Larry Swedroe: Correction Protection In Liquid Alts

Discuss all general (i.e. non-personal) investing questions and issues, investing news, and theory.
Post Reply
Topic Author
Random Walker
Posts: 4717
Joined: Fri Feb 23, 2007 8:21 pm

Larry Swedroe: Correction Protection In Liquid Alts

Post by Random Walker »

http://www.etf.com/sections/index-inves ... nopaging=1

This is basically the alternatives version of Reducing The Risk Of Black Swans. Larry looks at the performance of the 4 recently mentioned alternatives during 2017 when equities did very well and during the recent equity market correction of late January and early February.

Dave
User avatar
iceport
Posts: 4662
Joined: Sat Apr 07, 2007 4:29 pm

Re: Larry Swedroe: Correction Protection In Liquid Alts

Post by iceport »

This post caught my attention from a prior thread:
EnjoyIt wrote: Sat Feb 24, 2018 1:23 pm The recommended fund list in this article and their fees:
LENDX - 1.5%
QSPRX - 1.5%
QRPIX - 1.43%
SRRIX - 2.29%
AVRPX - 2.68%
(Note that QRPIX is not discussed in the latest article.)
"Discipline matters more than allocation.” ─William Bernstein
Topic Author
Random Walker
Posts: 4717
Joined: Fri Feb 23, 2007 8:21 pm

Re: Larry Swedroe: Correction Protection In Liquid Alts

Post by Random Walker »

I believe QRPIX is a tax managed version of QSPIX, that adds time series momentum and variance risk premium. It’s only asset classes are equities and bonds indices.

Dave
Topic Author
Random Walker
Posts: 4717
Joined: Fri Feb 23, 2007 8:21 pm

Re: Larry Swedroe: Correction Protection In Liquid Alts

Post by Random Walker »

Note that the expected returns are after accounting for the expense ratios.

Dave
marcopolo
Posts: 3875
Joined: Sat Dec 03, 2016 10:22 am

Re: Larry Swedroe: Correction Protection In Liquid Alts

Post by marcopolo »

Random Walker wrote: Mon Feb 26, 2018 10:47 am http://www.etf.com/sections/index-inves ... nopaging=1

This is basically the alternatives version of Reducing The Risk Of Black Swans. Larry looks at the performance of the 4 recently mentioned alternatives during 2017 when equities did very well and during the recent equity market correction of late January and early February.

Dave
Hardly seems like the promised "equity like returns with less volatility". Sure, these funds lost less during the correction, but the cost was severe under performance leading up to the correction. You could achieve that with much lower costs.
Once in a while you get shown the light, in the strangest of places if you look at it right.
User avatar
matjen
Posts: 2136
Joined: Sun Nov 20, 2011 11:30 pm

Re: Larry Swedroe: Correction Protection In Liquid Alts

Post by matjen »

marcopolo wrote: Mon Feb 26, 2018 1:18 pm Hardly seems like the promised "equity like returns with less volatility". Sure, these funds lost less during the correction, but the cost was severe under performance leading up to the correction. You could achieve that with much lower costs.
The above is a misconception of what was stated/promised. Triceratop said it best in this post.
There is a difference between expecting cumulative returns similar to cumulative equity returns (hopefully, with low correlation, which is the promise of this fund) from a strategy and explicitly comparing it to realized equity fund returns.
viewtopic.php?f=10&t=167241&start=1200#p3795083

As Larry said in the article, equities had a very good year last year. When they have a bad year (or years or a decade) the alternatives should perform better in comparison...just as they did during the short correction.
A man is rich in proportion to the number of things he can afford to let alone.
Topic Author
Random Walker
Posts: 4717
Joined: Fri Feb 23, 2007 8:21 pm

Re: Larry Swedroe: Correction Protection In Liquid Alts

Post by Random Walker »

Marcopolo,
“Equity like returns” means expected returns about the same as the expected returns of equities. In any given year realized equity returns will deviate drastically from their own expected returns. The SD of equities is about 18-20% and expected returns a third of that or less. The point is you don’t want the alternative investment to mirror equities over short periods like a year.

Dave
lack_ey
Posts: 6701
Joined: Wed Nov 19, 2014 11:55 pm

Re: Larry Swedroe: Correction Protection In Liquid Alts

Post by lack_ey »

Random Walker wrote: Mon Feb 26, 2018 11:12 am I believe QRPIX is a tax managed version of QSPIX, that adds time series momentum and variance risk premium. It’s only asset classes are equities and bonds indices.

Dave
Also currencies, according to the website. I've not checked holdings elsewhere.

But for what it's worth, it looks like it takes significantly more risk within equities than in fixed income and currencies. The website lists about a 70% risk allocation within stocks, so it may not be that different from an equity market neutral fund following the trading styles/signals it does.


The article probably could have checked and mentioned equity market beta for the strategies over the period; to skeptics, being up some in 2017 and down during the correction in 2018 looks like expected behavior for many alts with low but nonzero market betas. That's how many alts work, including those that are practically worthless and just behave like stocks+cash but worse. Though maybe that's too in-the-weeds for the target audience.
Last edited by lack_ey on Mon Feb 26, 2018 1:52 pm, edited 1 time in total.
marcopolo
Posts: 3875
Joined: Sat Dec 03, 2016 10:22 am

Re: Larry Swedroe: Correction Protection In Liquid Alts

Post by marcopolo »

Random Walker wrote: Mon Feb 26, 2018 1:38 pm Marcopolo,
“Equity like returns” means expected returns about the same as the expected returns of equities. In any given year realized equity returns will deviate drastically from their own expected returns. The SD of equities is about 18-20% and expected returns a third of that or less. The point is you don’t want the alternative investment to mirror equities over short periods like a year.

Dave
Well, yes. But, I didn't use the single year as an example.
We do not have long enough track record in these funds to know if the expected return is really the same as for equities. If you really could get that with less volatility that would be something. I am always suspicious of the latest shiny new thing promising a free lunch. So, the proponent of the methods shows a snapshot of last years performance, what is the purpose of that other than to bolster his claims? I may be missing something, but the data presented does not seem to suggest that is the case. I am open to learning what i am missing. What in last years performance both through up and down markets (as presented) would lead you to believe that these ALT investment do what is promised?
Once in a while you get shown the light, in the strangest of places if you look at it right.
marcopolo
Posts: 3875
Joined: Sat Dec 03, 2016 10:22 am

Re: Larry Swedroe: Correction Protection In Liquid Alts

Post by marcopolo »

matjen wrote: Mon Feb 26, 2018 1:31 pm
marcopolo wrote: Mon Feb 26, 2018 1:18 pm Hardly seems like the promised "equity like returns with less volatility". Sure, these funds lost less during the correction, but the cost was severe under performance leading up to the correction. You could achieve that with much lower costs.
The above is a misconception of what was stated/promised. Triceratop said it best in this post.
There is a difference between expecting cumulative returns similar to cumulative equity returns (hopefully, with low correlation, which is the promise of this fund) from a strategy and explicitly comparing it to realized equity fund returns.
viewtopic.php?f=10&t=167241&start=1200#p3795083

As Larry said in the article, equities had a very good year last year. When they have a bad year the alternatives should perform better in comparison...just as they did during the short correction.
Misconception? From the "4 horsemen article" (emphasis added):
We believe an equal-weighted portfolio of these four funds has forward-looking return expectations similar to those of a global equity portfolio, but with only about one-quarter of the volatility of equities (5% versus 20%). (In the interest of full disclosure, as noted, my firm, Buckingham Strategic Wealth, recommends AQR and Stone Ridge funds in constructing client portfolios.)

I agree that to assess expected return, you need to long over much longer cumulative periods. Which is why the recent article showing the results from last years seem rather odd. What is it trying to show? Presumably, the value of this ALT approach? But, based on this single data point, the expected return seems quite a bit lower. Maybe over the long run it will turn out to be true (i am skeptical they can do that while overcoming the massive costs), but we just simply do not have a long enough track record to know if the expected performance is the same as equities. If you are saying they should not be compared to equity returns at all, again i would point out I am not the one making those comparisons, it was the author that made that comparison.

The plot showing two distributions claims same expected return with these ALTs while having lower volatility. If true, that would be great, is there evidence to support this assertion? I have not seen it, please provide link if such exists, especially factoring in costs. More likely, the expected mean for these ALTs might be lower than for equities (shifting mean to the left, while maintaining lower spread). Maybe that is a reasonable trade-off, lower expected return for lower volatility. But, that is not what is being touted.
Once in a while you get shown the light, in the strangest of places if you look at it right.
Topic Author
Random Walker
Posts: 4717
Joined: Fri Feb 23, 2007 8:21 pm

Re: Larry Swedroe: Correction Protection In Liquid Alts

Post by Random Walker »

We should all realize too that there are risks that aren’t necessarily well measured by standard deviation. For example I’m sure the reinsurance has huge occasional left fat tail risk. The variance risk premium can likely lose lots just when equities are tanking. So we aren’t so much talking about a free lunch as we are talking about diversifying types of risks, when the risks show up, and sources of return.

Dave
Topic Author
Random Walker
Posts: 4717
Joined: Fri Feb 23, 2007 8:21 pm

Re: Larry Swedroe: Correction Protection In Liquid Alts

Post by Random Walker »

Marco Polo wrote
More likely, the expected mean for these ALTs might be lower than for equities (shifting mean to the left, while maintaining lower spread). Maybe that is a reasonable trade-off, lower expected return for lower volatility. But, that is not what is being touted.
These alternatives are not at all necessarily only potential replacements for equities. They are tax inefficient, and I believe their after tax returns should be expected to be less than equities. For taxable investors willing to take a bit more risk in a calculated fashion, I believe an individual can create the alternative position by taking a bit from the municipal bonds. This increases portfolio risk, increases portfolio expected return more, and should increase portfolio efficiency / Sharpe ratio.

Dave
marcopolo
Posts: 3875
Joined: Sat Dec 03, 2016 10:22 am

Re: Larry Swedroe: Correction Protection In Liquid Alts

Post by marcopolo »

Random Walker wrote: Mon Feb 26, 2018 2:37 pm Marco Polo wrote
More likely, the expected mean for these ALTs might be lower than for equities (shifting mean to the left, while maintaining lower spread). Maybe that is a reasonable trade-off, lower expected return for lower volatility. But, that is not what is being touted.
These alternatives are not at all necessarily only potential replacements for equities. They are tax inefficient, and I believe their after tax returns should be expected to be less than equities. For taxable investors willing to take a bit more risk in a calculated fashion, I believe an individual can create the alternative position by taking a bit from the municipal bonds. This increases portfolio risk, increases portfolio expected return more, and should increase portfolio efficiency / Sharpe ratio.

Dave
Sure, if this were being presented as a product that diversifies risk (maybe that is the case to some extent), de-correlates your asset classes somewhat, and reduces volatility at the expense of lower returns, then i would be less skeptical because that is a reasonable trade-off that could/should be evaluated. But, when the promise is you get all that for free, with the same expected returns, well lets just say i am skeptical there is such a free lunch.
Once in a while you get shown the light, in the strangest of places if you look at it right.
Topic Author
Random Walker
Posts: 4717
Joined: Fri Feb 23, 2007 8:21 pm

Re: Larry Swedroe: Correction Protection In Liquid Alts

Post by Random Walker »

No one has referred to this as a free lunch

Dave
marcopolo
Posts: 3875
Joined: Sat Dec 03, 2016 10:22 am

Re: Larry Swedroe: Correction Protection In Liquid Alts

Post by marcopolo »

Random Walker wrote: Mon Feb 26, 2018 2:56 pm No one has referred to this as a free lunch

Dave
What else to make of the probability density function plot in the linked article at the top of the thread which shows equity and alt expected returns having the same expected returns with the alts showing much lower volatility? Or of the previously quoted statement from the "4 horsemen article":

We believe an equal-weighted portfolio of these four funds has forward-looking return expectations similar to those of a global equity portfolio, but with only about one-quarter of the volatility of equities (5% versus 20%).

Seems like the promise of a free lunch to me. How do you interpret that? You say above that we should expect lower returns from these alts, but we get these other benefits in return (i would be fine with that). But, that is not what the author of the article we are discussing is claiming. Did i miss something?
Once in a while you get shown the light, in the strangest of places if you look at it right.
User avatar
nisiprius
Advisory Board
Posts: 42595
Joined: Thu Jul 26, 2007 9:33 am
Location: The terrestrial, globular, planetary hunk of matter, flattened at the poles, is my abode.--O. Henry

Re: Larry Swedroe: Correction Protection In Liquid Alts

Post by nisiprius »

I see how QSPRX could be called a "liquid alt." I do not see how the Stone Ridge funds can be called "liquid alts" when the prospectus says
...you should consider the Shares to be illiquid...
(They are "interval funds"--i.e. they are not mutual funds; I cannot, for example, display a Morningstar chart for them. As I understand the prospectus language you can redeem them once per quarter if not too many investors all try to do it at the same time.)

If you can only redeem the Stone Ridge funds quarterly, I am not sure that it is appropriate to talk about their "return" over a ten-day period, since it was impossible to buy the funds at the start of that period and redeem them at the end of that period

Source for "illiquid"
Image
Annual income twenty pounds, annual expenditure nineteen nineteen and six, result happiness; Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.
Topic Author
Random Walker
Posts: 4717
Joined: Fri Feb 23, 2007 8:21 pm

Re: Larry Swedroe: Correction Protection In Liquid Alts

Post by Random Walker »

Marcopolo,
Yes I do think you are missing something. The diagram in the paper is showing two PORTFOLIOS: A without alts and B with alts. It is simply showing the effects of diversification into these alternatives at the PORTFOLIO level when they are used as a substitute for some of the equities in the portfolio. Now, I do think the curves would look similar if they did represent just equities versus the mentioned alternatives. Secondly, there must be risks. Some risks just likely don’t show up well in standard deviation

Dave
lack_ey
Posts: 6701
Joined: Wed Nov 19, 2014 11:55 pm

Re: Larry Swedroe: Correction Protection In Liquid Alts

Post by lack_ey »

nisiprius wrote: Mon Feb 26, 2018 3:04 pm I see how QSPRX could be called a "liquid alt." I do not see how the Stone Ridge funds can be called "liquid alts" when the prospectus says
...you should consider the Shares to be illiquid...
(They are "interval funds"--i.e. they are not mutual funds; I cannot, for example, display a Morningstar chart for them. As I understand the prospectus language you can redeem them once per quarter if not too many investors all try to do it at the same time.)

If you can only redeem the Stone Ridge funds quarterly, I am not sure that it is appropriate to talk about their "return" over a ten-day period, since it was impossible to buy the funds at the start of that period and redeem them at the end of that period

Source for "illiquid"
https://imgur.com/0MhGAHy.png
Yeah, I don't know that interval funds count as liquid alts. Sorta constrained-liquidity alts. Maybe more liquid than some other structures, maybe real estate and the likes. But I also thought "liquid alts" referred to funds with daily liquidity, maybe investments in things that could be sold in short order (e.g. futures positions, then returning cash).

I think it's reasonably fair to assess performance over these types of intervals for the purpose of understanding underlying asset/strategy performance, as long as the pricing is reasonably accurate. Sometimes alt and some other fund performance (hedge fund, etc.) can be misleading because real risks are not visible and volatility effectively hidden by stale pricing, lack of proper mark-to-market because of lack of trading in the underlying.
marcopolo
Posts: 3875
Joined: Sat Dec 03, 2016 10:22 am

Re: Larry Swedroe: Correction Protection In Liquid Alts

Post by marcopolo »

Random Walker wrote: Mon Feb 26, 2018 3:28 pm Marcopolo,
Yes I do think you are missing something. The diagram in the paper is showing two PORTFOLIOS: A without alts and B with alts. It is simply showing the effects of diversification into these alternatives at the PORTFOLIO level when they are used as a substitute for some of the equities in the portfolio. Now, I do think the curves would look similar if they did represent just equities versus the mentioned alternatives. Secondly, there must be risks. Some risks just likely don’t show up well in standard deviation

Dave
Perhaps that is the case. He does say Portfolio A and Portfolio B. Portfolio A and Portfolio B. Interpreted that to mean equities (A) and alts (B), but i guess it could have meant equity/bond (A) and equity.alt/bond (B). But, certainly in the original article where these were recommended he makes the statement that just the equal-weighted four alt funds would have same expected return as equities with 25% of the volatility.

Like i said i am skeptical of this claim, but i am willing to learn. He states in the article that there is a long track record for these types of investments performing as claimed, just not publicly available until recently. The ideas are intriguing, and i will certainly keep an eye on these type of alt investments, but i would not buy into them until publicly traded investments bear that out over some time period. If they do perform as claimed, there should also be more competition which will hopefully also lower the costs.
Once in a while you get shown the light, in the strangest of places if you look at it right.
Topic Author
Random Walker
Posts: 4717
Joined: Fri Feb 23, 2007 8:21 pm

Re: Larry Swedroe: Correction Protection In Liquid Alts

Post by Random Walker »

Marcopolo,
1. Note that Larry claims that each of the alts should have equity like returns with about half the volatility of equities. The equal 1/n combination of them should have same expected return and about one quarter the volatility. In a portfolio, the expected return is the weighted average return of the portfolio components. The expected standard deviation of the portfolio is less than the weighted average of the portfolio components because of correlations less than 1.

2. I believe part of the expected premium for the Stone Ridge funds is a liquidity premium. I believe the need for interval fund structure reflects a liquidity premium.

Dave
marcopolo
Posts: 3875
Joined: Sat Dec 03, 2016 10:22 am

Re: Larry Swedroe: Correction Protection In Liquid Alts

Post by marcopolo »

Random Walker wrote: Mon Feb 26, 2018 5:10 pm Marcopolo,
1. Note that Larry claims that each of the alts should have equity like returns with about half the volatility of equities. The equal 1/n combination of them should have same expected return and about one quarter the volatility. In a portfolio, the expected return is the weighted average return of the portfolio components. The expected standard deviation of the portfolio is less than the weighted average of the portfolio components because of correlations less than 1.

2. I believe part of the expected premium for the Stone Ridge funds is a liquidity premium. I believe the need for interval fund structure reflects a liquidity premium.

Dave
I agree with the above, it is the "equity like returns with half the volatility" claim that i have been questioning all along. So at least we now agree on what it is that is being claimed. So, the question is do we believe this is achievable? I would like to see some track record of that, especially overcoming the expenses. If it were possible, why not replace your entire equity allocation with such a product?
Once in a while you get shown the light, in the strangest of places if you look at it right.
User avatar
cfs
Posts: 4154
Joined: Fri Feb 23, 2007 1:22 am
Location: ~ Mi Propio Camino ~

Re: Larry Swedroe: Correction Protection In Liquid Alts

Post by cfs »

Thank you for the links to Mister Swedroe's articles.

He is no longer participating in this forum [for good reasons].

Gracias por leer ~cfs~
~ Member of the Active Retired Force since 2014 ~
Topic Author
Random Walker
Posts: 4717
Joined: Fri Feb 23, 2007 8:21 pm

Re: Larry Swedroe: Correction Protection In Liquid Alts

Post by Random Walker »

In the article, Larry shows the two hypothetical portfolios. Both have the same “expected return” but different standard deviations. Larry focuses on the downside protection: minimizing the left tail. There is also I believe a more subtle potential advantage to the lower SD more efficient portfolio. The expected return of the portfolio is the weighted simple average of the portfolio component expected returns. But the actual return that will ultimately matter is the compounded or geometric return. That actual compounded return will be less than the actual weighted average return of portfolio components due to volatility drag. So a more efficient portfolio with the same expected return (weighted average of component expected returns) but lower SD will be expected to have less volatility drag and thus a greater compounded return. An equation that approximates this is

Geo Mean = Simple Mean - 1/2(SD^2)

So I believe that decreasing the SD of a portfolio by say 4 from 16 down to 12 can be worth about 0.4-0.5% extra in compounded returns if the portfolio components give the same simple mean return over time. Volatility drag is a real cost, and I believe a more efficient portfolio is worth some additional cost to lessen the effects of volatility drag. There is a long thread and a wiki reference here at Bogleheads on volatility drag.

Dave
User avatar
nedsaid
Posts: 14218
Joined: Fri Nov 23, 2012 12:33 pm

Re: Larry Swedroe: Correction Protection In Liquid Alts

Post by nedsaid »

Ask and you shall receive. I revived the QSPIX thread because I wanted to know how the alts did during the recent 10% market correction. I figured that the recent volatility would be a good test for the alts. Pretty much put up or shut up. Turns out they did a bit worse than Total Bond Market. They did however do a lot better than the stock market. The acid test is whether or not the alts outperform bonds over longer time periods. Until then, the cynics will say you are better off in plain old bonds. I will say that I am interested in the alts.
A fool and his money are good for business.
fennewaldaj
Posts: 999
Joined: Sun Oct 22, 2017 11:30 pm

Re: Larry Swedroe: Correction Protection In Liquid Alts

Post by fennewaldaj »

Random Walker wrote: Mon Feb 26, 2018 2:26 pm We should all realize too that there are risks that aren’t necessarily well measured by standard deviation. For example I’m sure the reinsurance has huge occasional left fat tail risk. The variance risk premium can likely lose lots just when equities are tanking. So we aren’t so much talking about a free lunch as we are talking about diversifying types of risks, when the risks show up, and sources of return.

Dave
I find the reinsurance fund interesting. Like you said there are some fat tails but luckily they should not be correlated to equity returns ( i can see an extreme fat tail of disasters tanking the market though) For instance last year was a bad disaster year but a great equity year. I would almost certianly use this fund if I had access. The alts I can assess I am less excited about (commodity futures or managed futures are the ones I would be most likely to use)
Valuethinker
Posts: 41790
Joined: Fri May 11, 2007 11:07 am

Re: Larry Swedroe: Correction Protection In Liquid Alts

Post by Valuethinker »

fennewaldaj wrote: Mon Feb 26, 2018 11:51 pm
Random Walker wrote: Mon Feb 26, 2018 2:26 pm We should all realize too that there are risks that aren’t necessarily well measured by standard deviation. For example I’m sure the reinsurance has huge occasional left fat tail risk. The variance risk premium can likely lose lots just when equities are tanking. So we aren’t so much talking about a free lunch as we are talking about diversifying types of risks, when the risks show up, and sources of return.

Dave
I find the reinsurance fund interesting. Like you said there are some fat tails but luckily they should not be correlated to equity returns ( i can see an extreme fat tail of disasters tanking the market though) For instance last year was a bad disaster year but a great equity year. I would almost certianly use this fund if I had access. The alts I can assess I am less excited about (commodity futures or managed futures are the ones I would be most likely to use)
I think that ship has sailed.

The Hedge Funds have not done well in reinsurance, it appears. S&P warning on their credit quality. Too much money into the industry, and then bad pricing practices.
User avatar
Robert T
Posts: 2744
Joined: Tue Feb 27, 2007 9:40 pm
Location: 1, 0.2, 0.4, 0.5
Contact:

Re: Larry Swedroe: Correction Protection In Liquid Alts

Post by Robert T »

.
Interesting.

Using the same dates as in the paper: Jan 29 to Feb 9 2018; and the full 2017 calendar year

P1 = 75%:25% Vanguard Total World Stock Market: iShares 3-7 year Treasury
P2 = 71%:29% Vanguard Total World Stock Market: Alternatives**

**Alternatives are the equal weight of the four alts analyzed in the paper.

Returns: Jan 29 to Feb 9 2018
  • P1 = -6.8%
    P2 = -6.8%
Returns: 2017
  • P1 = 18.7%
    P2 = 18.7%
Robert
.
Angst
Posts: 2537
Joined: Sat Jun 09, 2007 11:31 am

Re: Larry Swedroe: Correction Protection In Liquid Alts

Post by Angst »

How can a self-respecting Boglehead accept these claims of "equity like" returns? Why not dispense with the marketing-speak and simply give some numbers? If these alts have certain "expected" returns, why not just quantify those expected returns? Give us some numbers and dispense with the "equity like" sales pitch. These alts are not equity. It appears to be all about the appeal of getting "equity [like] returns" w/o the equity risk. Well, these alts are not equity and they do not literally (let alone logically) give equity like returns. Equity has a lot of long term history to characterize its returns, but alts do not. Be specific, be honest, and dispense with the marketing-speak which is anything but that.

ps - It's times like this I really wish Larry would start posting again, even if just selectively and occasionally; to make a point, a clarification maybe, w/o necessarily joining in a long discussion.
Last edited by Angst on Tue Feb 27, 2018 11:09 pm, edited 1 time in total.
User avatar
Noobvestor
Posts: 5709
Joined: Mon Aug 23, 2010 1:09 am

Re: Larry Swedroe: Correction Protection In Liquid Alts

Post by Noobvestor »

Robert T wrote: Tue Feb 27, 2018 9:34 am Returns: Jan 29 to Feb 9 2018
  • P1 = -6.8%
    P2 = -6.8%
Returns: 2017
  • P1 = 18.7%
    P2 = 18.7%
Robert
.
Down to a tenth of a percent, no less 8-)
"In the absence of clarity, diversification is the only logical strategy" -= Larry Swedroe
WildCat48
Posts: 62
Joined: Sun Jul 16, 2017 8:28 pm

Re: Larry Swedroe: Correction Protection In Liquid Alts

Post by WildCat48 »

Random Walker wrote: Mon Feb 26, 2018 5:10 pm Marcopolo,
1. Note that Larry claims that each of the alts should have equity like returns with about half the volatility of equities. The equal 1/n combination of them should have same expected return and about one quarter the volatility. In a portfolio, the expected return is the weighted average return of the portfolio components. The expected standard deviation of the portfolio is less than the weighted average of the portfolio components because of correlations less than 1.

2. I believe part of the expected premium for the Stone Ridge funds is a liquidity premium. I believe the need for interval fund structure reflects a liquidity premium.

Dave
Good luck with SRRIX, I'm not sure that thing will ever recover. I don't understand why these guys think they are smarter than Warren.
Angst
Posts: 2537
Joined: Sat Jun 09, 2007 11:31 am

Re: Larry Swedroe: Correction Protection In Liquid Alts

Post by Angst »

Noobvestor wrote: Tue Feb 27, 2018 11:07 pm
Robert T wrote: Tue Feb 27, 2018 9:34 am Returns: Jan 29 to Feb 9 2018
  • P1 = -6.8%
    P2 = -6.8%
Returns: 2017
  • P1 = 18.7%
    P2 = 18.7%
Robert
.
Down to a tenth of a percent, no less 8-)
Come again? All Robert T's post shows is the returns of "Alternatives **" essentially matching the returns of iShares' 3-7 yr Treasuries. Do you call that "equity like" returns? I don't' think so!
Last edited by Angst on Tue Feb 27, 2018 11:26 pm, edited 1 time in total.
protagonist
Posts: 6822
Joined: Sun Dec 26, 2010 12:47 pm

Re: Larry Swedroe: Correction Protection In Liquid Alts

Post by protagonist »

marcopolo wrote: Mon Feb 26, 2018 1:58 pm
Misconception? From the "4 horsemen article" (emphasis added):
We BELIEVE an equal-weighted portfolio of these four funds has forward-looking return expectations similar to those of a global equity portfolio, but with only about one-quarter of the volatility of equities (5% versus 20%). (In the interest of full disclosure, as noted, my firm, Buckingham Strategic Wealth, recommends AQR and Stone Ridge funds in constructing client portfolios.)

Belief is faith, not science. People believe many things.

Show me the science behind assuming that funds with expense ratios of 1.5-2.7% can deliver similar returns as a diverse global equity portfolio with one-fourth the volatility and I might be interested.

In fact, there is not even any good science to predict the volatility of a diverse global equity portfolio in the next century, so how can one predict the relative volatility of this Alt portfolio?

The only thing we know with certainty is that it will cost you about 3-5 times as much to own as VHGEX, and about 10 to 27 times as much to own as VTSMX.
User avatar
Noobvestor
Posts: 5709
Joined: Mon Aug 23, 2010 1:09 am

Re: Larry Swedroe: Correction Protection In Liquid Alts

Post by Noobvestor »

Angst wrote: Tue Feb 27, 2018 11:18 pm
Noobvestor wrote: Tue Feb 27, 2018 11:07 pm
Robert T wrote: Tue Feb 27, 2018 9:34 am Returns: Jan 29 to Feb 9 2018
  • P1 = -6.8%
    P2 = -6.8%
Returns: 2017
  • P1 = 18.7%
    P2 = 18.7%
Robert
.
Down to a tenth of a percent, no less 8-)
Come again? All Robert T's post shows is the returns of "Alternatives **" matching the returns of iShares' 3-7 yr Treasuries. Do you call that "equity like" returns? I don't' think so!
I think either you misunderstood my post, or I misunderstood his. I took his comparison as an illustration that you could get similar returns by using a simple Treasuries index coupled with stocks. But I'm open to more data on standard deviation, etc... informing the results.
"In the absence of clarity, diversification is the only logical strategy" -= Larry Swedroe
Angst
Posts: 2537
Joined: Sat Jun 09, 2007 11:31 am

Re: Larry Swedroe: Correction Protection In Liquid Alts

Post by Angst »

Noobvestor wrote: Tue Feb 27, 2018 11:26 pm
Angst wrote: Tue Feb 27, 2018 11:18 pm
Noobvestor wrote: Tue Feb 27, 2018 11:07 pm
Robert T wrote: Tue Feb 27, 2018 9:34 am Returns: Jan 29 to Feb 9 2018
  • P1 = -6.8%
    P2 = -6.8%
Returns: 2017
  • P1 = 18.7%
    P2 = 18.7%
Robert
.
Down to a tenth of a percent, no less 8-)
Come again? All Robert T's post shows is the returns of "Alternatives **" matching the returns of iShares' 3-7 yr Treasuries. Do you call that "equity like" returns? I don't' think so!
I think either you misunderstood my post, or I misunderstood his. I took his comparison as an illustration that you could get similar returns by using a simple Treasuries index coupled with stocks. But I'm open to more data on standard deviation, etc... informing the results.
Oh dear, my apologies if I misunderstood. I took your post to be a refutation of my post, immediately above it. I do agree with your understanding of Robert T, more or less, as you explain it here. I'm sorry. :happy
typical.investor
Posts: 2410
Joined: Mon Jun 11, 2018 3:17 am

Re: Larry Swedroe: Correction Protection In Liquid Alts

Post by typical.investor »

So how did they do in a real correction?

It was said they sacrifice returns in a up market (when beta dominates), but they provide tail protection.

Returns of these funds don’t look good to me, but maybe I am looking at price only.

Also, how will LENDX do with 20% unemployment? Are people just going to hold and see?
Topic Author
Random Walker
Posts: 4717
Joined: Fri Feb 23, 2007 8:21 pm

Re: Larry Swedroe: Correction Protection In Liquid Alts

Post by Random Walker »

typical.investor wrote: Wed Mar 18, 2020 1:52 am So how did they do in a real correction?

It was said they sacrifice returns in a up market (when beta dominates), but they provide tail protection.

Returns of these funds don’t look good to me, but maybe I am looking at price only.

Also, how will LENDX do with 20% unemployment? Are people just going to hold and see?
There’s another thread where I put some specific numbers. But LENDX and SRRIX have basically held steady, QSPRX/QRPRX down 5-6%, AVRPX right down there with total stock market. I am just holding, but agree that unemployment expected to hurt LENDX.

Dave

PS here’s the other thread
viewtopic.php?f=10&t=307532
Post Reply