Larry Swedroe: Alternative Approach To Alts

Discuss all general (i.e. non-personal) investing questions and issues, investing news, and theory.
Post Reply
Topic Author
Random Walker
Posts: 5561
Joined: Fri Feb 23, 2007 7:21 pm

Larry Swedroe: Alternative Approach To Alts

Post by Random Walker »

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

The AQR Style Premia Fund has been discussed here multiple times. The fund invests in four styles or factors across multiple asset classes. The styles are value, CS momentum, defensive, carry. The fund QSPIX/QSPRX has been available since Oct 2013, thus Larry presents 4 years of live data regarding its performance.
QSPIX and QSPRX are quite tax inefficient. AQR has now come out with a tax aware version of the funds, QRPRX, that adds two additional styles, Time Series Momentum and Variance Risk Premium to the other four. Because of capacity constraints it eliminates commodities from the asset classes it accesses. For those interested in tilting or adding factor exposure to a portfolio, it is generally more efficient to access multiple factors in a single fund: minimize transactions, avoid buying in one fund and selling same in the other, internal rebalancing. From this perspective, these funds accomplish a lot.
For those who might want to add a little risk (of a different kind) and expected return to a taxable portfolio, they might consider substituting QRPRX for a small portion of their municipal bond allocation.

Dave
User avatar
fetch5482
Posts: 1721
Joined: Fri Aug 15, 2014 4:55 pm

Re: Larry Swedroe: Alternative Approach To Alts

Post by fetch5482 »

With 1.3% ER, I say "PASS". Not for me.
(AGE minus 23%) Bonds | 5% REITs | Balance 80% US (75/25 TSM/SCV) + 20% International (80/20 Developed/Emerging)
Topic Author
Random Walker
Posts: 5561
Joined: Fri Feb 23, 2007 7:21 pm

Re: Larry Swedroe: Alternative Approach To Alts

Post by Random Walker »

Today was a relatively nice day to have QSPIX

Dave
Hank Moody
Posts: 279
Joined: Fri Oct 17, 2014 9:41 pm

Re: Larry Swedroe: Alternative Approach To Alts

Post by Hank Moody »

Have you compared the TS Momentum in QRPRX to the TS Momentum approach used by AQR's Managed Futures fund? I only ask because the MF fund has performed miserably over the past few years, though I'm not sure exactly why. It's one reason I've shied away from QRPRX.
Random Walker wrote: Mon Mar 05, 2018 9:12 amAQR has now come out with a tax aware version of the funds, QRPRX, that adds two additional styles, Time Series Momentum and Variance Risk Premium to the other four.
Dave
-HM
Topic Author
Random Walker
Posts: 5561
Joined: Fri Feb 23, 2007 7:21 pm

Re: Larry Swedroe: Alternative Approach To Alts

Post by Random Walker »

In fact S&P 500 lost 2.52% yesterday.

LENDX +.1%
AVRPX -0.8%
SRRIX unchanged

Dave
Topic Author
Random Walker
Posts: 5561
Joined: Fri Feb 23, 2007 7:21 pm

Re: Larry Swedroe: Alternative Approach To Alts

Post by Random Walker »

HM,
That sort of attribution analysis a bit out of my league, but would be interesting to see.

Dave
User avatar
nisiprius
Advisory Board
Posts: 52105
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: Alternative Approach To Alts

Post by nisiprius »

Random Walker wrote: Fri Mar 23, 2018 8:11 am In fact S&P 500 lost 2.52% yesterday.

LENDX +.1%
AVRPX -0.8%
SRRIX unchanged

Dave
They are interval funds. Did yesterday (or today) happen to be one of the "quarterly repurchase dates" when the funds could actually be sold? If not, daily performance numbers don't seem very interesting.
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.
User avatar
willthrill81
Posts: 32250
Joined: Thu Jan 26, 2017 2:17 pm
Location: USA
Contact:

Re: Larry Swedroe: Alternative Approach To Alts

Post by willthrill81 »

Random Walker wrote: Fri Mar 23, 2018 8:11 am In fact S&P 500 lost 2.52% yesterday.

LENDX +.1%
AVRPX -0.8%
SRRIX unchanged

Dave
My LC notes have been providing steady returns (7%+) for me since 2013. I've not had one down month in nearly five years.

If it weren't for platform risk, I'd put a lot more into P2P lending. Once I reach accredited investor status, I intend to invest in real estate crowdfunding where I and other investors hold a senior lien against real property as security.
The Sensible Steward
User avatar
nisiprius
Advisory Board
Posts: 52105
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: Alternative Approach To Alts

Post by nisiprius »

Larry Swedroe has sent me a PM. I am interpreting an earlier PM of his to mean that I have permission to post his PMs. This is the context:
nisiprius wrote: Fri Mar 23, 2018 12:23 pm
Random Walker wrote: Fri Mar 23, 2018 8:11 am In fact S&P 500 lost 2.52% yesterday.

LENDX +.1%
AVRPX -0.8%
SRRIX unchanged

Dave
They are interval funds. Did yesterday (or today) happen to be one of the "quarterly repurchase dates" when the funds could actually be sold? If not, daily performance numbers don't seem very interesting.
This is Larry Swedroe's PM:
yesterday returns for three sr funds

The obvious point of Dave's post was to show how almost totally uncorrelated the returns of the three funds, just as they were in the Feb crash, with AVPRX having the most exposure, but increasing vol while bad for fund in ST is very good LT as premiums go way up and in the past several years of live returns the best months came right after vol jumps and the fund had losses. The gains far exceeded the losses
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.
lack_ey
Posts: 6701
Joined: Wed Nov 19, 2014 10:55 pm

Re: Larry Swedroe: Alternative Approach To Alts

Post by lack_ey »

Actually, what was your point earlier? If what we want to do is understand a fund's performance, what relevance does the fund structure have? Mark to market and see what happened, right? (with the understanding that extremely short evaluation windows don't say much, and this is more a curiosity)
User avatar
nisiprius
Advisory Board
Posts: 52105
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: Alternative Approach To Alts

Post by nisiprius »

lack_ey wrote: Fri Mar 23, 2018 4:03 pm Actually, what was your point earlier? If what we want to do is understand a fund's performance, what relevance does the fund structure have? Mark to market and see what happened, right? (with the understanding that extremely short evaluation windows don't say much, and this is more a curiosity)
I don't understand what the point is in looking at single-day returns at all, I think it's silly.

But if we are going to do it, my point was that if you'd wanted to take your single-day +1% profit in LENDX--you couldn't have done it.

By comparison, plain vanilla BND, the Vanguard Total Bond Market Index ETF, gained 0.03% on March 22nd. Thus, it beat two out of three of the Stone Ridge funds. And unlike the Stone Ridge funds, you could have taken that 0.03% profit, if you'd wanted to.

In short, March 22nd, 2018 was a relatively nice day to be holding things that weren't stocks.
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.
User avatar
nisiprius
Advisory Board
Posts: 52105
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: Alternative Approach To Alts

Post by nisiprius »

Larry Swedroe has sent me a PM in which he wrote:
the difference

is BNDX doesn't have equity like expected returns, but the four funds Dave mentioned do
and the point was to show that other risky assets that are not correlated with equity risks don't necessarily go down when stocks do, now would show that if funds had existed in 08, but since they did not this is good way to make the point I thought. Like I showed what happened in Feb crash
Larry
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.
User avatar
nisiprius
Advisory Board
Posts: 52105
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: Alternative Approach To Alts

Post by nisiprius »

Obviously this price chart from Bloomberg is not giving a sensible picture of the Stone Ridge Reinsurance Risk Premium Interval Fund, SRRIX, But I don't know exactly what the step functions represent, nor how to take dividends into account.

Image

Does anyone know where I can find an ordinary total-return, hypothetical-growth-of-$10,000 chart for these funds (LENDX, AVRPX, SRRIX) Morningstar doesn't even know about their existence, and "the usual places" only seem to have price charts.

Correction, that's the wrong fund; the chart below is for SHRIX, not SRRIX. I can't find the returns for SRRIX.
I can find "average annual total returns" for SRRIX in the prospectus, although it seems to be out-of-date:

Image

But I cannot find even that basic information on the Stone Ridge website in the prospectus for AVRPX, the Stone Ridge All Asset Variance Risk Premium Fund or LENDX, the Stone Ridge Alternative Lending Risk Premium Fund
Last edited by nisiprius on Sat Mar 24, 2018 10:46 am, edited 2 times in total.
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: 5561
Joined: Fri Feb 23, 2007 7:21 pm

Re: Larry Swedroe: Alternative Approach To Alts

Post by Random Walker »

Nisiprius,
I’m invested in the funds and don’t know what to make of the step functions. I’m pretty sure that none of the popular sites like Morningstar, Bloomberg, etc get the returns right. First of all, so much of the returns of these tax inefficient funds are in the form of ordinary income that I don’t know if that shows up in share value. Secondly, there is the interval fund structure issue. I have read that there is daily pricing, but I have also read that there is weekly pricing, and someone commented (maybe you? :-) ) that the only price that matters is the price on the days when an investor can actually sell his shares. I took a look at the prospectuses and there is return information in the section titled “Consolidated Financial Highlights”, but it’s not in the form of growth of 10K. My best guess is that the step function we see is a result of less frequent pricing or distributions at fixed intervals.

Dave
User avatar
nisiprius
Advisory Board
Posts: 52105
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: Alternative Approach To Alts

Post by nisiprius »

Random Walker wrote: Sat Mar 24, 2018 10:37 am...I’m invested in the funds and don’t know what to make of the step functions...
Do your brokerage statements show a number of dollars for the "market value" and what is that value actually based on? What did you see actually happen in your account in September 2017: the "market value" for SRRIX dropping by $X = -10% just after September 1st, 2017, and your settlement account increasing by almost exactly $X?

Image
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: 5561
Joined: Fri Feb 23, 2007 7:21 pm

Re: Larry Swedroe: Alternative Approach To Alts

Post by Random Walker »

Yes, have daily access to market value of the alternative holdings in my account. The advisory firm provides some return data that I think is generic for various time periods, not personal internal rate of return. I believe for LENDX and SRRIX there is an external auditor who determines the pricing.
Don’t specifically remember 9/17. Was that about the time of the hurricanes? SRRIX did take a significant hit at the time of the hurricanes.
Dave
larryswedroe
Posts: 16022
Joined: Thu Feb 22, 2007 7:28 am
Location: St Louis MO

Re: Larry Swedroe: Alternative Approach To Alts

Post by larryswedroe »

Anyone can see daily pricing on yahoo.com and you would see it at your custodian's website.
and if looking at prices daily you get drop on distribution dates
There is total transparency
Larry
Topic Author
Random Walker
Posts: 5561
Joined: Fri Feb 23, 2007 7:21 pm

Re: Larry Swedroe: Alternative Approach To Alts

Post by Random Walker »

More hints at potential diversification benefits: today 4/2/18

S&P 500 -2.23%
QRPRX -0.10%
QSPIX -0.48%
QMHRX -0.58%
SRRIX no change
LENDX +0.10%
AVRPX -0.21%

Dave
Theoretical
Posts: 1546
Joined: Tue Aug 19, 2014 10:09 pm

Re: Larry Swedroe: Alternative Approach To Alts

Post by Theoretical »

For options that retail investors can access:
  • Columbia Alternative Beta, Class A (NTF/Load Waived at Fidelity) - CLAAX - (0.5%)
  • Janus Henderson Diversified Alternatives, Class T (NTF/Load Waived at Fidelity, Ameritrade, and Schwab) - JDATX - +0.2%
  • Goldman Sachs Alternative Premia Fund - (NTF/Load Waived at Schwab and Fidelity) - GDAFX - (0.35%)
  • Natixis Managed Futures Class A (AMFAX) - (0.9%)
  • PIMCO Trends Managed Futures Class I (PQTIX - Available in IRAs for a 1 time transaction fee and 0 cost for regular investments at TD Ameritrade) - (.4%)
  • A Shares (PQTAX) is load waived and NTF at Fidelity - (.4%)
For some of these, like the Janus fund, even cheaper institutional shares are available with low minimums if you pick your brokerages.

Note, the Columbia fund should only be evaluated from October 2016 forward and the Goldman fund from November 2017 forward, as both were managed under a different strategy previously.
User avatar
Noobvestor
Posts: 5944
Joined: Mon Aug 23, 2010 1:09 am

Re: Larry Swedroe: Alternative Approach To Alts

Post by Noobvestor »

Random Walker wrote: Mon Apr 02, 2018 7:22 pm More hints at potential diversification benefits: today 4/2/18

S&P 500 -2.23%
QRPRX -0.10%
QSPIX -0.48%
QMHRX -0.58%
SRRIX no change
LENDX +0.10%
AVRPX -0.21%

Dave
Can't tell if this is a joke or not. All the funds except one are flat or down w/the market. One's up .1%, same as my Treasury index fund.
"In the absence of clarity, diversification is the only logical strategy" -= Larry Swedroe
heyyou
Posts: 4452
Joined: Tue Feb 20, 2007 3:58 pm

Re: Larry Swedroe: Alternative Approach To Alts

Post by heyyou »

Seems interesting, let me know when the ten year return info for those Alt funds is available.
Topic Author
Random Walker
Posts: 5561
Joined: Fri Feb 23, 2007 7:21 pm

Re: Larry Swedroe: Alternative Approach To Alts

Post by Random Walker »

Noobinvestor,
Definitely not a joke. These funds have equity like expected returns yet were down much less than the broad equity market on that date. Clearly one day doesn’t mean much of anything, but the numbers do support the idea behind diversification into the alternatives. Treasuries don’t have the same expected return.

Dave
scone
Posts: 1457
Joined: Wed Jul 11, 2012 4:46 pm

Re: Larry Swedroe: Alternative Approach To Alts

Post by scone »

How would the tax efficient fund be reported at tax time? Does TurboTax know how to handle it?
"My bond allocation is the amount of money that I cannot afford to lose." -- Taylor Larimore
Topic Author
Random Walker
Posts: 5561
Joined: Fri Feb 23, 2007 7:21 pm

Re: Larry Swedroe: Alternative Approach To Alts

Post by Random Walker »

Thought this would be an interesting time to look again at the alternatives. Market has been down pretty big over last few weeks and today was another sucky day. Thought I’d look at performances over last month: 9/24/18-10/24/18. Once again, a month is just noise in the data, but at least get a sense of the potential portfolio effects.

S&P500 -9.02%
Russell 2K -13.88%

DFMPX DFA Municipal Bond Portfolio (3.25 year duration) -0.1%

QRPRX +1.08%
QSPIX -1.16%
AVRPX -2.24%
LENDX +0.20%
SRRIX +0.76%

AVRPX sells volatility insurance effectively, so no surprise when it goes down with market. Not sure why QRPRX and QSPIX so different.
This is price only data from CNBC website. Most of the return from the alts is in form of tax inefficient dividends/income. So any errors with regard to price only data are my fault.

Dave
User avatar
nedsaid
Posts: 19249
Joined: Fri Nov 23, 2012 11:33 am

Re: Larry Swedroe: Alternative Approach To Alts

Post by nedsaid »

I just love it. First we had Alternative Investments. Now we have alternative Alternative Investments.
A fool and his money are good for business.
User avatar
nedsaid
Posts: 19249
Joined: Fri Nov 23, 2012 11:33 am

Re: Larry Swedroe: Alternative Approach To Alts

Post by nedsaid »

Random Walker wrote: Wed Oct 24, 2018 5:28 pm Thought this would be an interesting time to look again at the alternatives. Market has been down pretty big over last few weeks and today was another sucky day. Thought I’d look at performances over last month: 9/24/18-10/24/18. Once again, a month is just noise in the data, but at least get a sense of the potential portfolio effects.

S&P500 -9.02%
Russell 2K -13.88%

DFMPX DFA Municipal Bond Portfolio (3.25 year duration) -0.1%

QRPRX +1.08%
QSPIX -1.16%
AVRPX -2.24%
LENDX +0.20%
SRRIX +0.76%

AVRPX sells volatility insurance effectively, so no surprise when it goes down with market. Not sure why QRPRX and QSPIX so different.
This is price only data from CNBC website. Most of the return from the alts is in form of tax inefficient dividends/income. So any errors with regard to price only data are my fault.

Dave
Dave, as a comparison point, how have bonds done during this same time period? Thanks.
A fool and his money are good for business.
Topic Author
Random Walker
Posts: 5561
Joined: Fri Feb 23, 2007 7:21 pm

Re: Larry Swedroe: Alternative Approach To Alts

Post by Random Walker »

I showed that above. DFMPX is DFA Municipal Bond Fund with average duration 3.25 years. It was down 0.1% over same period.

Dave
stlutz
Posts: 5585
Joined: Fri Jan 02, 2009 12:08 am

Re: Larry Swedroe: Alternative Approach To Alts

Post by stlutz »

as a comparison point, how have bonds done during this same time period? Thanks.
VG IT Treasury Index was up .14% (price only), which I think is more what you were looking for.
User avatar
nedsaid
Posts: 19249
Joined: Fri Nov 23, 2012 11:33 am

Re: Larry Swedroe: Alternative Approach To Alts

Post by nedsaid »

stlutz wrote: Thu Oct 25, 2018 12:32 am
as a comparison point, how have bonds done during this same time period? Thanks.
VG IT Treasury Index was up .14% (price only), which I think is more what you were looking for.
Not throwing shade on Larry or Dave but I was wanting the comparison because folks need to be convinced that alternatives are better diversifiers than bonds. Otherwise we should just stick to bonds.

My position is that the Alternatives are worthy of consideration. If Larry Swedroe was my advisor, I would be all in with a 20% position in alternatives. 10% would be in lieu of stocks and 10% would be in lieu of bonds. Larry isn't my advisor so I have a more conventional portfolio. The advisor I do work with, I call him Broker #4, is pretty much a stocks/bonds/ETFs/American Funds type of guy. He isn't too interested in Alternatives.
A fool and his money are good for business.
garlandwhizzer
Posts: 3562
Joined: Fri Aug 06, 2010 3:42 pm

Re: Larry Swedroe: Alternative Approach To Alts

Post by garlandwhizzer »

willthrill wrote:

Once I reach accredited investor status, I intend to invest in real estate crowdfunding where I and other investors hold a senior lien against real property as security..
That will work, as will P2P lending, when the economy is doing well as it has for years now. The problem comes when there is a deep recession/increasing unemployment/housing value collapse when huge losses can show up with these strategies. P2P and real estate crowdfunding are expected to do well when times are good and employment and house prices are increasing but it is also expected that the opposite happens when the economy is contracting, jobs are lost, and housing prices are declining. There is risk of these strategies although it hasn't shown up in recent years. That does not mean they are without risk. When markets collapse the only safe asset typically is quality bonds.

Garland Whizzer
User avatar
unclescrooge
Posts: 6264
Joined: Thu Jun 07, 2012 7:00 pm

Re: Larry Swedroe: Alternative Approach To Alts

Post by unclescrooge »

willthrill81 wrote: Fri Mar 23, 2018 2:44 pm
Random Walker wrote: Fri Mar 23, 2018 8:11 am In fact S&P 500 lost 2.52% yesterday.

LENDX +.1%
AVRPX -0.8%
SRRIX unchanged

Dave
My LC notes have been providing steady returns (7%+) for me since 2013. I've not had one down month in nearly five years.

If it weren't for platform risk, I'd put a lot more into P2P lending. Once I reach accredited investor status, I intend to invest in real estate crowdfunding where I and other investors hold a senior lien against real property as security.
What about the tax inefficiencies?
Topic Author
Random Walker
Posts: 5561
Joined: Fri Feb 23, 2007 7:21 pm

Re: Larry Swedroe: Alternative Approach To Alts

Post by Random Walker »

Nedsaid,
I agree, very important to have the bonds in the comparison since they are perhaps best and cheapest diversifier of equity risk. That’s why I also put a bond fund in the list. More to your point though, we need to appreciate that the alternatives have an equity like expected return, which is very different from bonds.
When creating an alternative position, we need to decide whether to create the position from stocks, bonds, or some of both. If we were to create the position from bonds, we would be increasing the portfolio expected return,increasing portfolio volatility to a lesser extent, increase expected Sharpe ratio.

Unclescrooge,
The pretax expected returns of the alternatives are about same as equities. After tax, they are lower, but still higher than bonds. So one needs to appreciate what they are trying to accomplish in the portfolio. For me, perhaps it’s a bit of gambling instinct, I took mainly from municipal bonds in taxable account to create the position. Thus for me, the change increased the after tax expected return, increased expected volatility to a lesser extent, and increased expected portfolio efficiency. Certainly, as much as possible, place them in tax advantaged accounts. In taxable accounts, the lower after tax return is probably not worth it for the diversification benefit if used as a replacement for equities. But I think they are very worthy of consideration of replacing a portion of municipal bond holdings in taxable.

Dave
User avatar
willthrill81
Posts: 32250
Joined: Thu Jan 26, 2017 2:17 pm
Location: USA
Contact:

Re: Larry Swedroe: Alternative Approach To Alts

Post by willthrill81 »

unclescrooge wrote: Thu Oct 25, 2018 1:50 pm
willthrill81 wrote: Fri Mar 23, 2018 2:44 pm
Random Walker wrote: Fri Mar 23, 2018 8:11 am In fact S&P 500 lost 2.52% yesterday.

LENDX +.1%
AVRPX -0.8%
SRRIX unchanged

Dave
My LC notes have been providing steady returns (7%+) for me since 2013. I've not had one down month in nearly five years.

If it weren't for platform risk, I'd put a lot more into P2P lending. Once I reach accredited investor status, I intend to invest in real estate crowdfunding where I and other investors hold a senior lien against real property as security.
What about the tax inefficiencies?
I would only hold them inside a tax-advantaged account. I've already learned the hard way that P2P lending in a taxable account is a major pain in the backside.
The Sensible Steward
User avatar
unclescrooge
Posts: 6264
Joined: Thu Jun 07, 2012 7:00 pm

Re: Larry Swedroe: Alternative Approach To Alts

Post by unclescrooge »

willthrill81 wrote: Thu Oct 25, 2018 3:31 pm
unclescrooge wrote: Thu Oct 25, 2018 1:50 pm
willthrill81 wrote: Fri Mar 23, 2018 2:44 pm
Random Walker wrote: Fri Mar 23, 2018 8:11 am In fact S&P 500 lost 2.52% yesterday.

LENDX +.1%
AVRPX -0.8%
SRRIX unchanged

Dave
My LC notes have been providing steady returns (7%+) for me since 2013. I've not had one down month in nearly five years.

If it weren't for platform risk, I'd put a lot more into P2P lending. Once I reach accredited investor status, I intend to invest in real estate crowdfunding where I and other investors hold a senior lien against real property as security.
What about the tax inefficiencies?
I would only hold them inside a tax-advantaged account. I've already learned the hard way that P2P lending in a taxable account is a major pain in the backside.
Yup, total PIA.

Did you get a 1099 for OIDs?
User avatar
willthrill81
Posts: 32250
Joined: Thu Jan 26, 2017 2:17 pm
Location: USA
Contact:

Re: Larry Swedroe: Alternative Approach To Alts

Post by willthrill81 »

unclescrooge wrote: Thu Oct 25, 2018 11:56 pm
willthrill81 wrote: Thu Oct 25, 2018 3:31 pm
unclescrooge wrote: Thu Oct 25, 2018 1:50 pm
willthrill81 wrote: Fri Mar 23, 2018 2:44 pm
Random Walker wrote: Fri Mar 23, 2018 8:11 am In fact S&P 500 lost 2.52% yesterday.

LENDX +.1%
AVRPX -0.8%
SRRIX unchanged

Dave
My LC notes have been providing steady returns (7%+) for me since 2013. I've not had one down month in nearly five years.

If it weren't for platform risk, I'd put a lot more into P2P lending. Once I reach accredited investor status, I intend to invest in real estate crowdfunding where I and other investors hold a senior lien against real property as security.
What about the tax inefficiencies?
I would only hold them inside a tax-advantaged account. I've already learned the hard way that P2P lending in a taxable account is a major pain in the backside.
Yup, total PIA.

Did you get a 1099 for OIDs?
Yep. And I do all of the tax return forms myself too. :(
The Sensible Steward
garlandwhizzer
Posts: 3562
Joined: Fri Aug 06, 2010 3:42 pm

Re: Larry Swedroe: Alternative Approach To Alts

Post by garlandwhizzer »

Larry sent me private messages which I'm passing along on the question of alternates during market collapses:
fico scores average of about 700 have expected losses in 4-5% range, and about 2x that in an 08 environment. So only about an extra 5% loss, but this fund uses leverage so expect loss would be with think maybe 7% in another 08, certainly not huge
Also note the student loans in portfolio are super high credit quality with much lower losses expected

There are other reasons why losses would be limited and better than credit cards because for example credit card borrowers have choice who to repay while much of loans in LENDX platforms REQUIRE direct debit to bank account on payment date--get lower rate for that, reducing risks.

Larry
Also on the question of huge losses in P2P lending during such a crisis:
huge losses
Delete Report Quote
Sent: Thu Oct 25, 2018 6:16 pm
From: larryswedroe
Recipient: garlandwhizzer

Only occur in junk P2p. In 2008 based on losses incurred on credit cards with same credit quality we believe LENDX might have lost 7% or so. Way below that of equities of course. So saying huge losses is just not correct. And that was in by far the worst recession in post war era-of course next time might be worse, but if that is the case equity losses will likely be even worse
Larry
Garland Whizzer
Topic Author
Random Walker
Posts: 5561
Joined: Fri Feb 23, 2007 7:21 pm

Re: Larry Swedroe: Alternative Approach To Alts

Post by Random Walker »

nedsaid wrote: Thu Oct 25, 2018 1:38 pm
Not throwing shade on Larry or Dave but I was wanting the comparison because folks need to be convinced that alternatives are better diversifiers than bonds. Otherwise we should just stick to bonds.
Portfolio improvements are incremental. It’s not either/ or, the question is whether to create an alternatives position in addition to stocks and bonds.

Dave
User avatar
nedsaid
Posts: 19249
Joined: Fri Nov 23, 2012 11:33 am

Re: Larry Swedroe: Alternative Approach To Alts

Post by nedsaid »

Random Walker wrote: Fri Oct 26, 2018 5:58 pm
nedsaid wrote: Thu Oct 25, 2018 1:38 pm
Not throwing shade on Larry or Dave but I was wanting the comparison because folks need to be convinced that alternatives are better diversifiers than bonds. Otherwise we should just stick to bonds.
Portfolio improvements are incremental. It’s not either/ or, the question is whether to create an alternatives position in addition to stocks and bonds.

Dave
This is where the writing of an Investment Policy Statement really helps. In writing such a statement, an investor should write down his or her core beliefs regarding investing. I seem wishy-washy on the subject of alternatives. A core belief of mine is that asset classes don't have to behave according to investor expectations, particularly in a crisis. I have seen some pretty crazy things happen. Another core belief has to do with liquidity, I believe that investors should invest in liquid investments. Investors have gotten burned with illiquid investments sold by investment advisors such as non-traded REITs. So pretty much, while I am open to the alternatives, a couple of my core beliefs stand in the way. So at least I know what is giving me pause.

Investing in alternatives requires an intellectual commitment. I just am not there. I might, however take the plunge someday but not now.
A fool and his money are good for business.
User avatar
abuss368
Posts: 27850
Joined: Mon Aug 03, 2009 2:33 pm
Location: Where the water is warm, the drinks are cold, and I don't know the names of the players!
Contact:

Re: Larry Swedroe: Alternative Approach To Alts

Post by abuss368 »

nedsaid wrote: Wed Oct 24, 2018 11:45 pm I just love it. First we had Alternative Investments. Now we have alternative Alternative Investments.
Well said. That was the first thing I thought of when i read the title of the thread. Creative Investing!
John C. Bogle: “Simplicity is the master key to financial success."
Topic Author
Random Walker
Posts: 5561
Joined: Fri Feb 23, 2007 7:21 pm

Re: Larry Swedroe: Alternative Approach To Alts

Post by Random Walker »

Nedsaid,
We agree on way more than we disagree. One of my core beliefs revolves around an imaginary efficient frontier. When I consider a new portfolio addition, I consider how I believe the new investment will mix with everything else in the portfolio, and whether it will likely push my portfolio a little more towards the north west corner of the efficient frontier graph. In Larry’s writings, he generally shows portfolios with same expected return and improved (narrower) standard deviations. I imagine these things much like Roger Gibson’s multi asset class charts from his books. Different ways to visualize same effect I think.

Dave
Topic Author
Random Walker
Posts: 5561
Joined: Fri Feb 23, 2007 7:21 pm

Re: Larry Swedroe: Alternative Approach To Alts

Post by Random Walker »

abuss368 wrote: Fri Oct 26, 2018 7:33 pm
nedsaid wrote: Wed Oct 24, 2018 11:45 pm I just love it. First we had Alternative Investments. Now we have alternative Alternative Investments.
Well said. That was the first thing I thought of when i read the title of the thread. Creative Investing!
Not really creative, just incremental improvement. It’s generally more efficient to combine sources of return in a single fund than to have separate funds. QRPRX adds time series momentum and variance risk premium to the 4 styles already present in QSPIX. QRPRX also designed for taxable accounts whereas QSPIX less tax efficient.

Dave
User avatar
Nate79
Posts: 9354
Joined: Thu Aug 11, 2016 6:24 pm
Location: Delaware

Re: Larry Swedroe: Alternative Approach To Alts

Post by Nate79 »

Random Walker wrote: Wed Oct 24, 2018 5:28 pm Thought this would be an interesting time to look again at the alternatives. Market has been down pretty big over last few weeks and today was another sucky day. Thought I’d look at performances over last month: 9/24/18-10/24/18. Once again, a month is just noise in the data, but at least get a sense of the potential portfolio effects.

S&P500 -9.02%
Russell 2K -13.88%

DFMPX DFA Municipal Bond Portfolio (3.25 year duration) -0.1%

QRPRX +1.08%
QSPIX -1.16%
AVRPX -2.24%
LENDX +0.20%
SRRIX +0.76%

AVRPX sells volatility insurance effectively, so no surprise when it goes down with market. Not sure why QRPRX and QSPIX so different.
This is price only data from CNBC website. Most of the return from the alts is in form of tax inefficient dividends/income. So any errors with regard to price only data are my fault.

Dave
Any chance you could post longer return intervals such as 3 month, 6 month, 1 year, etc?
User avatar
nedsaid
Posts: 19249
Joined: Fri Nov 23, 2012 11:33 am

Re: Larry Swedroe: Alternative Approach To Alts

Post by nedsaid »

Random Walker wrote: Fri Oct 26, 2018 7:38 pm Nedsaid,
We agree on way more than we disagree. One of my core beliefs revolves around an imaginary efficient frontier. When I consider a new portfolio addition, I consider how I believe the new investment will mix with everything else in the portfolio, and whether it will likely push my portfolio a little more towards the north west corner of the efficient frontier graph. In Larry’s writings, he generally shows portfolios with same expected return and improved (narrower) standard deviations. I imagine these things much like Roger Gibson’s multi asset class charts from his books. Different ways to visualize same effect I think.

Dave
Dave, we pretty much agree on most everything. I do share the concept of the efficient frontier, we just have to recognize that the efficient frontier is a moving target. Imperfect, but much better than nothing.

I am about 2/3 do-it-myself and 1/3 I work with a broker. Even when working with the broker, the ideas are about 1/2 mine and 1/2 his. You are 100% in with Buckingham.

I do think about the portfolio as a whole and about how each addition will affect the entire portfolio. Pretty much, I eyeball and use educated guesses as I know this isn't precise anyways. Again, if I was with Larry's firm, I would be all in with the Alternatives.

My posts are often me thinking aloud and you will see me go back and forth even on topics that I am more passionate about, even Small/Value tilting. I also did the best that I could to post my portfolio and my results. People can see whether or not I take my own advice.

I am also not too worked up with the quant stuff. I think it to be important but there is a certain slipperiness to the data. A lot depends upon the time periods you select. As far as standard deviation and correlation, I keep these in mind as well but again I eyeball things. Close enough is close enough. The reason I don't get too precise is that such things as volatility, correlation, and efficient frontiers change over time. That is what is frustrating, particularly to engineers. But investing is not precise, it really is an art as much as it is a science.

My portfolio construction is pretty messy, I pretty much buy what I like and justify it later. Pretty much, I am like a scratch cook. A little bit of this, a dash of that. Hmmm. Tastes good but I think it needs a bit of this other thing. So some folks here probably think I am an idiot but so be it.

But yes, I pay attention to the research and try to apply it but I don't try to be too precise.

I even had a lively discussion in your excellent thread on portfolio drag. I poo-pooed the concept but in real life I tried to reduce portfolio drag with my own investments. I understood what you were saying but was skeptical if this could be done in real life. My own experience is that my efforts sometimes worked and sometimes didn't.

My guess is that the Alts will probably please you sometimes and disappoint you other times. In theory, it should all work beautifully. In practice, I think there will be times you wondered why you let anyone talk you into this. But that is the way things work in the investment world. Nothing works all the time. The key is to pick a sound strategy and stick with it. Longer term, the alts should work out just fine.
A fool and his money are good for business.
User avatar
nedsaid
Posts: 19249
Joined: Fri Nov 23, 2012 11:33 am

Re: Larry Swedroe: Alternative Approach To Alts

Post by nedsaid »

abuss368 wrote: Fri Oct 26, 2018 7:33 pm
nedsaid wrote: Wed Oct 24, 2018 11:45 pm I just love it. First we had Alternative Investments. Now we have alternative Alternative Investments.
Well said. That was the first thing I thought of when i read the title of the thread. Creative Investing!
Just wait for the next article where Larry will discuss Alternative Alternative Alternative investments! :wink:
A fool and his money are good for business.
User avatar
HomerJ
Posts: 21246
Joined: Fri Jun 06, 2008 12:50 pm

Re: Larry Swedroe: Alternative Approach To Alts

Post by HomerJ »

nedsaid wrote: Fri Oct 26, 2018 10:35 pmMy portfolio construction is pretty messy, I pretty much buy what I like and justify it later. Pretty much, I am like a scratch cook. A little bit of this, a dash of that. Hmmm. Tastes good but I think it needs a bit of this other thing. So some folks here probably think I am an idiot but so be it.
For what it's worth, I think you are one of the best contributors here.... :)
My guess is that the Alts will probably please you sometimes and disappoint you other times. In theory, it should all work beautifully. In practice, I think there will be times you wondered why you let anyone talk you into this. But that is the way things work in the investment world.
This.

In theory, theory works. In practice, it sometimes (often?) doesn't.

The "efficient frontier" is a nice theory. There's a lot of faith being put into "expected returns". I hope it works for Dave in practice, because he's also one of the great contributors to this forum.
"The best tools available to us are shovels, not scalpels. Don't get carried away." - vanBogle59
User avatar
nedsaid
Posts: 19249
Joined: Fri Nov 23, 2012 11:33 am

Re: Larry Swedroe: Alternative Approach To Alts

Post by nedsaid »

HomerJ wrote: Fri Oct 26, 2018 11:10 pm
nedsaid wrote: Fri Oct 26, 2018 10:35 pmMy portfolio construction is pretty messy, I pretty much buy what I like and justify it later. Pretty much, I am like a scratch cook. A little bit of this, a dash of that. Hmmm. Tastes good but I think it needs a bit of this other thing. So some folks here probably think I am an idiot but so be it.
For what it's worth, I think you are one of the best contributors here.... :)
My guess is that the Alts will probably please you sometimes and disappoint you other times. In theory, it should all work beautifully. In practice, I think there will be times you wondered why you let anyone talk you into this. But that is the way things work in the investment world.
This.

In theory, theory works. In practice, it sometimes (often?) doesn't.

The "efficient frontier" is a nice theory. There's a lot of faith being put into "expected returns". I hope it works for Dave in practice, because he's also one of the great contributors to this forum.
Homer, I have sort of a moderate temperament and can see both sides of issues. I have my opinions but am not so doctrinaire, I realize that I can be wrong. I am probably only right about anything around here every six months or so.

Your criticisms of expected returns are well known here. The reason that future expected returns are hard to predict is that we can pretty accurately predict the economic returns from stocks but we can't predict the speculative return. Speculative return has to do with P/E expansion or contraction and that is a measure of investor enthusiasm. Cycles of human greed and fear. We know that humans get fearful but we can't predict how fearful they will get. We know that humans get greedy but we don't know why greedy they will get. It is that speculative return that makes predicting market return so doggoned hard.

I also have a theory that earnings might be higher than what the accountants are capturing. The gap between market values of companies and their book values just keep growing and growing. Something is amiss here. Perhaps P/E expansion over time is making up for the shortcomings of the accountants. Maybe earnings just seem high by historical standards.

The only other thing we can do in predicting expected returns is to factor in a reversion to the mean. So if the market participants get too greedy, we can expect that reality will set in at some point. When the market gets too fearful, we can expect to see mark-ups in the price of stocks. Two problems or maybe three here. First, what mean is the market reverting to? You have noted the upward expansion of P/E ratios over time so the "mean" seems to be moving upwards as well. Secondly, how greedy is too greedy and how fearful is too fearful? Markets tend to overshoot both optimism and pessimism but we never know by how much. A third thing is that we may know for certain that the markets will revert but we don't know when.

So expected returns are inexact but they are what we have. We have to have some expectation of return or otherwise we would never invest.

As far as efficient frontiers, they are based upon past data. We all know that the future will be different than the past but we also know that history tends to rhyme though not repeat itself perfectly. So the past gives us a pretty good idea about the future but again it is all imperfect. Still imperfect is far better than nothing. No way to know the optimum mix of assets in the future but an educated guess at least will get us in the ballpark. Nothing exact here.

Nothing works all of the time. Right now, stocks are not working. My portfolio has taken a hit. But the thing is, historically stocks go up about 60% of the time. We just happen right now to be in that unfortunate 40% where stocks go down. But we know that historically that the stock market will always make new highs given enough time. Do we know for certain that stocks will always go up in the future. No we really don't. It is more faith that is built upon past experience, informed faith but faith nonetheless.

So I just realize that nothing is perfect. I am however content to work with imperfect tools.
A fool and his money are good for business.
User avatar
hiddenpower
Posts: 564
Joined: Tue Nov 17, 2020 11:24 pm

Re: Larry Swedroe: Alternative Approach To Alts

Post by hiddenpower »

Where can you actually buy QRPRX? I'm seeing a 50M minimum with my brokerage.
Post Reply