of losing money, but some folks around here like it because it's losing money for different reasons than the market as a whole. And they add some schooling for the mere mortals lol.
Upside is I pretty much got some response to my question: that thing does make money, for the issuer that is.

SpaceCowboy · Post by **SpaceCowboy** » Wed Sep 21, 2016 12:43 am

am wrote:I personally don't think the great majority of people can stick with factor investing given the tracking error, high costs, and increased complexity. While the data has been mined from the past, it is questionable in my opinion that all these factors will persist into the future given the information available on the internet, ease of investing, etfs, etc. Why try for more when total market investing is enough? I think we'll look back at QSPIX as another stinker that underperformed a plain vanilla 60 stock/40 bond index portfolio.

Think the real question is what Nisi asks; how does the performance of 54 stock / 36 bond / 10 QSPIX compare with 60/40 with regards to risk return.
Think most people have a tough time understanding that this is a 0 net position investment and what that means. Part of what it means to me is that you never know how it's going to perform on a given day since it's uncorrelated to market performance.

grap0013 · Post by **grap0013** » Wed Sep 21, 2016 7:24 am

taojaxx wrote:Funny funny. Long story short is it's a complicated way of losing money, but some folks around here like it because it's losing money for different reasons than the market as a whole. And they add some schooling for the mere mortals lol.
Upside is I pretty much got some response to my question: that thing does make money, for the issuer that is.

Save your trash talking for when the fund actually does bad.

Then you can gloat all you want! Until then, QSPIX is in the black in my portfolio and performing as advertised. Don't make me take a screen shot!

matjen · Post by **matjen** » Wed Sep 21, 2016 7:50 am

grap0013 wrote:
Save your trash talking for when the fund actually does bad. Then you can gloat all you want! Until then, QSPIX is in the black in my portfolio and performing as advertised. Don't make me take a screen shot!

Yo go Grap! Given the attitude of many on this forum over the last couple of years, it will truly be ugly when QSPIX has the inevitable really bad run. Should be fun, though my portfolio hopes it doesn't happen.

All credit to Nisi for his honest hot take up above. I like a little snark but let's keep it linked to reality. Thanks Nisi.

scone · Post by **scone** » Wed Sep 21, 2016 10:02 am

^ Yes, indeed. But another question. Could you "diversify" Lifestrategy with some other investment that would give you better results than "pure" Lifestrategy? If that's the case, it implies (to me at least) that the Nisi results might be as much a diversification effect as a QSPIX special sauce effect.

Taylor Larimore · Post by **Taylor Larimore** » Wed Sep 21, 2016 10:13 am

scone wrote: Could you "diversify" Lifestrategy with some other investment that would give you better results than "pure" Lifestrategy?

scone:

Looking back, there will always be better funds than any portfolio. It's a meaningless exercise.

Best wishes.
Taylor

soboggled · Post by **soboggled** » Wed Sep 21, 2016 10:35 am

Is it possible that its early success, followed by recent under performance, indicates that the market has caught up with temporary inefficiencies? In any case, the track record is still too short to come to conclusions, especially f you aren't a fan of backfitting. The fund is based on research of very smart people but from what I read in Morningstar they have not committed a lot of their own money to it.

matjen · Post by **matjen** » Wed Sep 21, 2016 10:43 am

soboggled wrote: The fund is based on research of very smart people but from what I read in Morningstar they have not committed a lot of their own money to it.

This is something I like to look at as well for anything other than index funds. However in this case it is pretty meaningless since these guys make millions every year and the fund needs to be in a tax sheltered account which they have very little of. Moreover, a vast, vast percentage of their net worth is wrapped up in AQR itself.

scone · Post by **scone** » Wed Sep 21, 2016 11:09 am

^I'm expressing myself poorly. Just to clarify, what I meant was this. What would happen if you repeated Nisi's experiment, substituting a variety of alternatives, rather than QSPIX?

If you could find some combo that worked like that, then the 90% Lifestrategy, 10% QSPIX combo might be giving better results simply because of diversification. (Leaving aside the time span/sample size issues for a minute.)

OTOH, if you did this experiment with all kinds of alternative combos, and absolutely nothing else worked as well as QSPIX, then that's an interesting result in itself.

O.K., I just went over to Portfolio Visualizer and used 90% Lifestrategy, 10% FIBAX (intermediate Treasuries). The results aren't as good as the Lifestrategy/QSPIX mix, but better than Lifestrategy alone, especially in terms of the drawdown. I don't know how to paste this from an iPad, though.

ETA: 90% Lifestrategy, 10% TLT (long government) is also pretty interesting. Makes more money, better Sortino, slightly bigger drawdown.

matjen · Post by **matjen** » Wed Sep 21, 2016 5:12 pm

QSPIX is up 1.31% since the post in three trading days. Two pretty big up days and one day with no change.

I think OP may have called a generational low for QSPIX.

lack_ey · Post by **lack_ey** » Wed Sep 21, 2016 5:48 pm

scone wrote:^I'm expressing myself poorly. Just to clarify, what I meant was this. What would happen if you repeated Nisi's experiment, substituting a variety of alternatives, rather than QSPIX?

If you could find some combo that worked like that, then the 90% Lifestrategy, 10% QSPIX combo might be giving better results simply because of diversification. (Leaving aside the time span/sample size issues for a minute.)

OTOH, if you did this experiment with all kinds of alternative combos, and absolutely nothing else worked as well as QSPIX, then that's an interesting result in itself.

O.K., I just went over to Portfolio Visualizer and used 90% Lifestrategy, 10% FIBAX (intermediate Treasuries). The results aren't as good as the Lifestrategy/QSPIX mix, but better than Lifestrategy alone, especially in terms of the drawdown. I don't know how to paste this from an iPad, though.

ETA: 90% Lifestrategy, 10% TLT (long government) is also pretty interesting. Makes more money, better Sortino, slightly bigger drawdown.

Over a period in which bonds were good, you're basically always going to improve Sharpe by going more bond heavy.

Even over a period in which stock and bond Sharpe are similar, you're perhaps looking at an allocation in the range of 25% stocks/75% bonds being the tangency portfolio. In most periods and using reasonable forecasted figures, of course 60/40 is not optimal in that kind of way.

The more interesting question is whether you can get more return for the same amount of risk or less risk for the same return, not simply superior risk/return at lower levels of both risk and return.

nedsaid · Post by **nedsaid** » Wed Sep 21, 2016 5:56 pm

matjen wrote:QSPIX is up 1.31% since the post in three trading days. Two pretty big up days and one day with no change.

I think OP may have called a generational low for QSPIX.

Sort of like the "Stocks in Freefall" thread that pops up. When the thread reappears, a market rally is sure to follow!

It sounds like QSPIX is operating as designed, a fund with positive returns with low correlation to the stock market. Again, I would view such a fund as a bond substitute.

scone · Post by **scone** » Thu Sep 22, 2016 6:56 am

"The more interesting question is whether you can get more return for the same amount of risk or less risk for the same return, not simply superior risk/return at lower levels of both risk and return."

Yes, obviously, that's always the case. I only used the long bond as an example, because it was the first thing that popped into my head. Insert your own 10% solution as you will.

I'm still not at all clear whether QSPIX has a unique special magic that makes it better than all other potential alternatives. (I have no dog in this fight, and no opinion about QSPIX pro or con.)

triceratop · Post by **triceratop** » Wed Sep 28, 2016 11:31 pm

I removed an Off Topic comment derailing the discussion with contentious language; please try to keep this a friendly and respectful environment while (disagreeing about) discussing the performance of funds / portfolios.

sailor18 · Post by **sailor18** » Thu Sep 29, 2016 8:50 am

I have owned some QSPIX for about a year. Although I understand its diversification benefits and know this is an unfair/improper comparison, I am nonetheless disappointed in QSPIX's performance over the past year relative to Vanguard 2030. Does anyone know under what market conditions QSPIX is supposed to shine?

mwm158 · Post by **mwm158** » Thu Sep 29, 2016 10:53 am

deleted

matjen · Post by **matjen** » Thu Sep 29, 2016 10:59 am

sailor18 wrote:I have owned some QSPIX for about a year. Although I understand its diversification benefits and know this is an unfair/improper comparison, I am nonetheless disappointed in QSPIX's performance over the past year relative to Vanguard 2030. Does anyone know under what market conditions QSPIX is supposed to shine?

Were you unsatisfied with QSPIX in February of this year? Vanguard 2030 (VTHRX) is roughly 75% equity and 25% fixed income. I personally have a diversified 60/40 portfolio as my bogey and that is probably optimistic but I would be ecstatic if it could return near that while also providing very low correlation to equities. Point being, QSPIX is not going to match an equity heavy portfolio over certain periods of time and almost certainly over the long term. It should do better when equities are struggling and they haven't been the last 6+ months. AQR's presentations spend some time discussing how most portfolios are too reliant on equity beta. Even a 60/40 is heavily reliant on beta. QSPIX isn't. In 2014-15 it outperformed VTHRX by almost 14%. Giving some back this year.

heyyou · Post by **heyyou** » Thu Sep 29, 2016 11:03 am

Not directly on topic, just a cynical opinion:
The ultimate hedge is.................................................enough money/satisfaction that you are no longer trying to boost your returns. Many here do have enough, whether they see it or not.

Wall Street is about sales commissions from trading. Like clever new commercials, there is demand for new mutual funds that address investors' current fears about the uncertainty of the future.

Been there, done that, paid for my education. I bought PCRIX (after a 10% price drop) very early in retirement due to my fear of inflation, believing the hype about its multiple earnings sources. Turns out the future did not fit the design of the fund, while PIMCO & Bill Gross did better than the PCRIX shareholders. I could try again with a different brand new fund, or maybe not.

Please remember that long term holding of equities has been the better buffer for inflation, and the future will still be uncertain, regardless of what you do purchase.

lack_ey · Post by **lack_ey** » Thu Sep 29, 2016 11:16 am

sailor18 wrote:I have owned some QSPIX for about a year. Although I understand its diversification benefits and know this is an unfair/improper comparison, I am nonetheless disappointed in QSPIX's performance over the past year relative to Vanguard 2030. Does anyone know under what market conditions QSPIX is supposed to shine?

I think the aggregate behavior is fairly independent of stock and bond markets, market and economic conditions, which is kind of the point. Some of the constituent pieces have some known behaviors that may favor some kinds of markets but the effect is pretty weak when you put everything together. For example, trending markets would be good for the momentum part, but potentially this could make the value strategies lag. Currency carry usually crashes in a flight to quality when the stock market crashes, but that's frequently when defensive stocks do relatively well. And even when parts don't move with some negative correlation, there are enough pieces that the effect of one is relatively muted.

There are plenty of ways to get driving sources of returns different from the markets. You can't really call this any kind of diversification benefit unless the returns are decent and different enough. Otherwise it's just diworsification.

As we all know, financial returns measured in years and not decades are mostly noise, and I wouldn't read too much into one year or even the past 2-3 years before that (3 taking the live-money trading results of the institutional account, not the mutual fund). Unconventional, consistent sources of returns aren't available anywhere, at least in mutual fund format. Unconventional, non-market-tied, inconsistent, but long-term positive may be possible even after costs. Or not.

Anyway, the more unconventional and expensive a given strategy, the more conviction you need in it and the less you have to care about tracking error, or you should stay far away in the first place. Goes for commodities, alts, anything like that. It's bad enough being wrong and in the same boat as everyone else, e.g. being 60% long stocks when the stock market crashes. It's much worse to be wrong and alone. We haven't even seen any kind of bad year. YTD down 2.2% in a fund targeting ~10% vol is what, perhaps a 25 percentile outcome or so, even if you suppose the mean is decently positive? This is not targeted at anyone specifically, but do you flip out if the weather forecast says a 30% chance of rain and it does? What would people think about a loss of 20%, as even seen in the backtest used in part to justify the strategy in the first place? Or multiple years of 10% losses in a row?

pkcrafter · Post by **pkcrafter** » Thu Sep 29, 2016 4:24 pm

ER of 1.48%

How does anyone who calls themselves a Boglehead get interested in such a fund?

grap0013 · Post by **grap0013** » Thu Sep 29, 2016 4:46 pm

pkcrafter wrote:ER of 1.48% How does anyone who calls themselves a Boglehead get interested in such a fund?

Because of this bwahaaahawhahwhwha!!! https://www.portfoliovisualizer.com/bac ... tion2_2=20

Hey man, I'm not constantly dissing TSM. In fact, I recommend it to 99% of people who ask.

Many roads to Dublin and all. We can all coexist on this forum. Plus Assnessheads.org would charge a 1.77% ER just to log on. Therefore, where else am I supposed to go? I HAVE to come to this forum!

pkcrafter · Post by **pkcrafter** » Thu Sep 29, 2016 5:18 pm

Assnessheads.org

Ha! I love it.

matjen · Post by **matjen** » Fri Sep 30, 2016 6:55 am

pkcrafter wrote:Assnessheads.org

Ha! I love it.

Come on. At least admit that you think the more appropriate name would be HeadsinAssness.org!

taojaxx · Post by **taojaxx** » Wed Oct 05, 2016 11:07 pm

" I think OP may have called a generational low for QSPIX.

"
(Was 9.86)
That was a short generation.

alpenglow · Post by **alpenglow** » Thu Oct 06, 2016 9:14 am

heyyou wrote:Not directly on topic, just a cynical opinion:
The ultimate hedge is.................................................enough money/satisfaction that you are no longer trying to boost your returns. Many here do have enough, whether they see it or not.

True story! I like the way you put that.

alpenglow · Post by **alpenglow** » Thu Oct 06, 2016 9:17 am

matjen wrote:
pkcrafter wrote:Assnessheads.org

Ha! I love it.
Come on. At least admit that you think the more appropriate name would be HeadsinAssness.org!

matjen · Post by **matjen** » Tue Nov 08, 2016 7:29 pm

taojaxx wrote:" I think OP may have called a generational low for QSPIX. "
(Was 9.86)
That was a short generation.

You fell for the double bottom or whatever those chart fellows call it.

Lieutenant.Columbo · Post by **Lieutenant.Columbo** » Sun Aug 13, 2017 9:55 am

nedsaid wrote: ↑Wed Sep 21, 2016 5:56 pm...SPIX is operating as designed, a fund with positive returns with low correlation to the stock market. Again, I would view such a fund as a bond substitute.

pkcrafter wrote:ER of 1.48% How does anyone who calls themselves a Boglehead get interested in such a fund?

grap0013 wrote: ↑Thu Sep 29, 2016 4:46 pmBecause of this bwahaaahawhahwhwha!!! https://www.portfoliovisualizer.com/bac ... tion2_2=20

nedsaid and all,
if the backtest link grap0013 shared takes Expense Ratios into account...
1. ...what would justify Not using QSPIX since (although attaining essentially the same after-ER returns) it lowered Standard Deviation by 1.7%?
2. ...wouldn't the "similar returns with less volatility" from adding QSPIX to a 100% equity portfolio make QSPIX an equity substitute and Not a bond substitute?
Thank you all for thoughts on this.

grap0013 · Post by **grap0013** » Mon Aug 21, 2017 8:21 am

Lieutenant.Columbo wrote: ↑Sun Aug 13, 2017 9:55 am
nedsaid wrote: ↑Wed Sep 21, 2016 5:56 pm...SPIX is operating as designed, a fund with positive returns with low correlation to the stock market. Again, I would view such a fund as a bond substitute.
pkcrafter wrote:ER of 1.48% How does anyone who calls themselves a Boglehead get interested in such a fund?
grap0013 wrote: ↑Thu Sep 29, 2016 4:46 pmBecause of this bwahaaahawhahwhwha!!! https://www.portfoliovisualizer.com/bac ... tion2_2=20
nedsaid and all,
if the backtest link grap0013 shared takes Expense Ratios into account...
1. ...what would justify Not using QSPIX since (although attaining essentially the same after-ER returns) it lowered Standard Deviation by 1.7%?
2. ...wouldn't the "similar returns with less volatility" from adding QSPIX to a 100% equity portfolio make QSPIX an equity substitute and Not a bond substitute?
Thank you all for thoughts on this.

1. Yes, 100% agree. One has to focus on total returns net of fees.
2. I think it's a hybrid. If you take from stocks then you'll probably get similar returns with lower SD. If from bonds then higher returns with slightly higher SD. If pro rata from stocks and bonds, then probably a little higher returns with lower SD. Exactly what you want to happen.

matjen · Post by **matjen** » Tue Oct 24, 2017 5:15 pm

QSPIX closed at 10.82 today.

Has been on quite the run so this will no doubt jinx it.

lack_ey · Post by **lack_ey** » Tue Oct 24, 2017 5:56 pm

Has anybody Google-fu'd, saved, or otherwise gotten access to more of those attribution reports? I don't think they're publicly available generally, and I'd like to have that information. Actually, if you have any old ones, please post them.

edit: on second thought I think they're kind of behind login for reasons so never mind, maybe not in a public venue

nisiprius · Post by **nisiprius** » Tue Oct 24, 2017 9:04 pm

pkcrafter wrote: ↑Thu Sep 29, 2016 4:24 pm ER of 1.48% How does anyone who calls themselves a Boglehead get interested in such a fund?

Because according to Larry Swedroe, you should divide the expense ratio by two for a long-short fund... or at least for this long-short fund... because... uh, because... uh, because...

By the way, according to Morningstar the expense ratio is now up to 1.60%.

Which, to be fair, they designate as "average" for the fund class.

randomguy · Post by **randomguy** » Tue Oct 24, 2017 9:21 pm

nisiprius wrote: ↑Tue Oct 24, 2017 9:04 pm
pkcrafter wrote: ↑Thu Sep 29, 2016 4:24 pm ER of 1.48% How does anyone who calls themselves a Boglehead get interested in such a fund?
Because according to Larry Swedroe, you should divide the expense ratio by two for a long-short fund... or at least for this long-short fund... because... uh, because... uh, because...

By the way, according to Morningstar the expense ratio is now up to 1.60%.

Which, to be fair, they designate as "average" for the fund class.

That is the point people are missing. It isn't like there is an alternative to QSPIX that you can get for .05%. At some level letting the ER ratio drive your investig decisions is like letting tax consequences drive them. it is something you should think about but it isn't the only factor to consider. If you believe QSPIX will have anywhere near the diversification effects back testing show, it is well worth the cost. If you don't believe, then it sure isn't.

lack_ey · Post by **lack_ey** » Tue Oct 24, 2017 10:14 pm

Oh yeah, did anybody else catch the launch of the AQR Alternative Risk Premia Fund (QRPIX,QRPNX, QRPRX)?

It's another long-short, market-neutral, leveraged fund owning traditional assets and many derivatives positions, targeting value, momentum, carry, defensive, trend, and (short) volatility strategies across equities (individual stocks and wider market indexes), bonds, and currencies, targeting about 8% annual volatility. Obviously realized vol will not track the target close to perfectly.

For reference, the older AQR Style Premia (QSPIX, QSPNX, QSPRX) is a long-short, market-neutral, leveraged fund owning traditional assets and many derivatives positions, targeting value, momentum, carry, and defensive across equities (individual stocks and wider market indexes), bonds, interest rates, commodities, and currencies, targeting about 10% annual volatility.

Both are similarly expensive, though note where the ER as listed some places might include dividends on short sales, which is kind of a stupid way to do the accounting. The actual management fees are above 1% by themselves, though, so expensive any way you look at it.

Recall that Style Premia got closed to new investors on account of a couple of capacity concerns in some of the asset classes targeted (commodities, interest rates both via derivatives). So this is like Style Premia II in jettisoning those parts. Then it adds trend following, which is what managed futures funds do, as well as volatility selling. Both those have been popular institutional strategies for many years, especially trend following (which all else equal is a bad sign in the sense of a trade getting more crowded).

Some people are wary of selling volatility in an environment like this with many markets being placid but who knows, and I'm not convinced this is something you can market time well, like basically everything else.

Maybe this should be another thread. If somebody wants to create it, please do. Otherwise, maybe I will tomorrow or something.

Ketawa · Post by **Ketawa** » Tue Oct 24, 2017 10:29 pm

nisiprius wrote: ↑Tue Oct 24, 2017 9:04 pmBecause according to Larry Swedroe, you should divide the expense ratio by two for a long-short fund... or at least for this long-short fund... because... uh, because... uh, because...

By the way, according to Morningstar the expense ratio is now up to 1.60%.

Which, to be fair, they designate as "average" for the fund class.

Fidelity's fund portal also reports the expense ratio for QSPIX as 1.60%. I don't know the source of Fidelity's or Morningstar's data, but the expense ratio is 1.50% and it has been since inception.

I don't agree with the rationale of pretending one is paying 0.75% for the long side and 0.75% for the short side, therefore the expense ratio isn't that bad. It has to be compared to other funds that would attempt a similar strategy. For now, it seems unique for offerings that (used to be) available without an advisor. I'm glad I purchased QSPIX/QSPNX before they were closed to new investors..

lack_ey wrote: ↑Tue Oct 24, 2017 10:14 pm Oh yeah, did anybody else catch the launch of the AQR Alternative Risk Premia Fund (QRPIX,QRPNX, QRPRX)?

I also just saw this on AQR's fund site. It isn't in Morningstar's database yet. Fidelity has a minimum IRA investment of $100K for QRPIX, and the other share classes aren't in their database.

pkcrafter · Post by **pkcrafter** » Tue Oct 24, 2017 10:44 pm

nisiprius wrote: ↑Tue Oct 24, 2017 9:04 pm
pkcrafter wrote: ↑Thu Sep 29, 2016 4:24 pm ER of 1.48% How does anyone who calls themselves a Boglehead get interested in such a fund?
Because according to Larry Swedroe, you should divide the expense ratio by two for a long-short fund

Priceless

And as of today, QSPIX ER now seems to be-- drum roll...

Net Expenses - 2.35 %. But yes, there is a fee waver that lowers the fee to 1.5%* through 4/2018

*(excluding interest, taxes, dividends on short sales, borrowing costs, acquired fund fees and expenses, interest expense relating to short sales and extraordinary expenses)

https://funds.aqr.com/our-funds/alterna ... ative-fund

Paul