My Favorite Alternative Funds

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grap0013
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My Favorite Alternative Funds

Post by grap0013 » Thu Jul 06, 2017 10:27 pm

Putting all of my favorite alternative funds in one place. If you do not like alternative funds and want to peddle total stock market please refrain from chiming in. You are not my intended audience. This is for folks interested in funds outside traditional stocks and bonds.

Style Premia Alternative
Fund Example: QSPIX/QSPNX
Purchase: Through Fidelity
Expected return (nominal and net of fees): ~7% annualized
Expected standard deviation: 10
Correlation to stocks/bonds: 0
Correlation to anything else? Yes. TS MOM ~0.3
Hypothetical 2008 performance: -5%
Returns Jan. 2014 thru June 2017: 5.86% annualized
% positive months: 59%
Notes: pure meth factor tilts for value, CS MOM, carry, and defensive
viewtopic.php?t=167241

Managed futures aka TS MOM aka trend following aka moving average
Fund Example: QMHIX
Purchase: Through Fidelity
Expected return (nominal and net of fees): ~8% annualized
Expected standard deviation: 15
Correlation to stocks/bonds: 0
Correlation to anything else? Yes. Style Premia Alternative ~0.3
Hypothetical 2008 performance: +30%
Returns Jan. 2014 thru June 2017: -1.84% annualized
% positive months: 42%
Notes: does best in extreme up and down markets. Hedges well against left tail events. As stocks go down more this fund should go up more.
viewtopic.php?t=186055

Peer to Peer Lending
Fund Example: LENDX
Purchase: Stone Ridge
Expected return (nominal and net of fees): ~7% annualized
Expected standard deviation: 5
Correlation to stocks/bonds: 0
Correlation to anything else? No
Hypothetical 2008 performance: -5%
Returns Sept. 2016 thru June 2017: 6.62% annualized
% positive months: 100%
Notes: does not correlate with anything. Drawbacks are liquidity and you need special access to purchase. Correlations could rise a little bit to equities in bear markets although 2008 backtested returns do not look too bad.
https://finance.yahoo.com/news/swedroe- ... 37024.html

Reinsurance
Fund Example: SRRIX
Purchase: Stone Ridge
Expected return (nominal and net of fees): ~7% annualized
Expected standard deviation: 10
Correlation to stocks/bonds: 0
Correlation to anything else? Maybe, AVRPX (variance risk premium) ~0.1
Hypothetical 2008 performance: 7%
Returns 12/6/13 thru June 2017: 7.84% annualized
% positive months: 86%
Notes: does not correlate with anything really. Drawbacks are liquidity and you need special access to purchase. Should do well in 2008 type scenario unless possibly big natural disaster?
https://finance.yahoo.com/news/swedroe- ... 57055.html

Variance Risk Premium
Fund Example: AVRPX
Purchase: Stone Ridge
Expected return (nominal and net of fees): ~7% annualized
Expected standard deviation: 10
Correlation to stocks/bonds: 0
Correlation to anything else? Maybe, reinsurance (SRRIX) ~0.1
Hypothetical 2008 performance: 7%? (I’m not sure)
Returns April 2015 thru June 2017: 6.77% annualized
% positive months: 59%
Notes: does not correlate with anything really. Drawbacks are liquidity and you need special access to purchase. I don’t know much about this strategy. My source likes this fund though.

How do these funds fit into the context of an overall portfolio?
Each of these funds has their endearing qualities. Personally, I don’t like allocations <5%.

One could do (of total portfolio):

5% LENDX
5% SRRIX
5% QSPIX
5% AVRPX
5% QMHIX

Or even:

9% LENDX
9% SRRIX
5% QSPIX
5% AVRPX
5% QMHIX

The latter allocation gives more weighting to LENDX and SRRIX due to more persistent positive returns and return per unit of risk ie risk/reward trade off looks more favorable for these funds than the other three.

If one is going to go this route they have to let go of all preconceived ideas about investing. Tear down the walls. You really need to do your homework for these ALTs to DIY or pay a RIA to invest in these funds IMO. These ALT funds are not for the casually interested investor to dabble in and DIY.

I hope this post helps at least 1 person!

Off to unplug for a few days. I'll check responses when I return.

grap
There are no guarantees, only probabilities.

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Re: My Favorite Alternative Funds

Post by Random Walker » Thu Jul 06, 2017 11:05 pm

If one is going to go this route they have to let go of all preconceived ideas about investing.
I'm a fan of all of these and have them in my portfolio. Thanks for the excellent concise summary of each one. I am going to disagree with the above quote though. One invests in these because they have strong belief in modern portfolio theory and that what matters is the behavior of the portfolio as a whole.
These funds are expensive and tax inefficient. There are no free lunches in investing. But for someone who appreciates how each can contribute positively to a portfolio, the increased costs can be worthwhile. The potential contribution of an addition to a portfolio depends on it's expected return, volatility, correlations to other portfolio components, and costs. These alternatives provide sources of return completely uncorrelated to most other portfolio components, and especially market beta which dominates most portfolios. They should increase portfolio efficiency substantially, but at a cost.
My own personal example will show how much I've bought into these alternatives. Not only have I invested in them, I have placed most of them in my taxable space despite their tax inefficiency. I had been about 80/20 a few years ago and wanted to take risk off the table. I am now 47% equities, 33% bonds, and 20% alternatives. Instead of increasing my % Muni bonds more in taxable, I elected to effectively take from the bond side of my portfolio to generate these alternative positions. With equity like expected returns, about half the SD of equities, low correlations, they should increase portfolio efficiency lots: higher expected return and to lesser extent higher SD than if that 20% were in bonds. This change would not make sense as an alternative to equities in taxable, but I believe makes good sense as an alternative to Muni bonds in taxable. It is higher risk, but diversified across uncorrelated risks , and higher after tax expected return than Muni bonds.
For anyone interested in the potential benefit of adding these to a portfolio, check out the thread I started regarding the effect of volatility drag on portfolio geometric Mean return. There is a real cost to portfolio volatility, and these alternatives have the potential to have a significant positive effect on the geo mean portfolio return. For a given portfolio expected return, the expected portfolio volatility is less than if alternatives were excluded, and therefore the expected geometric portfolio return is increased. Improved portfolio efficiency is worth some increased cost. It's up to each individual investor to try to figure out when the benefits are worth the costs.

Dave

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Re: My Favorite Alternative Funds

Post by whodidntante » Thu Jul 06, 2017 11:44 pm

How did you determine hypothetical 2008 performance?

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Re: My Favorite Alternative Funds

Post by hilink73 » Thu Jul 06, 2017 11:50 pm

grap0013 wrote:Putting all of my favorite alternative funds in one place.

grap
Thanks for this summary.

(Unfortunately, not available in Europe/outside US.)

So, Interactive Brokers do list AQR funds, but says that mutual funds are for US residents only.
I'm wondering, if this is being enforced or if it is just a legal text for tax reasons.

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Re: My Favorite Alternative Funds

Post by packer16 » Fri Jul 07, 2017 7:30 am

Some IMO more understandable & less costly alternative funds include:

Broadstone Net Lease: LT (avg lease term about 15 years) leased real estate portfolio with a low "look through" expense ratio of 1.7% for direct access to leases. For comparison Vanguard REIT index has a "look through" expense ratio of 5%. Has a minimum required rate of return threshold of 10% & has delivered 12.4% returns since inception 2008. This is in essence a bond portfolio of the leasers obligations secured by underlying real estate. The leasers consist of restaurants, industrial & healthcare firms. The top leasers have credit ratings around BBB. Very good underwriting & will walk away from deals that do not meet underwriting criteria. Current yield is 6.25% with the rest in NAV appreciation. Current AFFO yield is 6.6%. The shares can be redeemed from the company at NAV (less discount if held less than 5 years). BNL has to file with the SEC now so details are available on Edgar.

Ocean Yield ASA: Same concept at Broadstone but with ships. Team has 15 years experience in this space and has assemble a diversified portfolio of ships & leases to some of the largest shippers in the business. Diversified across roro, container, oil & chemical tanker and O&G support ships. The concept is similar here with an average lease term in 12.5 years. Is backed by Aker a Norwegian shipping group. Expense ratio is close to 1.4%. Current yield is about 9.6%. LT returns available in this sector are low teens as evidenced by Ship Finance Int'l who has had an 11% CAGR since 2001 despite a 10% CAGR decline for shipping stock indicies. Note: we are at a low point in the shipping cycle. Details available on website.

Brookfield Infrastructure Partners: Same concept at Broadstone but with infrastructure assets. Team has 35 years experience in this space and has assemble a diversified portfolio of infrastructure assets. Has set a return target of 12 to 15% & will walk away from deal that do not meet this criteria. This is a slice of all the infrastructure deals that Brookfield originates. BAM has an excellent track record of after fees mid-teens rate of returns for its pension clients. Since inception in early 2008 has delivered 20% annualized returns. Current AFFO yield is 7.0%. Expense ratio is close to 0.8%. Current yield is about 4.4%. Details available on website.

TPG Credit: A BDC with an underwriting team that I am familiar with who underwrites like a bank (so losses are extremely low) but still generates a 7.6% yield. At today's price, I do not see this as good a deal as BNL or Ocean Yield but if the yield approaches 9 to 10% it gets more interesting. The primary return here is the dividend although management has been opportunistic in the past & has a proprietary deal flow from TPG.

I like these vehicles because the cash flows that you receive are in essence bond-like payments with some modest appreciation in principal value over time. I also can understand the underwriting, assets and risks more than I can some of the other more "black box" alternatives that have performed well in simulations in the past. In many cases, these past simulated results have resulted in much different (in many cases lower) results when traded in the real world.

As Random Walker stated, I think these are nice FI substitutes for a portion of a FI allocation that is yielding next to nothing now & is not going to be needed for a few years.

The one factor I have not seen discussed is for 2 of these funds (P-to-P & re-insurance) is underwriting skill which is very important. Assuming the market will provide the right price in these markets is a dangerous assumption. For P-to-P from what I have seen in these markets (Prosper & Lending Club) is they are a play on lending to folks who are on the edge in terms of credit. This works well when times are good like now but has blown-up in most recessions. None of these platforms has been through a major recession & most have had to change their underwriting estimates in good times because they were to optimistic.

As for reinsurnace, the good active players like Berkshire, Fairfax and Markel vary exposure to the market based upon pricing (i.e market time based upon price). I do not how this would be implemented in a fund that has exposure to re-insurance all the time. I am not sure that exposure all the time even makes sense as guys smarter than me (Buffet & Watsa) run away from these markets at times. Just my 2 cents.

Packer
Last edited by packer16 on Fri Jul 07, 2017 8:43 am, edited 1 time in total.
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aristotelian
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Re: My Favorite Alternative Funds

Post by aristotelian » Fri Jul 07, 2017 8:35 am

Larry Swedroe had a couple of good articles on this recently with a discussion on the board.

viewtopic.php?t=215694
viewtopic.php?t=215898

For full disclosure you should post the expense ratios of these funds. Personally I will wait until Vanguard offers the same fund at a reasonable cost.

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Re: My Favorite Alternative Funds

Post by Jack FFR1846 » Fri Jul 07, 2017 8:55 am

I'd be careful with Lending Club. I own notes there and have kept up with the goings on in business there and trends with their lending. There's a big outflow from lenders (including me) and lots of former proponents have soured (and shown their monthly profits which have turned into monthly losses). My opinion is that they're going down the toilet. Don't just look at numbers and notice that they're depressed.
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Re: My Favorite Alternative Funds

Post by nisiprius » Fri Jul 07, 2017 9:15 am

grap0013 wrote:Fund Example: LENDX
Purchase: Stone Ridge
Did you manage to buy this fund directly from Stone Ridge? If not, how did you manage it?

The Stone Ridge website says (http://stoneridgefunds.com and click the "Alternative Lending" tab)
The Fund is sold only to (i) institutional investors, including registered investment advisers ("RIAs"), that meet certain qualifications and have completed an educational program provided by Stone Ridge Asset Management LLC (the "Adviser"); (ii) clients of such institutional investors; and (iii) certain other eligible investors.
Although the prospectus mentions some complicated exceptions, such as "employees, directors and affiliates" of Stone Ridge, the chief channel for investments of less than $15 million seems to be a client of an institutional investor or advisor.

I may have missed it but, unlike many mutual fund companies, I could not find anything on the Stone Ridge website explaining how an individual investor can open a personal account at Stone Ridge or anything suggesting it was even possible to do this.
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Re: My Favorite Alternative Funds

Post by nisiprius » Fri Jul 07, 2017 10:00 am

aristotelian wrote:...I will wait until Vanguard offers the same fund at a reasonable cost...
For the record: a Vanguard alternatives fund does exist, but perhaps isn't "offered:"

Vanguard Alternative Strategies Fund, VASFX

Alternative strategies. Absolute-return approach, seeks low correlation with the stock and bond markets, includes long and short positions in stocks, commodity and Treasury futures, and forward foreign currency contracts.

Image

Thus:

Fund Example: VASFX

Expense ratio: 0.71% (according to Vanguard) 0.36% (according to Morningstar), go figure. Vanguard says "Excluding the effect of expenses attributable to borrowing and dividend expenses on short sales, Total Annual Operating Expense Ratio would be 0.40%"

Purchase: Darned if I know. It's an institutional fund. Like LENDX, etc. But if you can figure out a way to buy LENDX, there should be a way to buy VASFX. Usual way is to buy Managed Payout which includes it as a small part of its portfolio.

As nearly as I can tell, every one of these funds is an institutional fund that would normally require you to be a client of an advisor, a participant in a 401(k) plan that offers them, or to have discovered some kind of unofficial loophole whereby retail brokerages honor purchases by retail investors who are not supposed to be buying them in that way.

For the record, for comparison of the basic nature of VASFX and the funds mentioned by the original poster:

dates of inception; fund type; stated fund minimum; fund type

VASFX, 08/11/2015, institutional, minimum $250,000, diversified open-ended mutual fund

QSPIX, 10/30/2013, institutional, minimum $5 million, non-diversified, open-ended mutual fund
QMHIX, 7/16/2013, institutional, minimum $5 million, non-diversified, open-ended mutual fund
LENDX, unknown to Morningstar... inception in 2017????? institutional, minimum $15 million, non-diversified, closed-end interval fund
SRRIX, unknown to Morningstar... 12/9/2013, institutional, minimum $15 million, non-diversified, closed-end interval fund
AVRPX, unknown to Morningstar... April 2, 2015, institutional, minimum $15 million, non-diversified, closed-end interval fund
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Re: My Favorite Alternative Funds

Post by matjen » Fri Jul 07, 2017 10:29 am

Great post Grap! A nice beginning one-stop-shop for this sort of strategy. I am a fan of QSPIX, LENDX and potentially SRRIX. Packer thanks for the additional options to explore as well.

To add to Nisi's suggestion regarding possible Vanguard options do not forget Vanguard Market Neutral Fund Investor Shares (VMNFX). It also may have a very high minimum buy however. Not sure. https://personal.vanguard.com/us/funds/ ... =INT#tab=0

To answer Nisi's question about access to the Stone Ridge funds, you do require an advisor but that is easily accomplished for as little as 1K a year for your entire household if one so desires. So, costly for a small portfolio but very little for a larger one. This institutional access would also get one access to AQR and DFA as well. So Vanguard for Beta and these other families for alternatives and tilts is a reasonable way to go IMO.
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Re: My Favorite Alternative Funds

Post by Random Walker » Fri Jul 07, 2017 10:34 am

A typical 60/40 portfolio has about 90% of its risk associated with the equities and a 50/50 portfolio more than 80%. I believe statistics like these make alternatives very interesting. Diversifying across sources of risk and expected return increases portfolio efficiency tremendously and is definitely worth some cost.

Dave

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Re: My Favorite Alternative Funds

Post by Imbros » Fri Jul 07, 2017 10:40 am

whodidntante wrote:How did you determine hypothetical 2008 performance?
I'm particularly curious about back testing of LENDX. There was no Lending Club and probably no Prosper back then. How do you back test something that did not even exist?
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Re: My Favorite Alternative Funds

Post by matjen » Fri Jul 07, 2017 10:46 am

Imbros wrote:
whodidntante wrote:How did you determine hypothetical 2008 performance?
I'm particularly curious about back testing of LENDX. There was no Lending Club and probably no Prosper back then. How do you back test something that did not even exist?
Grap may have been a little gloomy on LENDX. Larry Swedroe wrote the following within the past year:
The two are LENDX which IMO has an expected return of about 8% currently with only a 2 year duration and even in a 2008 would have about broken even
Your question remains however of course. However, I think it is fair to assume that Larry/BAM, in their due diligence, looked into this pretty deeply. Whether this fund would have gone down 0-10% doesn't matter much to me...-25%+ does. An important point is that it would not be expected to act like a Treasury fund and increase in value during a recession. So more akin to a CD.
Last edited by matjen on Fri Jul 07, 2017 4:20 pm, edited 2 times in total.
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Re: My Favorite Alternative Funds

Post by Top99% » Fri Jul 07, 2017 12:30 pm

Thanks for laying these out in such a convenient table. We use QSPIX, LENDX and SRRIX for ~20 percent of our portfolio. The fees are very hard to swallow and something that I hope will come down with time but the diversification benefit suits us.
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Re: My Favorite Alternative Funds

Post by Imbros » Fri Jul 07, 2017 12:35 pm

Grap is not alone with the gloominess I'm afraid. I was a Lending Club investor for a couple of years (from 2011 to 2014 I believe) before they began accepting institutional investors and changed the way they connect borrowers and lenders due to new SEC regulations . Before Lending Club and P2P lending started becoming popular, there were fewer restrictions regarding privacy of the borrower and you could actually ask the borrower almost anything you wanted. Believe it or not, but that was incredibly important. You can tell someone's credit worthiness simply by reading their answer to questions or even their use of grammar.

Once restrictions had kicked in, I knew things were going to change. The default rate of the loans (notes as they call it) started going up over time and I began withdrawing my funds.

I still follow updates from other folks' recent experiences on Reddit or Mr. Money Mustache forums and they don't look good at all.
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Re: My Favorite Alternative Funds

Post by zaboomafoozarg » Fri Jul 07, 2017 2:33 pm

I'm not sure which advisors allow access to Stone Ridge funds, but I assume they would require more money than I have in order to work with them.

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Re: My Favorite Alternative Funds

Post by nedsaid » Fri Jul 07, 2017 2:38 pm

Really what has fueled interest in these type of instruments is the desire for a good bond substitute. Wasn't too awful long ago that you could get 6% returns from bonds with minimal risk and minimal correlation to the stock market. Well, your bond yields are more like 2% to 3%, even a 30 year US Treasury Bond doesn't get you 3%. Heck, I remember the days of 8% US Treasury Zero Coupon Bonds. I remember I-Bonds and TIPS with real rates of 3% or more. The days of low-risk, decent returns from bonds are pretty much over. Today, they are low risk, low return.

Grap0013 wrote an excellent post and summarized some of the best Alternative Funds out there. Hopefully they can deliver the 7% returns and low stock market correlations. So far the returns from these funds are very acceptable. The managed futures fund has had negative performance but it is there for insurance against market extremes. So far so good. I will read this thread with great interest.
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Re: My Favorite Alternative Funds

Post by Random Walker » Fri Jul 07, 2017 3:02 pm

Re: managed futures. Yes, it's expected performance in prolonged equity bear market is what sold me on this investment.

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Re: My Favorite Alternative Funds

Post by Avo » Fri Jul 07, 2017 3:29 pm

matjen wrote:you do require an advisor but that is easily accomplished for as little as 1K a year for your entire household
Really? I would be interested in knowing about an advisor with fees this low that gives access to Stone Ridge (and/or DFA).

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Re: My Favorite Alternative Funds

Post by nedsaid » Fri Jul 07, 2017 4:37 pm

Random Walker wrote:Re: managed futures. Yes, it's expected performance in prolonged equity bear market is what sold me on this investment.

Dave
Would have worked in 1973-74 and 2000-2002 bear markets. Did not work in 2008-2009. Depends on the cause of the bear market. 1973-74 was the result of the oil shocks. 2000-2002 was the popping of the high tech and internet bubble. 2008-2009 was both a market and an economic crash. So two out of three ain't bad.
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Re: My Favorite Alternative Funds

Post by Random Walker » Fri Jul 07, 2017 4:51 pm

Since managed Futures is TS Momentum, for equities should not depend on the cause of equity price decline, just that equity prices are declining in protracted fashion. AQR TS Mom fund is diversified across stocks, bonds, currencies, commodities, so there are many other factors determining how it will behave in an equity bear?

Dave

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Re: My Favorite Alternative Funds

Post by robertmcd » Fri Jul 07, 2017 5:26 pm

The "advisor" I would assume everyone on this forum is using for access to AQR, DFA, and Stone Ridge is FPL capital management. It is 1k a year for their most basic level of services, but includes everything an individual investor looking to invest in these funds would need.

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Re: My Favorite Alternative Funds

Post by whodidntante » Fri Jul 07, 2017 6:46 pm

robertmcd wrote:The "advisor" I would assume everyone on this forum is using for access to AQR, DFA, and Stone Ridge is FPL capital management. It is 1k a year for their most basic level of services, but includes everything an individual investor looking to invest in these funds would need.
Are there fees per purchase or sale of the funds, or does the $1,000 include a reasonable volume of transactions?

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Re: My Favorite Alternative Funds

Post by matjen » Fri Jul 07, 2017 6:50 pm

whodidntante wrote: Are there fees per purchase or sale of the funds, or does the $1,000 include a reasonable volume of transactions?
That is determined by which custodian has your funds. I know they work with Fidelity and Schwab. I think TD Ameritrade as well. They do not work with Vanguard. There can be $20 to $45 fees for a trade into AQR or DFA.
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Re: My Favorite Alternative Funds

Post by whodidntante » Fri Jul 07, 2017 6:58 pm

I'm using AQR Long Short Equity which is quite a bizarre fund. It combines market neutral, tactical allocation, and MSCI World beta sources of return. Also AQR Market Neutral. My results are good so far. I probably wouldn't own these if treasuries were yielding 6%, similar to nedsaid's point.

I would like to purchase AQR Style Premia Alternative but it is closed. I'm also considering a managed futures investment but I'm lacking conviction on that. These "low volatility, everything's expensive, melt up" times have thwarted managed futures. For now I'm happy with what I have, considering that I do not pay advisor expenses to get it.

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Re: My Favorite Alternative Funds

Post by matto » Fri Jul 07, 2017 7:36 pm

packer16 wrote:Some IMO more understandable & less costly alternative funds include:

Broadstone Net Lease:

Ocean Yield ASA:

Brookfield Infrastructure Partners:

TPG Credit:
One concern I would have is that only BIP and TPG are easily available within an IRA (the other two I believe are not public, and would have pretty large minimums which are hard to hit within a tax advantaged account).

Holding in a taxable account wouldn't normally be a dealbreaker except these are all high dividend yields so the tax hit would also be big. Do you just bite the bullet on these or have you found a way to hold them in a more tax advantaged manner?

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Re: My Favorite Alternative Funds

Post by jhfenton » Fri Jul 07, 2017 7:53 pm

I would certainly consider some or all of these asset classes if they were readily available. But since I don't have ready access to any of them, my interest is largely irrelevant.

I suppose I could get access to the non-closed AQR funds if I moved some money to Fidelity, but that's a bridge too far, especially given their cost. And there is no universe in which I will pay an otherwise useless advisor a $1,000 access fee just for the privilege of investing in Stone Ridge (or DFA) funds. (And yes, it does somewhat tick me off.) :annoyed

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Re: My Favorite Alternative Funds

Post by matjen » Fri Jul 07, 2017 8:10 pm

jhfenton wrote:I would certainly consider some or all of these asset classes if they were readily available. But since I don't have ready access to any of them, my interest is largely irrelevant.

I suppose I could get access to the non-closed AQR funds if I moved some money to Fidelity, but that's a bridge too far, especially given their cost. And there is no universe in which I will pay an otherwise useless advisor a $1,000 access fee just for the privilege of investing in Stone Ridge (or DFA) funds. (And yes, it does somewhat tick me off.) :annoyed
Your two paragraphs really contradict each other. In sum you don't want to pay 1K a year flat fee...which is fine of course.

Let me rephrase this for you. For many investors they could take an IRA(s) they have and move it to Fidelity. By doing that what do you get? Well you get a significantly better online experience, you get better customer support, and you get brick & mortar locations across the country should you desire to get some stuff sorted out face-to-face, get some things signed, get some free coffee and pens. ;-)

Now you can add a 1K a year fee and put that IRA into one of FPL's model portfolios and have access and automatically rebalanced for you. So if everything else is at Vanguard and vanilla beta/index you can put 20% of your portfolio or whatever into this for instance. If you have a small portfolio then obviously not cost effective. http://www.fplcapital.com/aqr/aqr-low-beta/

Compared to most vanilla robos (at 25-30 bps) this is a deal it seems to me.
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Re: My Favorite Alternative Funds

Post by packer16 » Sat Jul 08, 2017 7:21 am

matto wrote:
packer16 wrote:Some IMO more understandable & less costly alternative funds include:

Broadstone Net Lease:

Ocean Yield ASA:

Brookfield Infrastructure Partners:

TPG Credit:
One concern I would have is that only BIP and TPG are easily available within an IRA (the other two I believe are not public, and would have pretty large minimums which are hard to hit within a tax advantaged account).

Holding in a taxable account wouldn't normally be a dealbreaker except these are all high dividend yields so the tax hit would also be big. Do you just bite the bullet on these or have you found a way to hold them in a more tax advantaged manner?
All are available in an IRA. I hold BNL in an IRA. For BNL, there are minimums but if you are interested I can provide more details by PM. Ocean Yield is a Norwegian stock that just recently started trading on the OTCQX market under the symbol OYIEF.

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nedsaid
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Re: My Favorite Alternative Funds

Post by nedsaid » Sat Jul 08, 2017 8:25 am

Random Walker wrote:Since managed Futures is TS Momentum, for equities should not depend on the cause of equity price decline, just that equity prices are declining in protracted fashion. AQR TS Mom fund is diversified across stocks, bonds, currencies, commodities, so there are many other factors determining how it will behave in an equity bear?

Dave
I was mistaken, when I saw "Managed Futures", I was thinking of Commodity Futures. Seeing that this fund is diversified across stocks, bonds, currencies, and commodities; this fund would have a much better shot at bear market protection. It sounds like this fund is more like portfolio insurance than a source of sustained positive returns.
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grok87
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Re: My Favorite Alternative Funds

Post by grok87 » Sat Jul 08, 2017 9:03 am

thanks for the nicely summarized data by fund

the other thing it would be interesting to look at, particularly for the momentum oriented funds, is the 2009 return (Momentum got killed that year, at least for stocks).And also would be good to see the leverage.

QSPIX for example is leveraged right now i think about 6.5:1. in other words for every $1 you give them they are making about $3.75 worth of long bets and $2.75 worth of short bets.

http://performance.morningstar.com/fund ... on?t=QSPIX

For those interested in the strategy QSPIX follows, i think QSLIX is a safer play. It runs at about half the leverage of QSPIX. and over the last 12 months it had the SAME return of 0.84%. that makes the point i think that higher leverage does not always equal higher returns. higher leverage does of course ALWAYS equal higher risk, at least in the long run...

http://performance.morningstar.com/fund ... on?t=QSLIX
"...people always live for ever when there is any annuity to be paid them"- Jane Austen

Random Walker
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Re: My Favorite Alternative Funds

Post by Random Walker » Sat Jul 08, 2017 9:39 am

Nedsaid,
I believe QMHRX is pretty much pure TS Momentum fund diversified across equities, bonds, commodities, currencies. Here's a link to the paper that got me interested in adding the fund to my portfolio.

https://www.aqr.com/-/media/files/paper ... esting.pdf


Grok,
I believe Larry has recommended the more leveraged fund; more exposure to the factor per unit cost. For those who want less exposure just use less of the more leveraged fund.

Dave

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nedsaid
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Re: My Favorite Alternative Funds

Post by nedsaid » Sat Jul 08, 2017 9:49 am

What will be interesting is to see how such funds will behave in an actual crisis. In theory, they will do what they are designed to do. The funds that use leverage and shorting are vulnerable to unexpected market moves, one would hope that the managers know what they are doing. Leverage and shorting are what generate the stock market like returns, if all you did was isolate the factors with long only, I suppose your returns would be more like 2%.
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zaboomafoozarg
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Re: My Favorite Alternative Funds

Post by zaboomafoozarg » Sat Jul 08, 2017 9:58 am

nedsaid wrote:What will be interesting is to see how such funds will behave in an actual crisis. In theory, they will do what they are designed to do. The funds that use leverage and shorting are vulnerable to unexpected market moves, one would hope that the managers know what they are doing. Leverage and shorting are what generate the stock market like returns, if all you did was isolate the factors with long only, I suppose your returns would be more like 2%.
Agreed. This is why 10% would be my max for these types of funds.

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Re: My Favorite Alternative Funds

Post by grok87 » Sat Jul 08, 2017 10:42 am

Random Walker wrote:Nedsaid,
I believe QMHRX is pretty much pure TS Momentum fund diversified across equities, bonds, commodities, currencies. Here's a link to the paper that got me interested in adding the fund to my portfolio.

https://www.aqr.com/-/media/files/paper ... esting.pdf


Grok,
I believe Larry has recommended the more leveraged fund; more exposure to the factor per unit cost. For those who want less exposure just use less of the more leveraged fund.

Dave
Thanks Dave
I'm familiar with the argument. Unfortunately it is not consistent with some of the facts. Otherwise qspix should have returned 1.68% over the last year -ie twice Qslix's return instead of what it actually did which was 0.84%.
"...people always live for ever when there is any annuity to be paid them"- Jane Austen

grok87
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Re: My Favorite Alternative Funds

Post by grok87 » Sat Jul 08, 2017 10:45 am

nedsaid wrote:What will be interesting is to see how such funds will behave in an actual crisis. In theory, they will do what they are designed to do. The funds that use leverage and shorting are vulnerable to unexpected market moves, one would hope that the managers know what they are doing. Leverage and shorting are what generate the stock market like returns, if all you did was isolate the factors with long only, I suppose your returns would be more like 2%.
Agreed also
"...people always live for ever when there is any annuity to be paid them"- Jane Austen

Wade Garrett
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Re: My Favorite Alternative Funds

Post by Wade Garrett » Sat Jul 08, 2017 5:48 pm

Random Walker wrote:These funds are expensive and tax inefficient.... My own personal example will show how much I've bought into these alternatives. Not only have I invested in them, I have placed most of them in my taxable space despite their tax inefficiency.
Interesting. I don't have much tax advantaged space. I use what little I do have to hold QSPIX and QMHIX.

I became intrigued by LENDX and SRRIX after doing some research when Larry first started talking about these funds. But tax inefficiency and expense ratio have caused me to stay away. Seeing your post makes me think I should reconsider.... at least for a fairly small allocation.

I would be interested in hearing the name of an advisor who can provide access to these funds if different from FPL capital management that robertmcd referenced.

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Re: My Favorite Alternative Funds

Post by Random Walker » Sat Jul 08, 2017 8:05 pm

Wade Garrett,
Just want to reiterate that I only considered these alternatives in taxable space because I considered them as alternatives to high quality municipal bonds. The after tax return on the alternatives should be greater than the munis, but less than equities. The bonds are clearly safer, and decrease overall portfolio risk the most. That being said, my overriding desire was to decrease exposure to the market factor. I was willing to take on some additional risks because the alternatives are uncorrelated with everything else and with each other. I'm increasing both expected return and risk, but Sharpe ratio should be substantially increased.
I too have severely limited tax advantaged space: about 10% of portfolio. My advisor recommended that I place LENDX, SRRIX, AVRPX in the tax advantaged space and QSPRX and QMHRX in the taxable space. The reason is that the Stone Ridge funds are interval funds and have much more limited tax loss harvesting opportunities. The AQR funds are much more liquid mutual funds and therefore more amenable to tax loss harvesting.

Dave

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Re: My Favorite Alternative Funds

Post by Wade Garrett » Sat Jul 08, 2017 9:13 pm

Random Walker wrote:Just want to reiterate that I only considered these alternatives in taxable space because I considered them as alternatives to high quality municipal bonds.
Understood. I too hold high quality munis in taxable. If I decide to pursue adding LENDX and SRRIX to my portfolio, I would also reduce my muni allocation. Thanks for clarifying and for the additional info.

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Re: My Favorite Alternative Funds

Post by nedsaid » Sun Jul 09, 2017 11:49 am

Random Walker wrote:Nedsaid,
I believe QMHRX is pretty much pure TS Momentum fund diversified across equities, bonds, commodities, currencies. Here's a link to the paper that got me interested in adding the fund to my portfolio.

https://www.aqr.com/-/media/files/paper ... esting.pdf


Grok,
I believe Larry has recommended the more leveraged fund; more exposure to the factor per unit cost. For those who want less exposure just use less of the more leveraged fund.

Dave
Dave, the quote below from the article raised an eyebrow.
While trend-following strategies have performed well over the past 135 years and during the Global Financial Crisis of 2008, the returns have been mixed since 2008, which raises several questions regarding the future outlook for the strategy.
This raised an eyebrow because of what I saw in the original post that started the thread.
grap0013 said: Returns Jan. 2014 thru June 2017: -1.84% annualized
% positive months: 42%
And quoting again from the article, explaining why trend following strategies have not done so well since the financial crisis:
First, the assets under management in these strategies have grown rapidly over the past two decades and competition could potentially lower future returns. Second, over the past several years there has been a lack of clear trends — and even a number of sharp trend reversals — which raises the question of whether the current economic environment is simply worse for the strategy.


So the article made a compelling case for trend following strategies with a couple of disclaimers but it seems the actual 3 1/2 year performance of the fund has been disappointing. To me, the magic words are "a number of sharp trend reversals" which makes we wonder if many others attempting to execute this strategy at the same time has distorted the markets.

After reading the article, investing in such trend following funds seems like taking candy away from a baby. It seems to have worked great in the past but this fund seems to have disappointed. This is what I mean that markets and asset classes will act in unexpected ways, particularly in a crisis. Over the last 3 1/2 years, there have been no crisis to really distort markets but it appears that competition may have already caused distortions, or a disturbance in the force. (I am making a Star Wars allusion here).

I can see why you are very interested in the fund, please keep reporting back to let us know how your alternatives are working. With very low bond yields, these type of funds are worth a look.

Edit: I know the time periods are short and don't mean too much, but it seems that all the other alternative funds that grap0013 listed are behaving pretty much as expected. The managed futures fund seems to be the exception. So far so good on these alternatives as a group,
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Re: My Favorite Alternative Funds

Post by Random Walker » Sun Jul 09, 2017 1:25 pm

Nedsaid,
I agree with everything you wrote. The first time I read Random Walk Down Wall Street and Winning The Loser's Game, the idea of efficient markets resonated completely with me. In college I studied biochemistry and economics. When I think of efficient markets, I envision chemical equilibrium or perfect competition from microeconomics where the lines always intersect. Thus I started out my investing career as a hard core low cost TSMer. Then I started to be swayed by the risk based explanations for size and value. Most recently I've come to believe that human nature isn't likely to change, so have begun to believe in behavioral anomalies. My conviction in the behavioral anomalies is strengthened by the very practical point that underpricing is easily corrected by long investors, but overpricing is harder to correct due to the relative lack of short sellers. Short selling is constrained by borrowing costs, unlimited potential losses, mutual fund mandates. The data for Momentum is so strong! At some point I had to let go of my preconceived notions of equilibrium and microeconomic intersecting lines.
So I'm deep into factor investing now, and if it doesn't work out, I'll be telling myself a huge "I told you so" because my natural inclination is so heavily biased to firm belief in market efficiency.
With regard to LENDX, I like being a lender rather than a borrower. With regard to SSRIX, I like the idea of selling insurance compared to buying it. With regard to AVRPX, it makes sense to me that generally realized volatility is less than expected volatility, and I'm effectively a seller of portfolio insurance.
As I've said previously, costs are certain but all these above mentioned potential benefits are only potential. It's interesting, some people see factor investing as making a bet and others see it as diversifying the bets.

Dave

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jhfenton
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Re: My Favorite Alternative Funds

Post by jhfenton » Sun Jul 09, 2017 1:30 pm

matjen wrote:
jhfenton wrote:I would certainly consider some or all of these asset classes if they were readily available. But since I don't have ready access to any of them, my interest is largely irrelevant.

I suppose I could get access to the non-closed AQR funds if I moved some money to Fidelity, but that's a bridge too far, especially given their cost. And there is no universe in which I will pay an otherwise useless advisor a $1,000 access fee just for the privilege of investing in Stone Ridge (or DFA) funds. (And yes, it does somewhat tick me off.) :annoyed
Your two paragraphs really contradict each other. In sum you don't want to pay 1K a year flat fee...which is fine of course.

Let me rephrase this for you. For many investors they could take an IRA(s) they have and move it to Fidelity. By doing that what do you get? Well you get a significantly better online experience, you get better customer support, and you get brick & mortar locations across the country should you desire to get some stuff sorted out face-to-face, get some things signed, get some free coffee and pens. ;-)

Now you can add a 1K a year fee and put that IRA into one of FPL's model portfolios and have access and automatically rebalanced for you. So if everything else is at Vanguard and vanilla beta/index you can put 20% of your portfolio or whatever into this for instance. If you have a small portfolio then obviously not cost effective. http://www.fplcapital.com/aqr/aqr-low-beta/

Compared to most vanilla robos (at 25-30 bps) this is a deal it seems to me.
We have mid six figures at Vanguard in IRAs that could be moved, in addition to our 401ks and HSA that we couldn't. Our current weighted average expense ratio for a heavily U.S. small value and international small- and EM-tilted portfolio is less than 10 bp, and most of that I would want to leave at Vanguard. So paying $1,000 for the privilege of investing $100,000-200,000 (50 - 100 bp) in alternatives is not palatable. And those 50-100 bp are not the only cost. That's just the cost in addition to the higher costs of the AQR or Stone Ridge funds themselves. (Some of the DFA funds would be attractive without added-added fees, and throwing more money into the advisor umbrella would reduce the perceived/proportional cost of the $1,000 fee, but the relative value of the DFA funds compared to the equivalent Vanguard funds is also lower than the AQR and Stone Ridge funds. Those, at least--particularly the Stone Ridge funds--provide unique sources of return.)

And I would also factor in the very real hassle of dealing with a human advisor. To me, that would be a distinct negative. We have no need of tax or investment advice. Managing our portfolio online is easy. I've received great customer service from Vanguard on the phone. Fees are virtually non-existent. My wife and I are both set up with full authority on each other's accounts. (When we had a local TD Waterhouse/TD Ameritrade office to visit, I visited one time in 18 years. And most of that time I worked downtown a few blocks from the office.)

(If I could access DFA or Stone Ridge at Fidelity, I would almost certainly move some money there; but those are the two that require an advisor as gatekeeper. I'm less convinced about the value of the AQR funds, though I understand the evidence behind them. Edited to add: And of course, QSPIX/QSPNX is closed. It closed about the time I became aware of it in late 2015.)

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Re: My Favorite Alternative Funds

Post by nedsaid » Sun Jul 09, 2017 4:34 pm

Random Walker wrote:Nedsaid,
I agree with everything you wrote. The first time I read Random Walk Down Wall Street and Winning The Loser's Game, the idea of efficient markets resonated completely with me. In college I studied biochemistry and economics. When I think of efficient markets, I envision chemical equilibrium or perfect competition from microeconomics where the lines always intersect. Thus I started out my investing career as a hard core low cost TSMer. Then I started to be swayed by the risk based explanations for size and value. Most recently I've come to believe that human nature isn't likely to change, so have begun to believe in behavioral anomalies. My conviction in the behavioral anomalies is strengthened by the very practical point that underpricing is easily corrected by long investors, but overpricing is harder to correct due to the relative lack of short sellers. Short selling is constrained by borrowing costs, unlimited potential losses, mutual fund mandates. The data for Momentum is so strong! At some point I had to let go of my preconceived notions of equilibrium and microeconomic intersecting lines.
So I'm deep into factor investing now, and if it doesn't work out, I'll be telling myself a huge "I told you so" because my natural inclination is so heavily biased to firm belief in market efficiency.
With regard to LENDX, I like being a lender rather than a borrower. With regard to SSRIX, I like the idea of selling insurance compared to buying it. With regard to AVRPX, it makes sense to me that generally realized volatility is less than expected volatility, and I'm effectively a seller of portfolio insurance.
As I've said previously, costs are certain but all these above mentioned potential benefits are only potential. It's interesting, some people see factor investing as making a bet and others see it as diversifying the bets.

Dave
It is gratifying to read such a post and that others agree with me, particularly on behavioral explanations for factors. I have tried to tell the quants on this forum that numbers, while very important, just don't tell the whole story. They are trying to quantify human euphoria and panic or good old fashioned greed and fear. When people get panicked, they don't care about Sharpe ratios, Standard Deviation, Scatterplots, Efficient Frontiers, and the like. They just sell. Pretty much, the baby, the bathwater, and even the tub go sailing out the window.

Were I to recommend allocation to such alternative products, probably a maximum of 20% in a portfolio would be wise. I would consider 1/2 of my alternative allocation to be equities and the other 1/2 to be bonds. My best guess is that these products would give you the diversification benefits and returns that you want most of the time. In times of crisis, my guess would be that such alternatives would work as expected half the time and would be a disappointment the other half of the time. From time to time, these investments will disappoint. You have wisely diversified across different types of alternative funds so I don't think in a market where everything went wrong (such as 2008-2009) you would get hurt too bad, particularly if you have the patience to wait things out. We all want our portfolios to grow at predictable rates in a straight line but that isn't reality. My thinking is that you will do okay with these investments. Perhaps you will get the increased return and decreased volatility we all want. Heaven knows that I have tried.

The other thing in your favor is that you are working with an advisory firm that stays current with academic research. You will get the additional benefit of handholding and detailed explanations from your advisor.

It is good that you have an open mind and are willing to try some new things. Sometimes we get too doctrinaire in our thinking. I like the "core and explore" approach to investing. These threads have got me thinking.
A fool and his money are good for business.

grok87
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Re: My Favorite Alternative Funds

Post by grok87 » Sun Jul 09, 2017 5:34 pm

Random Walker wrote:The data for Momentum is so strong!
Dave
Hi Dave,
Do you mind sharing the data that you are looking at?

This is the data i am looking at from Ken French's data library for the momentum factor.
http://mba.tuck.dartmouth.edu/pages/fac ... brary.html

It shows that the momemtum factor for US stocks lost 83% in 2009. It's really pretty hard to recover from such a loss and that is assuming of course that no extra leverage is being used (in which case one would wiped out). For example for the 10 year period 2007-2016 the annualized return would be -12% or a cumulative return of -72%.

Annual Factors:
January-December
Mom
1927 23.23
1928 28.21
1929 20.73
1930 25.75
1931 23.96
1932 -21.25
1933 20.04
1934 17.32
1935 22.47
1936 5.89
1937 -4.36
1938 -1.69
1939 0.88
1940 5.80
1941 9.14
1942 -15.52
1943 14.24
1944 10.92
1945 15.55
1946 5.31
1947 13.84
1948 11.86
1949 0.36
1950 15.39
1951 11.62
1952 9.01
1953 16.32
1954 10.34
1955 14.05
1956 19.04
1957 9.90
1958 -9.56
1959 19.23
1960 17.19
1961 10.75
1962 11.97
1963 11.66
1964 4.66
1965 20.56
1966 10.46
1967 22.48
1968 2.25
1969 9.89
1970 -3.25
1971 3.55
1972 15.57
1973 29.26
1974 8.31
1975 -18.88
1976 7.39
1977 17.86
1978 12.06
1979 27.07
1980 37.10
1981 -8.32
1982 34.69
1983 -10.14
1984 9.14
1985 14.81
1986 8.38
1987 -3.68
1988 -5.46
1989 28.09
1990 17.65
1991 14.77
1992 3.12
1993 23.73
1994 3.19
1995 17.62
1996 6.66
1997 11.96
1998 23.39
1999 34.69
2000 14.98
2001 4.31
2002 25.65
2003 -24.48
2004 -0.33
2005 15.02
2006 -7.74
2007 21.54
2008 13.22
2009 -82.91
2010 5.68
2011 7.21
2012 1.56
2013 7.94
2014 1.34
2015 20.31
2016 -20.25
"...people always live for ever when there is any annuity to be paid them"- Jane Austen

BuyAndHoldOn
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Re: My Favorite Alternative Funds

Post by BuyAndHoldOn » Sun Jul 09, 2017 5:47 pm

Interesting that no one has discussed private equity. Is that too difficult to access for a non-accredited investor?

I like the concept of private equity more than trading strategies for an investment approach (i.e., some actual economic activity). Not "dissing" the other approaches, I find what hedge funds/alternative funds do to be fascinating.

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matjen
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Re: My Favorite Alternative Funds

Post by matjen » Sun Jul 09, 2017 7:42 pm

jhfenton wrote: And I would also factor in the very real hassle of dealing with a human advisor. To me, that would be a distinct negative. We have no need of tax or investment advice. Managing our portfolio online is easy.
Real hassle? Not in my very real experience.

So just to set the record straight, the 1K fee gets you into a predetermined model portfolio of your choice or just access to institutional investments or both I guess if one chooses. There is as much or as little human interaction as you desire. I write a $250 check once a quarter so there is that and there was my signature on the initial agreement. I have complete control over the account to make trades just as you do at Vanguard and we still have plenty at Vanguard.

In three years I have been contacted once about an investment "opportunity" and that was regarding their approval by Stone Ridge. Having said that, I reached out to them first about the fund family. So I call that customer service not a pitch. I get an emailed custom report for my holdings and I get an email invitation for a yearly review which I can opt out of. That $250/quarter is the only difference between them and my ongoing experience at Vanguard...though at Vanguard there has been turnover of the Flagship Representative so they want to introduce themselves when that happens.
A man is rich in proportion to the number of things he can afford to let alone.

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Re: My Favorite Alternative Funds

Post by jhfenton » Sun Jul 09, 2017 8:25 pm

matjen wrote:
jhfenton wrote: And I would also factor in the very real hassle of dealing with a human advisor. To me, that would be a distinct negative. We have no need of tax or investment advice. Managing our portfolio online is easy.
Real hassle? Not in my very real experience.

So just to set the record straight, the 1K fee gets you into a predetermined model portfolio of your choice or just access to institutional investments or both I guess if one chooses. There is as much or as little human interaction as you desire. I write a $250 check once a quarter so there is that and there was my signature on the initial agreement. I have complete control over the account to make trades just as you do at Vanguard and we still have plenty at Vanguard.

In three years I have been contacted once about an investment "opportunity" and that was regarding their approval by Stone Ridge. Having said that, I reached out to them first about the fund family. So I call that customer service not a pitch. I get an emailed custom report for my holdings and I get an email invitation for a yearly review which I can opt out of. That $250/quarter is the only difference between them and my ongoing experience at Vanguard...though at Vanguard there has been turnover of the Flagship Representative so they want to introduce themselves when that happens.
Thanks for the reality check. That concern, at least, I can scratch off my list. :beer

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Re: My Favorite Alternative Funds

Post by grap0013 » Sun Jul 09, 2017 9:16 pm

whodidntante wrote:How did you determine hypothetical 2008 performance?
QSPIX - interview with AQR folks
QMHIX - TS MOM index was +20%, high volatility version implies 50% higher returns, but you know how that goes.
LENDX - Larry S. I was being conservative with -5%. Any estimate needs at least 5% error bars on either side of it though IMO. If not higher.
SRRIX - Last bad year was ~-15% in 2005 for this strategy per Larry
AVRPX - wild guess, would need to dig deeper
There are no guarantees, only probabilities.

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grap0013
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Re: My Favorite Alternative Funds

Post by grap0013 » Sun Jul 09, 2017 9:18 pm

Jack FFR1846 wrote:I'd be careful with Lending Club. I own notes there and have kept up with the goings on in business there and trends with their lending. There's a big outflow from lenders (including me) and lots of former proponents have soured (and shown their monthly profits which have turned into monthly losses). My opinion is that they're going down the toilet. Don't just look at numbers and notice that they're depressed.
LENDX looks very broad and to have a lot of capacity IMO. The only geographical location they exclude is emerging markets. Me thinks the profits may have dried up some for the DIY borrower and gone to these larger outfits? Hence, you pay Stone Ridge to get your 7% return and they work hard for it.
There are no guarantees, only probabilities.

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Re: My Favorite Alternative Funds

Post by grap0013 » Sun Jul 09, 2017 9:29 pm

nedsaid wrote:Really what has fueled interest in these type of instruments is the desire for a good bond substitute. Wasn't too awful long ago that you could get 6% returns from bonds with minimal risk and minimal correlation to the stock market. Well, your bond yields are more like 2% to 3%, even a 30 year US Treasury Bond doesn't get you 3%. Heck, I remember the days of 8% US Treasury Zero Coupon Bonds. I remember I-Bonds and TIPS with real rates of 3% or more. The days of low-risk, decent returns from bonds are pretty much over. Today, they are low risk, low return.

Grap0013 wrote an excellent post and summarized some of the best Alternative Funds out there. Hopefully they can deliver the 7% returns and low stock market correlations. So far the returns from these funds are very acceptable. The managed futures fund has had negative performance but it is there for insurance against market extremes. So far so good. I will read this thread with great interest.
+1. I'm still 15+ years from retirement. I don't need bonds for warm fuzzies. I can't swallow a 2% yield dragging my returns down. However, 6-8% is another story. Even if equities return 10% the next 15 years these ALTs are a great addition. I could see a final retirement allocation of 1/3 stocks, 1/3 bonds, and 1/3 ALTs being very attractive.
There are no guarantees, only probabilities.

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