Why [was] QSPIX steadily declining?

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Random Walker
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Re: Why [was] QSPIX steadily declining?

Post by Random Walker »

nisiprius wrote: Sun Jul 05, 2020 1:31 pm
tarheel wrote: Sun Jul 05, 2020 12:29 pm...As for recent performance, you'd have to ask someone who gets the attribution analysis updates but it surely has something to do with value underperformance as others have suggested.
AQR chooses to list this fund among its "alternatives" fund, not among its "equities fund." (Specifically, "alternatives, multistrategy.") Why would an investor expect value underperformance to matter in an "alternatives" fund?
Because the fund has heavy exposure to value in multiple asset classes. It has no net equity exposure, but substantial exposure to value by selling what’s expensive and buying what’s cheap within an asset class. This results in no net exposure to the asset class but strong exposure to value.

Dave
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HomerJ
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Re: Why [was] QSPIX steadily declining?

Post by HomerJ »

Random Walker wrote: Mon Jul 06, 2020 10:24 am
nisiprius wrote: Sun Jul 05, 2020 1:31 pm
tarheel wrote: Sun Jul 05, 2020 12:29 pm...As for recent performance, you'd have to ask someone who gets the attribution analysis updates but it surely has something to do with value underperformance as others have suggested.
AQR chooses to list this fund among its "alternatives" fund, not among its "equities fund." (Specifically, "alternatives, multistrategy.") Why would an investor expect value underperformance to matter in an "alternatives" fund?
Because the fund has heavy exposure to value in multiple asset classes. It has no net equity exposure, but substantial exposure to value by selling what’s expensive and buying what’s cheap within an asset class. This results in no net exposure to the asset class but strong exposure to value.

Dave
So it's not multi-strategy, it made a huge bet on value, and lost. Not really what most expect from an alternative, multi-strategy fund.

From the front page on their AQR's website about QSPIX

https://funds.aqr.com/funds/aqr-style-p ... fund#about
By investing long and short, the Fund seeks to be market neutral with low correlation to equity and bond markets, and aims to provide positive absolute returns in both rising and falling markets.
They didn't say "positive absolute returns" only when value is doing well. They said "market-neutral".
A Goldman Sachs associate provided a variety of detailed explanations, but then offered a caveat, “If I’m being dead-### honest, though, nobody knows what’s really going on.”
Random Walker
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Re: Why [was] QSPIX steadily declining?

Post by Random Walker »

HomerJ wrote: Mon Jul 06, 2020 10:40 am
Random Walker wrote: Mon Jul 06, 2020 10:24 am
nisiprius wrote: Sun Jul 05, 2020 1:31 pm
tarheel wrote: Sun Jul 05, 2020 12:29 pm...As for recent performance, you'd have to ask someone who gets the attribution analysis updates but it surely has something to do with value underperformance as others have suggested.
AQR chooses to list this fund among its "alternatives" fund, not among its "equities fund." (Specifically, "alternatives, multistrategy.") Why would an investor expect value underperformance to matter in an "alternatives" fund?
Because the fund has heavy exposure to value in multiple asset classes. It has no net equity exposure, but substantial exposure to value by selling what’s expensive and buying what’s cheap within an asset class. This results in no net exposure to the asset class but strong exposure to value.

Dave
So it's not multi-strategy, it made a huge bet on value, and lost. Not really what most expect from an alternative, multi-strategy fund.

From the front page on their AQR's website about QSPIX

https://funds.aqr.com/funds/aqr-style-p ... fund#about
By investing long and short, the Fund seeks to be market neutral with low correlation to equity and bond markets, and aims to provide positive absolute returns in both rising and falling markets.
They didn't say "positive absolute returns" only when value is doing well. They said "market-neutral".
Well, I have to agree with you somewhat. With styles including value, defensive, carry, momentum and asset classes including equities, bonds, currencies, commodities, I’m surprised value has had such a big effect. I don’t know the relative weighting of the styles and asset classes. But I have heard that value is the big reason for the fund’s disappointing performance. I think (not at all sure) that momentum has not helped either. We usually hope and expect that momentum and value naturally negatively correlated, but don’t think that has planned out recently.

Dave
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Steve Reading
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Re: Why [was] QSPIX steadily declining?

Post by Steve Reading »

HomerJ wrote: Mon Jul 06, 2020 10:40 am
Random Walker wrote: Mon Jul 06, 2020 10:24 am
nisiprius wrote: Sun Jul 05, 2020 1:31 pm
tarheel wrote: Sun Jul 05, 2020 12:29 pm...As for recent performance, you'd have to ask someone who gets the attribution analysis updates but it surely has something to do with value underperformance as others have suggested.
AQR chooses to list this fund among its "alternatives" fund, not among its "equities fund." (Specifically, "alternatives, multistrategy.") Why would an investor expect value underperformance to matter in an "alternatives" fund?
Because the fund has heavy exposure to value in multiple asset classes. It has no net equity exposure, but substantial exposure to value by selling what’s expensive and buying what’s cheap within an asset class. This results in no net exposure to the asset class but strong exposure to value.

Dave
So it's not multi-strategy, it made a huge bet on value, and lost. Not really what most expect from an alternative, multi-strategy fund.

From the front page on their AQR's website about QSPIX

https://funds.aqr.com/funds/aqr-style-p ... fund#about
By investing long and short, the Fund seeks to be market neutral with low correlation to equity and bond markets, and aims to provide positive absolute returns in both rising and falling markets.
They didn't say "positive absolute returns" only when value is doing well. They said "market-neutral".
It is multi-strategy because it doesn't invest in just one alternative risk premia (say, value). It also has exposure to carry, bet-against-beta and momentum.
It provides positive returns when its 4 factors do reasonably well.
"... so high a present discounted value of wealth, it is only prudent for him to put more into common stocks compared to his present tangible wealth, borrowing if necessary" - Paul Samuelson
cheezit
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Re: Why [was] QSPIX steadily declining?

Post by cheezit »

HomerJ wrote: Mon Jul 06, 2020 10:40 am So it's not multi-strategy, it made a huge bet on value, and lost. Not really what most expect from an alternative, multi-strategy fund.
large print less than a third of the way down the page that Random Walker Linked wrote: The Fund invests long and short across five different asset groups (stocks & industries, equity indices, fixed income, currencies and commodities) and four investment styles (Value, Momentum, Carry and Defensive), and aims to be market neutral.
I don't own the fund, don't want to own the fund, and don't like any of the other commonly available 'alts', but it's unreasonable to characterize the fund as one large bet on Value: in very clear terms, AQR is making four bets.

The fund's poor recent performance is because the net result of those bets has been negative for about two and a half years now:
Image


In fact, QSPIX did well from its inception through about February of 2018, despite Value doing very badly over that period:
Image
This means the other three factor bets must have had very positive returns over that period, since QSPIX was up 40% over that period (+8.1% CAGR) despite AQR's version of Value having been something like -5.5% CAGR.

The fund's truly awful performance from about February of 2018 through the present (June 2020) could be due to reduced performance of Momentum, Carry and Defensive as AQR defines them, or because AQR's version of Value went from bad to comically atrocious performance over that period to the point that any positive return from the other factor bets was overwhelmed (MOM being +3% CAGR doesn't matter much if Value is -15% CAGR), but it likely isn't because AQR is only betting on Value in that particular fund.
garlandwhizzer
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Re: Why [was] QSPIX steadily declining?

Post by garlandwhizzer »

What QSPIX clearly demonstrates is that expensive complex strategies based on factor models done by very knowledgeable "experts" like Mr. Asness can completely fail to achieve what they set out to do for 6.5 years and in fact create substantial monetary harm to the true believers who held on. Apparently factor enthusiasts continue to accept the premise that, given sufficient patience, this abject failure is going to reverse and QSPIX will achieve what it's supposed to do. I find it difficult to believe that after losing considerable money consistently since inception, earning Morningstar's lowest rating, 1 star, QSPIX investors aren't questioning more vigorously the underlying assumptions of this complex alternate multi-factor long short strategy. In theory QSPIX is supposed to increase return and insulate investors from market risk and volatility. In practice it has seemed to do the opposite over its lifetime. After 6.5 years of deep loses relative to 60/40 and paying 1.6% fee for that privilege, it seems reasonable to at least question whether QSPIX's assumptions and strategy are appropriate.

AQR has in general offered its investors high fees and lousy returns for years but it has managed to make its founder a multi-billionaire (Asness's net worth estimated at 2.6 B). At some point, one wonders why the flow of money shouldn't start to go the other way.

Garland Whizzer
wickywack
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Re: Why [was] QSPIX steadily declining?

Post by wickywack »

Random Walker wrote: Mon Jul 06, 2020 11:33 am
HomerJ wrote: Mon Jul 06, 2020 10:40 am
Random Walker wrote: Mon Jul 06, 2020 10:24 am
nisiprius wrote: Sun Jul 05, 2020 1:31 pm
tarheel wrote: Sun Jul 05, 2020 12:29 pm...As for recent performance, you'd have to ask someone who gets the attribution analysis updates but it surely has something to do with value underperformance as others have suggested.
AQR chooses to list this fund among its "alternatives" fund, not among its "equities fund." (Specifically, "alternatives, multistrategy.") Why would an investor expect value underperformance to matter in an "alternatives" fund?
Because the fund has heavy exposure to value in multiple asset classes. It has no net equity exposure, but substantial exposure to value by selling what’s expensive and buying what’s cheap within an asset class. This results in no net exposure to the asset class but strong exposure to value.

Dave
So it's not multi-strategy, it made a huge bet on value, and lost. Not really what most expect from an alternative, multi-strategy fund.

From the front page on their AQR's website about QSPIX

https://funds.aqr.com/funds/aqr-style-p ... fund#about
By investing long and short, the Fund seeks to be market neutral with low correlation to equity and bond markets, and aims to provide positive absolute returns in both rising and falling markets.
They didn't say "positive absolute returns" only when value is doing well. They said "market-neutral".
Well, I have to agree with you somewhat. With styles including value, defensive, carry, momentum and asset classes including equities, bonds, currencies, commodities, I’m surprised value has had such a big effect. I don’t know the relative weighting of the styles and asset classes. But I have heard that value is the big reason for the fund’s disappointing performance. I think (not at all sure) that momentum has not helped either. We usually hope and expect that momentum and value naturally negatively correlated, but don’t think that has planned out recently.

Dave
Larry Swedroe gives a weighting breakdown here. That's from nearly 6 years ago, though.
marcopolo
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Re: Why [was] QSPIX steadily declining?

Post by marcopolo »

To a casual observer it appears that most are simply guessing what this fund is actually doing, even its supporters seems to only speculate on the AQR implementation, and what is in the attribution report explaining its latest performance.

So, do those that buy into this strategy essentially ignore the advice to only invest in things you understand? Just put your faith in AQR and the RIAs that sell their products?
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: Why [was] QSPIX steadily declining?

Post by Random Walker »

marcopolo wrote: Mon Jul 06, 2020 1:29 pm To a casual observer it appears that most are simply guessing what this fund is actually doing, even its supporters seems to only speculate on the AQR implementation, and what is in the attribution report explaining its latest performance.

So, do those that buy into this strategy essentially ignore the advice to only invest in things you understand? Just put your faith in AQR and the RIAs that sell their products?
There are always different levels of understanding. Understanding is not digital, it’s analog. How much does one need to understand about an individual stock or the intricacies of a stock index’s formation to invest in it? How much does one need to know about bonds to invest in total bond index? In my own case, invested in passive equity funds, several alternative funds, and a municipal bond ladder, I’d say I have a solid layman’s understanding of the purpose of each portfolio component. But not a lot beyond that. I do put substantial trust in my RIA. How much do any of us really understand? How many muni investors really appreciate how to price the various call features of their bonds?
I think one of the strongest arguments for index investing is that for the most part we don’t know what we don’t know!

Dave
marcopolo
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Re: Why [was] QSPIX steadily declining?

Post by marcopolo »

Random Walker wrote: Mon Jul 06, 2020 1:48 pm
marcopolo wrote: Mon Jul 06, 2020 1:29 pm To a casual observer it appears that most are simply guessing what this fund is actually doing, even its supporters seems to only speculate on the AQR implementation, and what is in the attribution report explaining its latest performance.

So, do those that buy into this strategy essentially ignore the advice to only invest in things you understand? Just put your faith in AQR and the RIAs that sell their products?
There are always different levels of understanding. Understanding is not digital, it’s analog. How much does one need to understand about an individual stock or the intricacies of a stock index’s formation to invest in it? How much does one need to know about bonds to invest in total bond index? In my own case, invested in passive equity funds, several alternative funds, and a municipal bond ladder, I’d say I have a solid layman’s understanding of the purpose of each portfolio component. But not a lot beyond that. I do put substantial trust in my RIA. How much do any of us really understand? How many muni investors really appreciate how to price the various call features of their bonds?
I think one of the strongest arguments for index investing is that for the most part we don’t know what we don’t know!

Dave

It just seems odd to me that the proponent of these complicated vehicles will make very detailed arguments about factor loading, balancing quality, momentum, value, etc, in just the right proportions, and then when their chosen vehicle performs poorly, they shrug and say, "well MAYBE it was due to over-weighting in value, but we don't really know because who knows what they are actually implementing, but hey, my RIA gets a report once in a while explaining it all, he won't share that with me, but I am sure it is all OK!"

You are not even a little bit curious if your chosen funds are actually implementing the complex scheme you think will give you a better portfolio outcome?
Once in a while you get shown the light, in the strangest of places if you look at it right.
wickywack
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Re: Why [was] QSPIX steadily declining?

Post by wickywack »

Random Walker wrote: Mon Jul 06, 2020 1:48 pm
marcopolo wrote: Mon Jul 06, 2020 1:29 pm To a casual observer it appears that most are simply guessing what this fund is actually doing, even its supporters seems to only speculate on the AQR implementation, and what is in the attribution report explaining its latest performance.

So, do those that buy into this strategy essentially ignore the advice to only invest in things you understand? Just put your faith in AQR and the RIAs that sell their products?
There are always different levels of understanding. Understanding is not digital, it’s analog. How much does one need to understand about an individual stock or the intricacies of a stock index’s formation to invest in it? How much does one need to know about bonds to invest in total bond index? In my own case, invested in passive equity funds, several alternative funds, and a municipal bond ladder, I’d say I have a solid layman’s understanding of the purpose of each portfolio component. But not a lot beyond that. I do put substantial trust in my RIA. How much do any of us really understand? How many muni investors really appreciate how to price the various call features of their bonds?
I think one of the strongest arguments for index investing is that for the most part we don’t know what we don’t know!

Dave
Do you consider QSPIX index investing? I can't quite tell from context. :-)

To me, a big aspect of understanding is transparency. *I* may not fully understand a fund, but I have some level of confidence that the market or the bogleheads community understands more than me when the details are all out in the open. E.g., if Vanguard's index funds behave surprisingly to me, I can likely find a detailed discussion and explanation here.

Better yet, with an index, I can separately check both the index and the fund and grade the two separately. It gives a way to verify that fund does what it says it does rather than only relying on trust.
Random Walker
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Re: Why [was] QSPIX steadily declining?

Post by Random Walker »

wickywack wrote: Mon Jul 06, 2020 3:19 pm
Random Walker wrote: Mon Jul 06, 2020 1:48 pm
marcopolo wrote: Mon Jul 06, 2020 1:29 pm To a casual observer it appears that most are simply guessing what this fund is actually doing, even its supporters seems to only speculate on the AQR implementation, and what is in the attribution report explaining its latest performance.

So, do those that buy into this strategy essentially ignore the advice to only invest in things you understand? Just put your faith in AQR and the RIAs that sell their products?
There are always different levels of understanding. Understanding is not digital, it’s analog. How much does one need to understand about an individual stock or the intricacies of a stock index’s formation to invest in it? How much does one need to know about bonds to invest in total bond index? In my own case, invested in passive equity funds, several alternative funds, and a municipal bond ladder, I’d say I have a solid layman’s understanding of the purpose of each portfolio component. But not a lot beyond that. I do put substantial trust in my RIA. How much do any of us really understand? How many muni investors really appreciate how to price the various call features of their bonds?
I think one of the strongest arguments for index investing is that for the most part we don’t know what we don’t know!

Dave
Do you consider QSPIX index investing? I can't quite tell from context. :-)

To me, a big aspect of understanding is transparency. *I* may not fully understand a fund, but I have some level of confidence that the market or the bogleheads community understands more than me when the details are all out in the open. E.g., if Vanguard's index funds behave surprisingly to me, I can likely find a detailed discussion and explanation here.

Better yet, with an index, I can separately check both the index and the fund and grade the two separately. It gives a way to verify that fund does what it says it does rather than only relying on trust.
No :-) QSPIX is certainly not index investing. I do like the distinction though between pure index investing and passive investing. One can passively invest, no market timing or individual security selection, and not be a pure index investor. I think even Asness refers to QSPIX as active. But myself, I see it as formulaic, no timing, no individual security selection, and thus more passive than active.

For many passive funds that don’t mimic external indexes, it’s sort of useless to compare to external indexes because the factor loadings are different. For a truly passive fund, you’ll simply get what the factors give you, minus expenses.

Dave
SpaceCowboy
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Re: Why [was] QSPIX steadily declining?

Post by SpaceCowboy »

So I just took a look at the monthly returns from the fund. In October 2018 the fund started going south. Since then there have been only 2 months with positive returns, January 2019 and September 2019. The last quarter has been particularly poor. In April, the fund suffered its largest monthly loss ever, -5.87%. Pretty remarkable that it’s factor bets have been in the wrong side so consistently since October 2018.
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zaboomafoozarg
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Re: Why [was] QSPIX steadily declining?

Post by zaboomafoozarg »

Maybe the real diversification benefit of QSPIX was the friends we made along the way.
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Steve Reading
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Re: Why [was] QSPIX steadily declining?

Post by Steve Reading »

Random Walker wrote: Mon Jul 06, 2020 3:54 pm I think even Asness refers to QSPIX as active. But myself, I see it as formulaic, no timing, no individual security selection, and thus more passive than active.
Well this distinction is a little weird because essentially all market-neutral funds are formulaic. Market-neutral funds are all quantitative and systematic by nature. So perhaps what you like is that QSPIX is a systematic fund that really sticks to their rules and isn't changing rules around to time factors.
Only it isn't. Cliff came out and admitted that they increased their value exposure in 2020 (effectively a small amount of value factor timing). And they really regretted it.

Which is why a very opaque fund like QSPIX has its disadvantages. You don't know what rules they use. When they change them. You might not even know if they stick to whatever rules their models recommend. Cliff's admission really soured me on this fund. Never invested in it but probably won't any time soon.
"... so high a present discounted value of wealth, it is only prudent for him to put more into common stocks compared to his present tangible wealth, borrowing if necessary" - Paul Samuelson
hdas
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typical.investor
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Re: Why [was] QSPIX steadily declining?

Post by typical.investor »

hdas wrote: Mon Jul 06, 2020 7:17 pm
Steve Reading wrote: Mon Jul 06, 2020 6:05 pm
Random Walker wrote: Mon Jul 06, 2020 3:54 pm I think even Asness refers to QSPIX as active. But myself, I see it as formulaic, no timing, no individual security selection, and thus more passive than active.
Well this distinction is a little weird because essentially all market-neutral funds are formulaic. Market-neutral funds are all quantitative and systematic by nature. So perhaps what you like is that QSPIX is a systematic fund that really sticks to their rules and isn't changing rules around to time factors.
Only it isn't. Cliff came out and admitted that they increased their value exposure in 2020 (effectively a small amount of value factor timing). And they really regretted it.

Which is why a very opaque fund like QSPIX has its disadvantages. You don't know what rules they use. When they change them. You might not even know if they stick to whatever rules their models recommend. Cliff's admission really soured me on this fund. Never invested in it but probably won't any time soon.
You have the same issue with your beloved MTUM. H
MTUM doesn't seem nearly as complex. MTUM isn't targeting an annual volatility of 10% the way QSPIX does, is it?

Anyway, here is a good look at it. Wish it were updated to 2020 but nevertheless ... https://www.proforza.net/post/the-big-a ... rn-streams
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Steve Reading
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Re: Why [was] QSPIX steadily declining?

Post by Steve Reading »

hdas wrote: Mon Jul 06, 2020 7:17 pm
Steve Reading wrote: Mon Jul 06, 2020 6:05 pm
Random Walker wrote: Mon Jul 06, 2020 3:54 pm I think even Asness refers to QSPIX as active. But myself, I see it as formulaic, no timing, no individual security selection, and thus more passive than active.
Well this distinction is a little weird because essentially all market-neutral funds are formulaic. Market-neutral funds are all quantitative and systematic by nature. So perhaps what you like is that QSPIX is a systematic fund that really sticks to their rules and isn't changing rules around to time factors.
Only it isn't. Cliff came out and admitted that they increased their value exposure in 2020 (effectively a small amount of value factor timing). And they really regretted it.

Which is why a very opaque fund like QSPIX has its disadvantages. You don't know what rules they use. When they change them. You might not even know if they stick to whatever rules their models recommend. Cliff's admission really soured me on this fund. Never invested in it but probably won't any time soon.
You have the same issue with your beloved MTUM. H
MSCI is very transparent in terms of the methodology to construct their index. It’s detailed here (no such document exists for QSPIX):
https://www.msci.com/eqb/methodology/me ... ep2014.pdf

Also, afaik, MSCI USA MOM index doesn’t randomly change its methodology based on market outlooks. You seem to say they do? If so, please confirm because I don’t like that and would appreciate the heads up.
"... so high a present discounted value of wealth, it is only prudent for him to put more into common stocks compared to his present tangible wealth, borrowing if necessary" - Paul Samuelson
afan
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Re: Why [was] QSPIX steadily declining?

Post by afan »

I never considered buying this fund. Amazingly high expenses, even worse if I were paying a salesperson to recommend it. However, during one round of debate about it, I discovered:

It is an actively managed fund. Some fans claim that it is not but AQRbsays it is.

It lists a set of factors in which it invests.
However, it does not claim that these are the only factors it will chase.
It does not claim that it will always chase factors that are on that list.
It does not report the sizes of the factor bets it has and it does not claim that the weights will be constant.

As far as I could tell, but by the time I had gotten this far I was losing curiosity, it could invest in any one stock the managers thought was hot.

As an active fund, you are betting that the manager can do something desirable with the money. It is vague about what those desirable things might be, the mix of bets and the goals keep changing.

As an active fund, essentially one is doing what one does with any active fund. One is saying that the managers are smart and one wants them to invest the money.
They can give a marketing pitch as to what they MIGHT do with it. They could also do very different things with it.

If you want to know what the managers will do with your money, buy a conventional index fund.
If you want to bet on the brilliance of a set of active managers, this is what you get.
We don't know how to beat the market on a risk-adjusted basis, and we don't know anyone that does know either | --Swedroe | We assume that markets are efficient, that prices are right | --Fama
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midareff
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Re: Why [was] QSPIX steadily declining?

Post by midareff »

Not sure why this fund is even discussed. From inception 10/13/2013 a $10K investment is now worth $9088.26 vs. $20,717.34 if the same money had gone into the S&P 500 (VFIAX). It seems apparent to me some people made big money from this fund, unfortunately that did not include the investors.
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tarheel
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Re: Why [was] QSPIX steadily declining?

Post by tarheel »

midareff wrote: Tue Jul 07, 2020 7:15 am Not sure why this fund is even discussed. From inception 10/13/2013 a $10K investment is now worth $9088.26 vs. $20,717.34 if the same money had gone into the S&P 500 (VFIAX). It seems apparent to me some people made big money from this fund, unfortunately that did not include the investors.
Those of us who invest in the fund are not concerned with performance over a seven year period, especially one that has been so quirky for factor investing.

Again, if you are concerned with short term performance and don't understand the purpose of QSPIX, we recommend staying away.
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Re: Why is QSPIX steadily declining?

Post by stormcrow »

nisiprius wrote: Sat Sep 17, 2016 9:32 am
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

Edit: didn't realize this was a resurrected thread! Please disregard my comment, @Nisiprius.

Were you intending to stop the comparison in 2016? When I extend it out to 2020 the addition of QSPIX gives a higher drawdown and lower Sharpe ratio.

Not intending to nitpick or anything, I am just fairly done with the alternatives category, having long held a delightful PIMCO fund that has done nothing.
Last edited by stormcrow on Tue Jul 07, 2020 2:50 pm, edited 1 time in total.
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nedsaid
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Re: Why [was] QSPIX steadily declining?

Post by nedsaid »

garlandwhizzer wrote: Mon Jul 06, 2020 1:04 pm What QSPIX clearly demonstrates is that expensive complex strategies based on factor models done by very knowledgeable "experts" like Mr. Asness can completely fail to achieve what they set out to do for 6.5 years and in fact create substantial monetary harm to the true believers who held on. Apparently factor enthusiasts continue to accept the premise that, given sufficient patience, this abject failure is going to reverse and QSPIX will achieve what it's supposed to do. I find it difficult to believe that after losing considerable money consistently since inception, earning Morningstar's lowest rating, 1 star, QSPIX investors aren't questioning more vigorously the underlying assumptions of this complex alternate multi-factor long short strategy. In theory QSPIX is supposed to increase return and insulate investors from market risk and volatility. In practice it has seemed to do the opposite over its lifetime. After 6.5 years of deep loses relative to 60/40 and paying 1.6% fee for that privilege, it seems reasonable to at least question whether QSPIX's assumptions and strategy are appropriate.

AQR has in general offered its investors high fees and lousy returns for years but it has managed to make its founder a multi-billionaire (Asness's net worth estimated at 2.6 B). At some point, one wonders why the flow of money shouldn't start to go the other way.

Garland Whizzer
There is a big difference between knowing what you are doing and thinking you know what you are doing. Though Cliff Asness is unquestionably brilliant, even he might be outgunned and outmanned by the large hedge funds. Since the whole area of hedge funds is pretty opaque, you have limited knowledge what your competitors are doing. Trying to win in a very complex trading environment in a very opaque hedge fund universe is a tremendous intellectual challenge to say the least. Or Cliff might be 100% right but right too early or worse yet, being right way too early. My best guess is that Asness took even bigger bets on Value and got burned even worse. The Great Swedroe did not show up in the Pumpkin patch last year to deliver gifts to the good little boys and girls that believe in Value.

I took a Value bet too, my Value investments are still positive and have still made pretty good returns but have trailed Growth. So I have suffered tracking error and embarrassment on the forum but otherwise have done okay. All this market neutral stuff has turned Value, a strategy that still has provided positive returns in long only form, into a strategy that guarantees losses. Most stock market return has been from market beta. So lets say the US Total Stock Market index has returned 10 percent and the Value Index 8 percent, in a long only strategy you still get an 8% return. In a market neutral strategy, 8 percent returns get turned into 2 percent losses. That doesn't seem like a winning strategy to me. If most of the stock market return is market beta, I want to be in market beta. Market neutral has mostly been return neutral. You beta believe it. But then again, Cliff Asness is a billionaire and I am not. So which of the two of us is smarter?

If I had to bet, once QSPIX is folded up and taken to the dustbin of history, the Value premium will return with a vengeance. Oh boy, I have been hoping for, wishing for, praying for Value capitulation. If Asness capitulates, that will be the ultimate prize. I could not get Garland Whizzer to capitulate, or Vineviz, or Random Walker. I am off to the ultimate big fish, Mr. Asness himself. :wink:

But then again, Toto has pulled back the curtain and like Frank Morgan I am bellowing into a Microphone and trying to convince everyone that I am a Great Wizard. Perhaps Cliff and I can together click the magic ruby slippers and return home to Kansas. My suspicion is that Cliff will take the hot air balloon home and I will be left with the ruby slippers. Like I said, he is a billionaire and I am not.
Last edited by nedsaid on Tue Jul 07, 2020 8:45 am, edited 2 times in total.
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Steve Reading
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Re: Why [was] QSPIX steadily declining?

Post by Steve Reading »

hdas wrote: Tue Jul 07, 2020 7:06 am
Steve Reading wrote: Mon Jul 06, 2020 7:52 pm
hdas wrote: Mon Jul 06, 2020 7:17 pm
Steve Reading wrote: Mon Jul 06, 2020 6:05 pm
Random Walker wrote: Mon Jul 06, 2020 3:54 pm I think even Asness refers to QSPIX as active. But myself, I see it as formulaic, no timing, no individual security selection, and thus more passive than active.
Well this distinction is a little weird because essentially all market-neutral funds are formulaic. Market-neutral funds are all quantitative and systematic by nature. So perhaps what you like is that QSPIX is a systematic fund that really sticks to their rules and isn't changing rules around to time factors.
Only it isn't. Cliff came out and admitted that they increased their value exposure in 2020 (effectively a small amount of value factor timing). And they really regretted it.

Which is why a very opaque fund like QSPIX has its disadvantages. You don't know what rules they use. When they change them. You might not even know if they stick to whatever rules their models recommend. Cliff's admission really soured me on this fund. Never invested in it but probably won't any time soon.
You have the same issue with your beloved MTUM. H
MSCI is very transparent in terms of the methodology to construct their index. It’s detailed here (no such document exists for QSPIX):
https://www.msci.com/eqb/methodology/me ... ep2014.pdf

Also, afaik, MSCI USA MOM index doesn’t randomly change its methodology based on market outlooks. You seem to say they do? If so, please confirm because I don’t like that and would appreciate the heads up.
Yes, sort of....Rebalancing methodology is not so transparent. Check the ad hoc event on Jan 2019. It renders the backtest of the index useless. For rebalancing luck, check Corey Hoffstein paper. H
I’ll take a look, thanks!
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Re: Why [was] QSPIX steadily declining?

Post by midareff »

tarheel wrote: Tue Jul 07, 2020 8:02 am
midareff wrote: Tue Jul 07, 2020 7:15 am Not sure why this fund is even discussed. From inception 10/13/2013 a $10K investment is now worth $9088.26 vs. $20,717.34 if the same money had gone into the S&P 500 (VFIAX). It seems apparent to me some people made big money from this fund, unfortunately that did not include the investors.
Those of us who invest in the fund are not concerned with performance over a seven year period, especially one that has been so quirky for factor investing.

Again, if you are concerned with short term performance and don't understand the purpose of QSPIX, we recommend staying away.
When you are not concerned about 7 years of performance, which has to be life of fund we are in different worlds. Good luck with your choice.
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Re: Why [was] QSPIX steadily declining?

Post by midareff »

nedsaid wrote: Tue Jul 07, 2020 8:34 am

"But then again, Cliff Asness is a billionaire and I am not. So which of the two of us is smarter?"

"My suspicion is that Cliff will take the hot air balloon home and I will be left with the ruby slippers. Like I said, he is a billionaire and I am not."
The concept is wealth transference via management fees and royalties. Your investment portfolio to his pocket. Pretty simple stuff actually.
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Re: Why [was] QSPIX steadily declining?

Post by JackoC »

Random Walker wrote: Mon Jul 06, 2020 1:48 pm
marcopolo wrote: Mon Jul 06, 2020 1:29 pm To a casual observer it appears that most are simply guessing what this fund is actually doing, even its supporters seems to only speculate on the AQR implementation, and what is in the attribution report explaining its latest performance.

So, do those that buy into this strategy essentially ignore the advice to only invest in things you understand? Just put your faith in AQR and the RIAs that sell their products?
There are always different levels of understanding. Understanding is not digital, it’s analog. How much does one need to understand about an individual stock or the intricacies of a stock index’s formation to invest in it? How much does one need to know about bonds to invest in total bond index? In my own case, invested in passive equity funds, several alternative funds, and a municipal bond ladder, I’d say I have a solid layman’s understanding of the purpose of each portfolio component. But not a lot beyond that. I do put substantial trust in my RIA. How much do any of us really understand? How many muni investors really appreciate how to price the various call features of their bonds?
I think one of the strongest arguments for index investing is that for the most part we don’t know what we don’t know!
I agree on non-binary of 'understanding'. For example something like a Total Bond Market fund is not actually simple. Considering which factors like credit, liquidity, embedded options etc. provide the spread over treasuries, the particular quirks of 'slightly' credit risky instruments (like corporate bonds) in an index format, the effect of term premium in constant maturity instruments and on and on. I don't think but a small % of investors in those funds understand all that in any detail, as is clear when such funds are discussed here (a relatively sophisticated crowd by retail investor standards). It's difficult to even analyze stuff like the effect of embedded options (the holder of the fund is short, where a good deal of the apparent yield premium over T comes from). In case of Vanguard anyway, who doesn't give any relevant info, some other fund co's at least give a black box generated 'option adjusted spread'.

Does that mean TBM are dangerous instruments everyone should steer clear of? Obviously not. If you understand you're getting some more spread by taking some generally moderate risk (didn't look so moderate for a bit this past March, but then the Fed stepped in), that's OK. And maybe the fund will also produce more/less performance than what's explained by ex-ante SEC yield and subsequent yield movements (via term premium, embedded options, downgrades of corp bonds out of the index, etc) which you might never be able to get quite to the bottom of. And maybe the vagaries will cause you to mis-estimate the true value of the fund v say a simpler highest yielding CD. But it's not the end of the world.

And while I would *not* directly compare the suitability of QSPIX to TBM as a general investment tool, I think it's somewhat parallel. A lot of the dozen pages threads I've read about this fund, going back years to being a lurker, were suggestions it would blow up. The more sensible criticisms IMO were always that the (carry, value, momentum, defensive) factors which had worked in historical sampling fund is based on would generally just start treading water, 'yesterday's strategies'. Then maybe one of them in one particular asset class would be a real disaster (like say...value stocks :happy ) And with lots of real costs (it's not *just* a big fat check to Cliff Asness), it would have a negative return (now -4.4% pa 5 yr per Yahoo Finance). And guess what? But again before getting on too high horse about how investors in this should know *exactly* why it has performed as it has, try exactly tying in the performance of a TBM fund to all factors especially over a period of widely varying yield curve shape and level, liquidity and credit premia, that's also hard. We don't focus so much on that perhaps because rates keep going down.

I'm not saying I predicted anything about QSPIX. I invested in this fund in early 2015 as part of semi-fooling around money in IRA, with expectation it might do as the factors did historically, or might just spin its wheels. I dumped it in early 2019 when my return was down to +1.9% pa after being pretty good for awhile. No self back patting, that's just when the wheel spin outcome began to seem too likely. Obviously I could have made more than 1.9% in various other things never bothering with QSPIX at all.
Last edited by JackoC on Tue Jul 07, 2020 9:31 am, edited 1 time in total.
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Re: Why [was] QSPIX steadily declining?

Post by Random Walker »

midareff wrote: Tue Jul 07, 2020 9:00 am
tarheel wrote: Tue Jul 07, 2020 8:02 am
midareff wrote: Tue Jul 07, 2020 7:15 am Not sure why this fund is even discussed. From inception 10/13/2013 a $10K investment is now worth $9088.26 vs. $20,717.34 if the same money had gone into the S&P 500 (VFIAX). It seems apparent to me some people made big money from this fund, unfortunately that did not include the investors.
Those of us who invest in the fund are not concerned with performance over a seven year period, especially one that has been so quirky for factor investing.

Again, if you are concerned with short term performance and don't understand the purpose of QSPIX, we recommend staying away.
When you are not concerned about 7 years of performance, which has to be life of fund we are in different worlds. Good luck with your choice.
There are three long periods when the overall market underperformed T Bills: 1929-1943, 1966-1982, 2000-2012. Would you have given up on TSM or S&P 500 after those periods?

Dave
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Re: Why [was] QSPIX steadily declining?

Post by midareff »

Random Walker wrote: Tue Jul 07, 2020 9:30 am
midareff wrote: Tue Jul 07, 2020 9:00 am
tarheel wrote: Tue Jul 07, 2020 8:02 am
midareff wrote: Tue Jul 07, 2020 7:15 am Not sure why this fund is even discussed. From inception 10/13/2013 a $10K investment is now worth $9088.26 vs. $20,717.34 if the same money had gone into the S&P 500 (VFIAX). It seems apparent to me some people made big money from this fund, unfortunately that did not include the investors.
Those of us who invest in the fund are not concerned with performance over a seven year period, especially one that has been so quirky for factor investing.

Again, if you are concerned with short term performance and don't understand the purpose of QSPIX, we recommend staying away.
When you are not concerned about 7 years of performance, which has to be life of fund we are in different worlds. Good luck with your choice.
There are three long periods when the overall market underperformed T Bills: 1929-1943, 1966-1982, 2000-2012. Would you have given up on TSM or S&P 500 after those periods?

Dave
NO!
Long answer... Time horizons look different in your 70's.
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Re: Why [was] QSPIX steadily declining?

Post by Random Walker »

midareff wrote: Tue Jul 07, 2020 9:38 am
Random Walker wrote: Tue Jul 07, 2020 9:30 am
midareff wrote: Tue Jul 07, 2020 9:00 am
tarheel wrote: Tue Jul 07, 2020 8:02 am
midareff wrote: Tue Jul 07, 2020 7:15 am Not sure why this fund is even discussed. From inception 10/13/2013 a $10K investment is now worth $9088.26 vs. $20,717.34 if the same money had gone into the S&P 500 (VFIAX). It seems apparent to me some people made big money from this fund, unfortunately that did not include the investors.
Those of us who invest in the fund are not concerned with performance over a seven year period, especially one that has been so quirky for factor investing.

Again, if you are concerned with short term performance and don't understand the purpose of QSPIX, we recommend staying away.
When you are not concerned about 7 years of performance, which has to be life of fund we are in different worlds. Good luck with your choice.
There are three long periods when the overall market underperformed T Bills: 1929-1943, 1966-1982, 2000-2012. Would you have given up on TSM or S&P 500 after those periods?

Dave
NO!
Long answer... Time horizons look different in your 70's.
Do you mean 7 years or 13 years looks shorter or longer in your 70’s? Many people would potentially say that sequence of returns risk during withdrawal phase is a strong reason to diversify as broadly as possible across uncorrelated sources of return.

Dave
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Re: Why [was] QSPIX steadily declining?

Post by midareff »

Random Walker wrote: Tue Jul 07, 2020 9:46 am
midareff wrote: Tue Jul 07, 2020 9:38 am
Random Walker wrote: Tue Jul 07, 2020 9:30 am
midareff wrote: Tue Jul 07, 2020 9:00 am
tarheel wrote: Tue Jul 07, 2020 8:02 am

Those of us who invest in the fund are not concerned with performance over a seven year period, especially one that has been so quirky for factor investing.

Again, if you are concerned with short term performance and don't understand the purpose of QSPIX, we recommend staying away.
When you are not concerned about 7 years of performance, which has to be life of fund we are in different worlds. Good luck with your choice.
There are three long periods when the overall market underperformed T Bills: 1929-1943, 1966-1982, 2000-2012. Would you have given up on TSM or S&P 500 after those periods?

Dave
NO!
Long answer... Time horizons look different in your 70's.
Do you mean 7 years or 13 years looks shorter or longer in your 70’s? Many people would potentially say that sequence of returns risk during withdrawal phase is a strong reason to diversify as broadly as possible across uncorrelated sources of return.

Dave
Dave, my sequence of return risk is about as close to dead zero as possible at the beginning of year nine of retirement. ... regardless of which I do not believe diversifying as broadly as possible does anything besides, at some point, dilute returns. I would not diversify into Gold or Silver, do not see value added in broad diversification into commodities and don't own T-bills. QSPIX may be for you, it isn't for me. Stay safe.
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Re: Why [was] QSPIX steadily declining?

Post by cheezit »

Random Walker wrote: Tue Jul 07, 2020 9:30 am
midareff wrote: Tue Jul 07, 2020 9:00 am
tarheel wrote: Tue Jul 07, 2020 8:02 am
midareff wrote: Tue Jul 07, 2020 7:15 am Not sure why this fund is even discussed. From inception 10/13/2013 a $10K investment is now worth $9088.26 vs. $20,717.34 if the same money had gone into the S&P 500 (VFIAX). It seems apparent to me some people made big money from this fund, unfortunately that did not include the investors.
Those of us who invest in the fund are not concerned with performance over a seven year period, especially one that has been so quirky for factor investing.

Again, if you are concerned with short term performance and don't understand the purpose of QSPIX, we recommend staying away.
When you are not concerned about 7 years of performance, which has to be life of fund we are in different worlds. Good luck with your choice.
There are three long periods when the overall market underperformed T Bills: 1929-1943, 1966-1982, 2000-2012. Would you have given up on TSM or S&P 500 after those periods?

Dave
Cf. the first few years of VFINX's life:
Image



Of course, there are other problems with QSPIX than its atrocious performance in the last ~2.5 years.
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Re: Why [was] QSPIX steadily declining?

Post by nedsaid »

midareff wrote: Tue Jul 07, 2020 9:05 am
nedsaid wrote: Tue Jul 07, 2020 8:34 am

"But then again, Cliff Asness is a billionaire and I am not. So which of the two of us is smarter?"

"My suspicion is that Cliff will take the hot air balloon home and I will be left with the ruby slippers. Like I said, he is a billionaire and I am not."
The concept is wealth transference via management fees and royalties. Your investment portfolio to his pocket. Pretty simple stuff actually.
The Liquid Alts were a nice idea that didn't work out so well in the implementation. I own a couple of Liquid Alts, one on the fixed income side and the other on the stock side. They are a little over 1% of my portfolio and won't make a difference one way or the other. So far the performance has not been impressive to say the least. Not bashing Cliff Asness here but so far the experiment hasn't worked. All kinds of stuff looks good on paper.
A fool and his money are good for business.
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Re: Why [was] QSPIX steadily declining?

Post by midareff »

nedsaid wrote: Tue Jul 07, 2020 9:54 am
midareff wrote: Tue Jul 07, 2020 9:05 am
nedsaid wrote: Tue Jul 07, 2020 8:34 am

"But then again, Cliff Asness is a billionaire and I am not. So which of the two of us is smarter?"

"My suspicion is that Cliff will take the hot air balloon home and I will be left with the ruby slippers. Like I said, he is a billionaire and I am not."
The concept is wealth transference via management fees and royalties. Your investment portfolio to his pocket. Pretty simple stuff actually.
The Liquid Alts were a nice idea that didn't work out so well in the implementation. I own a couple of Liquid Alts, one on the fixed income side and the other on the stock side. They are a little over 1% of my portfolio and won't make a difference one way or the other. So far the performance has not been impressive to say the least. Not bashing Cliff Asness here but so far the experiment hasn't worked. All kinds of stuff looks good on paper.
Yup, S&P500 and TSM have looked good for a very long time. Looking to consistently beat those indices with derivatives and alternatives starts to smell like marketing and greed.
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Re: Why [was] QSPIX steadily declining?

Post by midareff »

cheezit wrote: Tue Jul 07, 2020 9:53 am
Random Walker wrote: Tue Jul 07, 2020 9:30 am
midareff wrote: Tue Jul 07, 2020 9:00 am
tarheel wrote: Tue Jul 07, 2020 8:02 am
midareff wrote: Tue Jul 07, 2020 7:15 am Not sure why this fund is even discussed. From inception 10/13/2013 a $10K investment is now worth $9088.26 vs. $20,717.34 if the same money had gone into the S&P 500 (VFIAX). It seems apparent to me some people made big money from this fund, unfortunately that did not include the investors.
Those of us who invest in the fund are not concerned with performance over a seven year period, especially one that has been so quirky for factor investing.

Again, if you are concerned with short term performance and don't understand the purpose of QSPIX, we recommend staying away.
When you are not concerned about 7 years of performance, which has to be life of fund we are in different worlds. Good luck with your choice.
There are three long periods when the overall market underperformed T Bills: 1929-1943, 1966-1982, 2000-2012. Would you have given up on TSM or S&P 500 after those periods?

Dave
Cf. the first few years of VFINX's life:
Image



Of course, there are other problems with QSPIX than its atrocious performance in the last ~2.5 years.
side note: they are both positive results.
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Re: Why [was] QSPIX steadily declining?

Post by typical.investor »

Random Walker wrote: Tue Jul 07, 2020 9:30 am
midareff wrote: Tue Jul 07, 2020 9:00 am
tarheel wrote: Tue Jul 07, 2020 8:02 am
midareff wrote: Tue Jul 07, 2020 7:15 am Not sure why this fund is even discussed. From inception 10/13/2013 a $10K investment is now worth $9088.26 vs. $20,717.34 if the same money had gone into the S&P 500 (VFIAX). It seems apparent to me some people made big money from this fund, unfortunately that did not include the investors.
Those of us who invest in the fund are not concerned with performance over a seven year period, especially one that has been so quirky for factor investing.

Again, if you are concerned with short term performance and don't understand the purpose of QSPIX, we recommend staying away.
When you are not concerned about 7 years of performance, which has to be life of fund we are in different worlds. Good luck with your choice.
There are three long periods when the overall market underperformed T Bills: 1929-1943, 1966-1982, 2000-2012. Would you have given up on TSM or S&P 500 after those periods?

Dave

Honestly? If the S&P 500 came out in 1929 as a market neutral fund offering positive returns in both up and down markets, but then subsequently really couldn’t do that, then I’d probably bail.

If I bought it as a fund targeting factor exposure knowing that factor correlations do converge and not at all normally distributed then maybe no- I’d say it’s just providing the factor returns.

It definitely fails in being market neutral. Is QSPIX the best way to get factor exposure?
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Re: Why [was] QSPIX steadily declining?

Post by Steve Reading »

typical.investor wrote: Tue Jul 07, 2020 10:06 am It definitely fails in being market neutral.
What makes you say that?
"... so high a present discounted value of wealth, it is only prudent for him to put more into common stocks compared to his present tangible wealth, borrowing if necessary" - Paul Samuelson
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Re: Why [was] QSPIX steadily declining?

Post by cheezit »

Overall correlation between QSPIX and equities has been 0.06 over the lifetime of the fund (which is pretty darn market-neutral), though eyeballing things it seems like there have been two correlation regimes:

Image

Who knows whether the switchover from a moderate positive correlation to a moderate negative correlation was 'real' (based on a change in strategy or conditions) or an artifact of randomness.
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-----

Post by hdas »

-----
Last edited by hdas on Thu Jul 16, 2020 5:16 pm, edited 1 time in total.
....
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Re: Why [was] QSPIX steadily declining?

Post by Steve Reading »

hdas wrote: Tue Jul 07, 2020 12:56 pm
Steve Reading wrote: Tue Jul 07, 2020 8:40 am
hdas wrote: Tue Jul 07, 2020 7:06 am
Steve Reading wrote: Mon Jul 06, 2020 7:52 pm
hdas wrote: Mon Jul 06, 2020 7:17 pm

You have the same issue with your beloved MTUM. H
MSCI is very transparent in terms of the methodology to construct their index. It’s detailed here (no such document exists for QSPIX):
https://www.msci.com/eqb/methodology/me ... ep2014.pdf

Also, afaik, MSCI USA MOM index doesn’t randomly change its methodology based on market outlooks. You seem to say they do? If so, please confirm because I don’t like that and would appreciate the heads up.
Yes, sort of....Rebalancing methodology is not so transparent. Check the ad hoc event on Jan 2019. It renders the backtest of the index useless. For rebalancing luck, check Corey Hoffstein paper. H
I’ll take a look, thanks!
I guess they have that in the prospectus:
In order to mitigate drawdown during periods characterized by spikes in market volatility,
MSCI Momentum Indexes are rebalanced on an ad-hoc basis in addition to the two
scheduled Semi-Annual Index Reviews in May and November, subject to meeting certain
trigger criteria that are described below. The steps for triggering ad-hoc rebalancing are
described as follows:
1. At every T-9 date (where T is a month-end date), annualized volatility of the Parent
Index (Vt) is computed. The annualized volatility is computed using trailing 3-months
daily returns of the index as of month-end date of the previous month.
Annualized Volatility Vt = √250 * (standard deviation of daily returns over trailing 3
months)
2. The monthly change in volatility is computed as
δ = (Vt / Vt-1 )- 1
where Vt-1 = Annualized Volatility computed at T-9 of previous month
3. If δ > Threshold, ad-hoc rebalancing is triggered in that month at T-9 date.
4. Threshold is defined as,
Threshold = 95th percentile of monthly changes in volatility over available history
of the Reference Index
 Reference Index for MSCI Momentum Indexes based on countries/regions
categorized under Developed Markets is MSCI World Index.
 Reference Index for MSCI Momentum Indexes based on countries/regions
categorized under Emerging Markets is MSCI Emerging Markets Index
 Reference Index for MSCI ACWI Momentum Index is MSCI World Index
As the ad-hoc rebalancing is triggered due to recent changes in Momentum, only 6-month
Price Momentum value is used to compute Momentum score at the ad-hoc rebalancing
date, instead of the combination of 6-month and 12-month Price Momentum that is used in
SAIR as described in Section 2.
What I don't like about this, is that it turns the fund into a Low Vol fund, prompting under performance in the bounce as evidenced by the out of sample test. H
Thank you. I wasn't sure if that's what you meant. I thought you were saying the index had changed its methodology recently to time the market. I actually did know the fund could rebalance more often than semi-annually based on volatility. But I'm OK with that. Just to reiterate the things I don't like:
- Funds that change methodology on me (ex: suddenly invest internationally, or add additional momentum exposure because fund managers believe it's a good idea, etc).
- Funds that don't have transparent methodology (ex: because I don't know QSPIX's methodology in the past or today, I have no clue if it's results 3 years ago are representative of future results in identical conditions).

The latter is very important. QSPIX added value exposure so value underperformance hurt it more than it would've 3 years ago. So QSPIX suddenly loaded your portfolio with value without you knowing it. Whether you like or dislike that is up to you, but I consider that "active management" instead of "passive" as Dave points out.
"... so high a present discounted value of wealth, it is only prudent for him to put more into common stocks compared to his present tangible wealth, borrowing if necessary" - Paul Samuelson
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Re: Why [was] QSPIX steadily declining?

Post by typical.investor »

Steve Reading wrote: Tue Jul 07, 2020 10:17 am
typical.investor wrote: Tue Jul 07, 2020 10:06 am It definitely fails in being market neutral.
What makes you say that?
I'd expect a market neutral position to reduce overall risk.

Comparing QSPIX to BND (Total Bond) or BTAL (which follows the Dow Jones U.S. Market Neutral Anti-Beta Index), I see it reducing returns and adding risk:

BTAL/VTI

8.46% CAGR
7.70% Stdev
0.30% Worst Year
-11.27% Max. Drawdown
0.98 Sharpe Ratio

BND/VTI

8.30% CAGR
9.88% Stdev
-3.68% Worst Year
-14.40% Max. Drawdown
0.77 Sharpe Ratio

QSPIX/VTI

6.50% CAGR
10.25% Stdev
-8.23% Worst Year
-17.02% Max. Drawdown
0.58 Sharpe Ratio

Using QSPIX results in lower returns, more volatility and worse drawdowns. VTI by itself only had a 14.12% Stdev and -20.84% Max. Drawdown in that time.

Notes:
Jan 2014 - Jun 2020 (life of QSPIX)
70% VTI

The Dow Jones U.S. Market Neutral Anti-Beta Index is:
Dow Jones U.S. Low Beta Index 100%
Dow Jones U.S. High Beta Index -100%
Dow Jones U.S. High Momentum 100%
Dow Jones U.S. Low Momentum -100%
Dow Jones U.S. Thematic Long Quality Index 100%
Dow Jones U.S. Thematic Short Quality Index -100%
Dow Jones U.S. Thematic Long Size Index 100%
Dow Jones U.S. Thematic Short Size Index -100%
Dow Jones U.S. Relative Value Index 100%
Dow Jones U.S. Short Relative Value Index -100%
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Re: Why [was] QSPIX steadily declining?

Post by Steve Reading »

typical.investor wrote: Tue Jul 07, 2020 5:41 pm
Steve Reading wrote: Tue Jul 07, 2020 10:17 am
typical.investor wrote: Tue Jul 07, 2020 10:06 am It definitely fails in being market neutral.
What makes you say that?
I'd expect a market neutral position to reduce overall risk.
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Market-neutral just means that the movements of the market should have little or no effect on the fund. It has nothing to do with reducing risk or not.

Going long the technology sector and shorting the healthcare sector, if done in the right proportions, will produce a market-neutral portfolio. You could also create a market-neutral fund by doing the opposite (short technology, long healthcare). If one turns out to reduce risk when added to VTI, the other one is guaranteed to increase risk.

In fact, for every market-neutral fund that reduces risk for VTI, the opposite market-neutral fund (the one that shorts the longs and longs the shorts) will increase risk. So it's impossible for all market-neutral funds to reduce overall risk.
"... so high a present discounted value of wealth, it is only prudent for him to put more into common stocks compared to his present tangible wealth, borrowing if necessary" - Paul Samuelson
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Re: Why [was] QSPIX steadily declining?

Post by typical.investor »

Steve Reading wrote: Tue Jul 07, 2020 6:15 pm
typical.investor wrote: Tue Jul 07, 2020 5:41 pm
Steve Reading wrote: Tue Jul 07, 2020 10:17 am
typical.investor wrote: Tue Jul 07, 2020 10:06 am It definitely fails in being market neutral.
What makes you say that?
I'd expect a market neutral position to reduce overall risk.
.
.
.
Market-neutral just means that the movements of the market should have little or no effect on the fund. It has nothing to do with reducing risk or not.

Going long the technology sector and shorting the healthcare sector, if done in the right proportions, will produce a market-neutral portfolio. You could also create a market-neutral fund by doing the opposite (short technology, long healthcare). If one turns out to reduce risk when added to VTI, the other one is guaranteed to increase risk.
I see. So you are saying that lowering your portfolio's risk is not a goal. Hmmn.

Ok. but Swedroe has stated "The purpose of adding (liquid Alts such as QSPIX) is to decrease the portfolio’s exposure to market beta to, in turn, reduce the dispersion of potential returns and, thus, tail risk without significantly reducing expected returns."

I see QSPIX increasing the dispersion of potential returns while simultaneously reducing returns and thus is inconsistent with the stated goals when substituting alternatives for bonds.

OK, in your book it is doing what it is expected. Fine. I guess I listen to the camp that says a market neutral fund should counter act your equity risk without sacrificing returns too much. Not really sure what you want your portfolio to do but adding assets that increase overall volatility and lower portfolio returns (when substituting for bonds) seems questionable to me. Perhaps you accept that as a way to avoid the duration risk of bonds, but 1-3 Mth T-Bills still seem much better than QSPIX.
Steve Reading wrote: Tue Jul 07, 2020 6:15 pm In fact, for every market-neutral fund that reduces risk for VTI, the opposite market-neutral fund (the one that shorts the longs and longs the shorts) will increase risk. So it's impossible for all market-neutral funds to reduce overall risk.
Ok, but I question your "fact", math, logic and analysis here.

If the Dow Jones U.S. Market Neutral Index is short large and long small, I don't believe it necessitates another market neutral index being long large and short small which is what you imply. All that would be necessary is for a group of investors to be sufficiently net long.

Correct me if I am wrong.
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Re: Why [was] QSPIX steadily declining?

Post by HomerJ »

nedsaid wrote: Tue Jul 07, 2020 8:34 amThough Cliff Asness is unquestionably brilliant
I question it.
All this market neutral stuff has turned Value, a strategy that still has provided positive returns in long only form, into a strategy that guarantees losses. Most stock market return has been from market beta. So lets say the US Total Stock Market index has returned 10 percent and the Value Index 8 percent, in a long only strategy you still get an 8% return. In a market neutral strategy, 8 percent returns get turned into 2 percent losses. That doesn't seem like a winning strategy to me. If most of the stock market return is market beta, I want to be in market beta. Market neutral has mostly been return neutral. You beta believe it. But then again, Cliff Asness is a billionaire and I am not. So which of the two of us is smarter?
Heh, you've hit the nail on the head.

"Where are the customer's yachts?" is STILL a relevant question (This was a tile of a book criticizing Wall Street back in 1940!)

He's a billionaire because he convinced otherwise smart people that they were SO smart that they could be part of an exclusive club that knows better than the market.

Like every other con man on Wall Street.

And people fell for it. And he made billions. He didn't make billions from his investing prowess. He made billions from the fees he collected from otherwise smart people who believed he was going to make them more money than the market... or, at least, the same money with less risk.

But he didn't. Not yet. Not so far... But he's SUCH a good salesman that he still has believers. I don't think he's brilliant, but I will admit he's a top-notch salesman. I mean absolutely top of the line.
A Goldman Sachs associate provided a variety of detailed explanations, but then offered a caveat, “If I’m being dead-### honest, though, nobody knows what’s really going on.”
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Re: Why [was] QSPIX steadily declining?

Post by HomerJ »

Random Walker wrote: Tue Jul 07, 2020 9:30 am
midareff wrote: Tue Jul 07, 2020 9:00 am
tarheel wrote: Tue Jul 07, 2020 8:02 am
midareff wrote: Tue Jul 07, 2020 7:15 am Not sure why this fund is even discussed. From inception 10/13/2013 a $10K investment is now worth $9088.26 vs. $20,717.34 if the same money had gone into the S&P 500 (VFIAX). It seems apparent to me some people made big money from this fund, unfortunately that did not include the investors.
Those of us who invest in the fund are not concerned with performance over a seven year period, especially one that has been so quirky for factor investing.

Again, if you are concerned with short term performance and don't understand the purpose of QSPIX, we recommend staying away.
When you are not concerned about 7 years of performance, which has to be life of fund we are in different worlds. Good luck with your choice.
There are three long periods when the overall market underperformed T Bills: 1929-1943, 1966-1982, 2000-2012. Would you have given up on TSM or S&P 500 after those periods?

Dave
You make a solid point.. But TSM is well-understood. QSPIX is not. It's a black-box. "Trust me" says the con-man. And you either believe or you don't.

You have on;y a vague idea what he's doing. How many years until you stop trusting him? 10, 20?
A Goldman Sachs associate provided a variety of detailed explanations, but then offered a caveat, “If I’m being dead-### honest, though, nobody knows what’s really going on.”
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Re: Why [was] QSPIX steadily declining?

Post by Steve Reading »

typical.investor wrote: Tue Jul 07, 2020 6:35 pm I see. So you are saying that lowering your portfolio's risk is not a goal. Hmmn.
No, that's not what I said. I simply showed that it is possible to have a market-neutral fund that does not reduce risk. Just because something is market neutral doesn't mean it's helpful.
typical.investor wrote: Tue Jul 07, 2020 6:35 pm Ok. but Swedroe has stated "The purpose of adding (liquid Alts such as QSPIX) is to decrease the portfolio’s exposure to market beta to, in turn, reduce the dispersion of potential returns and, thus, tail risk without significantly reducing expected returns."

I see QSPIX increasing the dispersion of potential returns while simultaneously reducing returns and thus is inconsistent with the stated goals when substituting alternatives for bonds.
Evidently, QSPIX has not performed as Swedroe was hoping. Doesn't mean QSPIX isn't a market neutral fund though. It definitely is.
typical.investor wrote: Tue Jul 07, 2020 6:35 pm Fine. I guess I listen to the camp that says a market neutral fund should counter act your equity risk without sacrificing returns too much.
You probably should ignore whoever tells you that. Just because a fund is not correlated with the market (market-neutral) does not necessarily reduce your risk.
typical.investor wrote: Tue Jul 07, 2020 6:35 pm If the Dow Jones U.S. Market Neutral Index is short large and long small, I don't believe it necessitates another market neutral index being long large and short small which is what you imply.
If the Dow Jones U.S. Market Neutral Index is market-neutral (which means it is uncorrelated to the market), then the opposite of this fund (which shorts whatever small cap stocks it goes long, and goes long every large cap stock it shorts) will also be market-neutral. Its returns, which are just the opposite of the Dow Jones U.S. Market Neutral Index, will also move independent of VTI.
"... so high a present discounted value of wealth, it is only prudent for him to put more into common stocks compared to his present tangible wealth, borrowing if necessary" - Paul Samuelson
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Re: Why [was] QSPIX steadily declining?

Post by typical.investor »

Steve Reading wrote: Tue Jul 07, 2020 7:57 pm
typical.investor wrote: Tue Jul 07, 2020 6:35 pm I see. So you are saying that lowering your portfolio's risk is not a goal. Hmmn.
No, that's not what I said. I simply showed that it is possible to have a market-neutral fund that does not reduce risk. Just because something is market neutral doesn't mean it's helpful.
typical.investor wrote: Tue Jul 07, 2020 6:35 pm Ok. but Swedroe has stated "The purpose of adding (liquid Alts such as QSPIX) is to decrease the portfolio’s exposure to market beta to, in turn, reduce the dispersion of potential returns and, thus, tail risk without significantly reducing expected returns."

I see QSPIX increasing the dispersion of potential returns while simultaneously reducing returns and thus is inconsistent with the stated goals when substituting alternatives for bonds.
Evidently, QSPIX has not performed as Swedroe was hoping. Doesn't mean QSPIX isn't a market neutral fund though. It definitely is.
I care not for your dictionary definition of "market neutral". All I care about is if it's beneficial. So I will reiterate. QSPIX definitely fails in being a beneficial market neutral fund that serves to dampen volatility without sacrificing too much in returns.

Sorry, I didn't realize people considered market neutral funds that increase volatility and lower returns to even be in the realm of consideration. But yeah to being pedantic.
Steve Reading wrote: Tue Jul 07, 2020 7:57 pm
typical.investor wrote: Tue Jul 07, 2020 6:35 pm Fine. I guess I listen to the camp that says a market neutral fund should counter act your equity risk without sacrificing returns too much.
You probably should ignore whoever tells you that. Just because a fund is not correlated with the market (market-neutral) does not necessarily reduce your risk.
No, I listen to that because the key word there is "should". Can you really provide a case where a fund that increases volatility and lowers overall return is useful. If there is such a case, I'll revise my understanding that a market neutral fund should counter act your equity risk without sacrificing returns too much in order to be useful.
Steve Reading wrote: Tue Jul 07, 2020 7:57 pm
typical.investor wrote: Tue Jul 07, 2020 6:35 pm If the Dow Jones U.S. Market Neutral Index is short large and long small, I don't believe it necessitates another market neutral index being long large and short small which is what you imply.
If the Dow Jones U.S. Market Neutral Index is market-neutral (which means it is uncorrelated to the market), then the opposite of this fund (which shorts whatever small cap stocks it goes long, and goes long every large cap stock it shorts) will also be market-neutral. Its returns, which are just the opposite of the Dow Jones U.S. Market Neutral Index, will also move independent of VTI.
We are talking past each other here. You aren't stating anything I don't already know. Yeah I know a fund constructed to be the inverse of the Dow Jones U.S. Market Neutral Index won't reduce volatility when the Dow Jones U.S. Market Neutral Index does. It's obvious.

My point is that the Dow Jones U.S. Market Neutral Index doesn't require an inverse Market Neutral Index fund to for it to exist.

You want to suggest that half the market neutral funds are actually increasing volatility while decreasing returns. And that this is necessary for any market neutral funds to exist.

I don't believe that is the case. Just because the Dow Jones U.S. Market Neutral Index is net long on small stocks, it doesn't mean there must be a Market Neutral holding out there that is net short on small stocks.
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Re: Why [was] QSPIX steadily declining?

Post by Steve Reading »

typical.investor wrote: Tue Jul 07, 2020 11:40 pm I care not for your dictionary definition of "market neutral". All I care about is if it's beneficial. So I will reiterate. QSPIX definitely fails in being a beneficial market neutral fund that serves to dampen volatility without sacrificing too much in returns.
If you don't care about what market neutral means and only care about its diversification benefits, then how about you don't say "It's definitely not market neutral". Say "this fund has not being beneficial, etc". In other words, say what you mean.
typical.investor wrote: Tue Jul 07, 2020 11:40 pm Sorry, I didn't realize people considered market neutral funds that increase volatility and lower returns to even be in the realm of consideration. But yeah to being pedantic.
A lot of people don't think past performance guarantees future returns, so they will consider a fund that increased portfolio volatility and lowered returns in the past since they might not think it does in the future. Some others, like yourself, will only consider a fund if it has helped in the past. Different strokes for different folks.
typical.investor wrote: Tue Jul 07, 2020 11:40 pm You aren't stating anything I don't already know. Yeah I know a fund constructed to be the inverse of the Dow Jones U.S. Market Neutral Index won't reduce volatility when the Dow Jones U.S. Market Neutral Index does. It's obvious.
When I said it the first time, you challenged this fact. Even calling it a "fact". But it's "obvious" now? Well, I'm glad you get it.

The reality is that it's not so obvious and that it is technically possible to have opposing market-neutral funds help VTI when mixed individually in a portfolio. But it's a rather fringe, specific case. It's probably reasonable to just ignore it.
typical.investor wrote: Tue Jul 07, 2020 11:40 pm My point is that the Dow Jones U.S. Market Neutral Index doesn't require an inverse Market Neutral Index fund to for it to exist.
It doesn't. Did I claim so?
typical.investor wrote: Tue Jul 07, 2020 11:40 pm You want to suggest that half the market neutral funds are actually increasing volatility while decreasing returns. And that this is necessary for any market neutral funds to exist.
I didn't suggest that but I can see why you'd think that:
"In fact, every market-neutral fund that reduces risk for VTI, the opposite market-neutral fund (the one that shorts the longs and longs the shorts) will increase risk."

I'm not claiming that there are such opposite market neutral funds, today, available for investing, in the real world. Just that for every market neutral fund you could construct that helps VTI, constructing the market neutral negatively will increase risk.
"... so high a present discounted value of wealth, it is only prudent for him to put more into common stocks compared to his present tangible wealth, borrowing if necessary" - Paul Samuelson
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Re: Why [was] QSPIX steadily declining?

Post by cheezit »

Incidentally, QSPIX didn't increase volatility. It isn't intended as a complete replacement for bonds in a portfolio, and Swedroe et al. never advocated it as such. Here's what QSPIX has done when added to a 3-fund portfolio:

Image
Fig. 1 - the effect of QSPIX in a portfolio. Volatility is reduced due to the low correlation of alts to stocks and bonds, but return is reduced due to the very poor performance of alts over the last 2 years. Alternative title: 3.6 Roentgen




Now, there's a lot to nitpick here: asset allocations for the 3-fund portfolio vary from investor to investor (especially international as a percentage of equities), the actual funds chosen are not always TSM/Total International/TBM as I used here for illustration purposes, etc. I just needed to pick something middle-of-the-road and hold it constant for both portfolios; the effect will be similar for 20% international or global cap weight or 0%, as can be seen if you go ahead and turn some knobs on the various portfolios.



Of course, the portfolios that Swedroe/BAM are putting people into probably look somewhat different than this; Random Walker can chime in here, but my guess is that domestic equities are tilted towards SCV or a multifactor fund, international is tilted towards small-caps or EM or some combination of the two, and bonds are either all treasurys or a mix of treasurys and munis. Larry also stated both in this forum and his website that adding alts allows the investor to extend bond maturities (go for longer duration), which by itself without any of the other aforementioned changes would more than make up for the awful performance of QSPIX:
Image
Fig. 2 - Extending bond maturities over the period in question was rather beneficial. Nb. I am not advocating for Swedoe's partly-related market-timing approach to bond maturities in the absence of alts, which is orthogonal to this discussion. Alternative title: vineviz's revenge!



This of course doesn't necessarily make alts (or long treasurys) a good bet going forward, especially at AQR's prices. Frankly I am skeptical that many of the funds that BAM habitually recommends are worth their ERs even if you buy into the tilts they're going for; IMO a low-cost implementation of the same strategy is likely to beat the BAM approach due to Bogle's Cost Matters Hypothesis. And of course, the 'normal' 3FP is a perennial contender.
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