Swedroe Advocates: LENDX, SRRIX, AVRPX, QRPRX/QSPRX

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AndroAsc
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Swedroe Advocates: LENDX, SRRIX, AVRPX, QRPRX/QSPRX

Post by AndroAsc » Sat Sep 21, 2019 8:19 pm

Read Larry Swedroe's new book "Your Complete Guide to a Successful & Secure Retirement".

It's interesting that he advocates for a bunch of alternative investments:
- Alternative Lending (LENDX)
- Reinsurance (SRRIX)
- Variable Risk Premium (AVRPX)
- Alternative Risk Premium (QRPRX/QSPRX).

I've definitely seen all the AQR posts on Bogleheads, especially how it's flopping big time. AQR aside... not going down that rabbit hole...

LENDX, SRRIX, AVRPX gets less attention here. What do you guys think about the non-AQR alternatives? Is it accessible to DIY investors? They seem to be from Stone Ridge fund company that appears to favor institutional investors? :(

typical.investor
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Re: Swedroe Advocates: LENDX, SRRIX, AVRPX, QRPRX/QSPRX

Post by typical.investor » Sat Sep 21, 2019 8:29 pm

There’s been a flood of money into reinsurance putting pressure on premiums and high claims due to disasters.

Per industry reports, the question is if pricing will rebound.

SRRIX (Stone Ridge) is one company. Doesn’t Larry write that individual stocks increases your risk? Aren’t reinsurers in the index?

Anyway, read up on the reinsurance industry. Bears say it’s in permanent decline, bulls say new areas like the need for IP protection will open a new market.

I still say why chose one small company in this globally changing competitive landscape.

Just one opinion but:
The reinsurance industry as a whole is neither in terminal decline nor at the beginning of a new golden age. It is the action of individual reinsurance companies, and their efforts to understand, quantify and model digital risk that forms the basis of whether they will thrive or falter in this emerging digital age.
Anyway about peer lending, if rates go to zero or negative, I bet we are all in LENDX and taking the credit risk.
Last edited by typical.investor on Sat Sep 21, 2019 9:13 pm, edited 1 time in total.

Alchemist
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Re: Swedroe Advocates: LENDX, SRRIX, AVRPX, QRPRX/QSPRX

Post by Alchemist » Sat Sep 21, 2019 9:03 pm

AndroAsc wrote:
Sat Sep 21, 2019 8:19 pm
LENDX, SRRIX, AVRPX gets less attention here. What do you guys think about the non-AQR alternatives? Is it accessible to DIY investors? They seem to be from Stone Ridge fund company that appears to favor institutional investors? :(
In general I think 'alternative' investments like these are at best completely unnecessary. But given their over 200 bps expenses and huge complexity (not to mention dismal returns), my only conclusion is that these were designed simply to separate investors from their money.

Run, don't walk, away from this stuff.

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Re: Swedroe Advocates: LENDX, SRRIX, AVRPX, QRPRX/QSPRX

Post by nisiprius » Sat Sep 21, 2019 9:16 pm

Actually, few if any of the funds Larry Swedroe suggests are supposed to be used by do-it-yourself retail investors, although forum members have found loopholes. All of them--Dimensional, AQR, Stone Ridge--are "supposed" to be purchased through, and with consultation with, advisors. Some Dimensional funds are available directly in some 401(k) plans, and some forum members have been able to purchase AQR funds just by placing online orders at some brokerages although it is suspected that this was a bug, not a feature.

This is especially true for the Stone Ridge funds, which are not mutual funds, can't be purchased through any brokerages as far as I know, and probably can't be purchased directly from Stone Ridge unless you can meet "institutional" purchase minimums of millions of dollars. There is very little information on their website beyond what they are required to provide through regulation; your advisor is supposed to be your conduit to information. So far I haven't come across any website that displays a total return growth-of-$10,000 chart for the Stone Ridge funds, the charts you see are always price charts (which makes them look worse than they are).

I tried to get, simply, the average annualized return (CAGR) over the longest period for which I could find data. This is what I found.

1) QSPIX, 2.56% per year.. This is the AQR Style Premia Alternatives fund. Data from inception, 10/31/2013, according to Morningstar.

For Stone Ridge, I calculated these numbers from their most recent annual or semiannual report.

2) For LENDX, 6.95%/year. CAGR for three years 2/28/2016 through 2/28/2019.

3) For AVRPX, 2.67%/year. CAGR for 4-1/2 years 10/31/2014 through 4/30/2019.

4) For SRRIX, 0.25%/year. CAGR for CAGR for 4-1/2 years 10/31/2014 through 4/30/2019.
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Re: Swedroe Advocates: LENDX, SRRIX, AVRPX, QRPRX/QSPRX

Post by jh » Sat Sep 21, 2019 9:26 pm

AndroAsc wrote:
Sat Sep 21, 2019 8:19 pm
- Alternative Lending (LENDX)
- Reinsurance (SRRIX)
- Variable Risk Premium (AVRPX)
- Alternative Risk Premium (QRPRX/QSPRX).
Anyone know how a non-millionaire investor can get access to these or equivalents?

I have accounts with Vanguard and Schwab. At Vanguard I use the Managed Payout which gives me access to Vanguard's alternatives.

What do you all think about Business Development Companies, Master Limited Partnerships, Mortgage REITs, Preferred Stocks, Bank Loans, Convertible Securities as alternative assets? There are many ETFs for all of these, such as: BIZD, MLPA, REM, PFF, SRLN, CWB. You can also invest in Colatorized Loan Obligations using CEFs OXLC and ECC. There is also the crowdsourcing website https://www.yieldstreet.com/
Retirement = Pension (19+ years vested and counting) + 401k (global balanced fund 75/25 AA) | Taxable (financial independence?) = Vanguard High Div Yield ETF (VYM) (2020 dividend estimate = $17,500)

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Re: Swedroe Advocates: LENDX, SRRIX, AVRPX, QRPRX/QSPRX

Post by Blueskies123 » Sat Sep 21, 2019 9:45 pm

I would say you are late to the game. Billions have gone into this area thanks to funds like Softbank, endowments, sovereign funds, pension funds, and Swedroe got in years ago at the very beginning. Methinks it is another bubble at this very late date. Look at Softbank and Weworks.
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Re: Swedroe Advocates: LENDX, SRRIX, AVRPX, QRPRX/QSPRX

Post by nedsaid » Sat Sep 21, 2019 10:31 pm

Blueskies123 wrote:
Sat Sep 21, 2019 9:45 pm
I would say you are late to the game. Billions have gone into this area thanks to funds like Softbank, endowments, sovereign funds, pension funds, and Swedroe got in years ago at the very beginning. Methinks it is another bubble at this very late date. Look at Softbank and Weworks.
There are problems with the Alts, the biggest one is the "late to the party" problem. The research and the theory behind the Alt funds that Larry recommends is impeccable but somehow real life is different. Problem is that the hedge funds were all over the Alts before Larry recommended them. Billions of institutional money flowing into these types of investments can alter the markets and ultimately the performance of this investments. Larry, to his credit, has put substantial investment personally in the funds that he has recommended to others. Chef Larry is eating his own cooking.

In fairness, we are looking back 3-5 years and that isn't long enough to draw conclusions about much of anything. I will say that so far the Alts have disappointed but it is way too early to say that they have failed. Time will tell.
A fool and his money are good for business.

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Re: Swedroe Advocates: LENDX, SRRIX, AVRPX, QRPRX/QSPRX

Post by HomerJ » Sat Sep 21, 2019 10:56 pm

Alchemist wrote:
Sat Sep 21, 2019 9:03 pm
AndroAsc wrote:
Sat Sep 21, 2019 8:19 pm
LENDX, SRRIX, AVRPX gets less attention here. What do you guys think about the non-AQR alternatives? Is it accessible to DIY investors? They seem to be from Stone Ridge fund company that appears to favor institutional investors? :(
In general I think 'alternative' investments like these are at best completely unnecessary. But given their over 200 bps expenses and huge complexity (not to mention dismal returns), my only conclusion is that these were designed simply to separate investors from their money.
Cliff Asness and two of his partners all made the Forbes billionaires list the same year. Cliff appeared on there worth $3 billion.

Maybe he slipped under the radar for a few years, but it appears AQR fees made him very wealthy very fast.

His clients... not as much.

The book from 1940 still seems relevant:

"Where are the Customers' Yachts? Or, A Good Hard Look at Wall Street"
A Goldman Sachs associate provided a variety of detailed explanations, but then offered a caveat, “If I’m being dead-### honest, though, nobody knows what’s really going on.”

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Re: Swedroe Advocates: LENDX, SRRIX, AVRPX, QRPRX/QSPRX

Post by nedsaid » Sat Sep 21, 2019 11:04 pm

HomerJ wrote:
Sat Sep 21, 2019 10:56 pm
Alchemist wrote:
Sat Sep 21, 2019 9:03 pm
AndroAsc wrote:
Sat Sep 21, 2019 8:19 pm
LENDX, SRRIX, AVRPX gets less attention here. What do you guys think about the non-AQR alternatives? Is it accessible to DIY investors? They seem to be from Stone Ridge fund company that appears to favor institutional investors? :(
In general I think 'alternative' investments like these are at best completely unnecessary. But given their over 200 bps expenses and huge complexity (not to mention dismal returns), my only conclusion is that these were designed simply to separate investors from their money.
Cliff Asness and two of his partners all made the Forbes billionaires list the same year. Cliff appeared on there worth $3 billion.

Maybe he slipped under the radar for a few years, but it appears AQR fees made him very wealthy very fast.

His clients... not as much.

The book from 1940 still seems relevant:

"Where are the Customers' Yachts? Or, A Good Hard Look at Wall Street"
A lot of the big fortunes around the world were made through distribution. Think of the folks that got rich from retail, folks like J.C. Penney, F.W. Woolworth, Sam Walton, and now Jeff Bezos. They got consumer goods into the hands of ordinary people at reasonable prices and got rich in the process. Just because Cliff Asness had success in distributing mutual funds to the public and got rich in the process does not make him a bad guy. Cliff made hedge fund like investments available to retail investors, we can debate the effectiveness of his funds but the act of distributing investment products is ultimately beneficial to the small investor. Charles Schwab made a ton of money through his discount brokerage and that was a boon to the small investor. Heck, Jack Bogle could have made a lot more money from what he did but chose not to. There is always big money in distribution.

Ultimately, envy can sink an economy. I use Microsoft products gratefully because they have greatly increased my productivity on the job and also ease personal tasks. Lots of millionaires came out of Microsoft and at least two billionaires. I could care less if Bill Gates and Paul Allen had their yachts as long as their software worked well. If someone makes terrific investment products that I can utilize, why should I care how rich they get off of it, particularly when big savings are achieved for me. They help me get rich and if they get even richer in the process, that is a trade I am willing to take.
A fool and his money are good for business.

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Re: Swedroe Advocates: LENDX, SRRIX, AVRPX, QRPRX/QSPRX

Post by Alchemist » Sat Sep 21, 2019 11:15 pm

nedsaid wrote:
Sat Sep 21, 2019 11:04 pm
A lot of the big fortunes around the world were made through distribution. Think of the folks that got rich from retail, folks like J.C. Penney, F.W. Woolworth, Sam Walton, and now Jeff Bezos. They got consumer goods into the hands of ordinary people at reasonable prices and got rich in the process. Just because Cliff Asness had success in distributing mutual funds to the public and got rich in the process does not make him a bad guy. Cliff made hedge fund like investments available to retail investors, we can debate the effectiveness of his funds but the act of distributing investment products is ultimately beneficial to the small investor. Charles Schwab made a ton of money through his discount brokerage and that was a boon to the small investor. Heck, Jack Bogle could have made a lot more money from what he did but chose not to. There is always big money in distribution.
I don't think Homer's point was to denigrate success or gaining wealth. After all, that is why we are all here and investing in stocks to begin with. To grow our wealth. However, an investment professional who sky rockets into the billionaire class selling complex investment vehicles that are supposed to beat the market while his clients lose out to S&P 500 index funds......is not a good look.

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HomerJ
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Re: Swedroe Advocates: LENDX, SRRIX, AVRPX, QRPRX/QSPRX

Post by HomerJ » Sun Sep 22, 2019 12:40 am

nedsaid wrote:
Sat Sep 21, 2019 11:04 pm
A lot of the big fortunes around the world were made through distribution. Think of the folks that got rich from retail, folks like J.C. Penney, F.W. Woolworth, Sam Walton, and now Jeff Bezos.
Sam Walton didn't promise to make his customers money when they bought his products. :)
I use Microsoft products gratefully because they have greatly increased my productivity on the job and also ease personal tasks. Lots of millionaires came out of Microsoft and at least two billionaires. I could care less if Bill Gates and Paul Allen had their yachts as long as their software worked well.
I agree. And, in general, their software works well. I have no problem giving them or Apple or anyone else money for products that work.
If someone makes terrific investment products that I can utilize, why should I care how rich they get off of it, particularly when big savings are achieved for me. They help me get rich and if they get even richer in the process, that is a trade I am willing to take.
I agree... But that's what the book was pointing out in 1940, and what Bogle pointed out years later.

Their products AREN'T making people richer. They AREN'T terrific. (So far).

Just like the active funds of yesteryear. Large fees, no benefits.
A Goldman Sachs associate provided a variety of detailed explanations, but then offered a caveat, “If I’m being dead-### honest, though, nobody knows what’s really going on.”

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nedsaid
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Re: Swedroe Advocates: LENDX, SRRIX, AVRPX, QRPRX/QSPRX

Post by nedsaid » Sun Sep 22, 2019 1:22 am

HomerJ wrote:
Sun Sep 22, 2019 12:40 am
nedsaid wrote:
Sat Sep 21, 2019 11:04 pm
A lot of the big fortunes around the world were made through distribution. Think of the folks that got rich from retail, folks like J.C. Penney, F.W. Woolworth, Sam Walton, and now Jeff Bezos.
Sam Walton didn't promise to make his customers money when they bought his products. :)
I use Microsoft products gratefully because they have greatly increased my productivity on the job and also ease personal tasks. Lots of millionaires came out of Microsoft and at least two billionaires. I could care less if Bill Gates and Paul Allen had their yachts as long as their software worked well.
I agree. And, in general, their software works well. I have no problem giving them or Apple or anyone else money for products that work.
If someone makes terrific investment products that I can utilize, why should I care how rich they get off of it, particularly when big savings are achieved for me. They help me get rich and if they get even richer in the process, that is a trade I am willing to take.
I agree... But that's what the book was pointing out in 1940, and what Bogle pointed out years later.

Their products AREN'T making people richer. They AREN'T terrific. (So far).

Just like the active funds of yesteryear. Large fees, no benefits.
I directly or indirectly benefited from financial innovations that made their inventors rich: the discount brokerage, the no-load mutual fund, ETFs, etc. Just making a point that something isn't a rip-off just because it makes someone rich. Charles Schwab got rich from his discount brokerage but it is pretty hard to argue that individual investors did not benefit from him and others that got rich from starting discount brokers. Also remember Muriel Siebert, who was one of the first. I don't own any AQR funds or any Stone Ridge funds, so I don't have a stake in the argument over these funds. In any case, after poking gentle fun at Mr. Asness, I don't think I will be getting any job offers from him.
A fool and his money are good for business.

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Re: Swedroe Advocates: LENDX, SRRIX, AVRPX, QRPRX/QSPRX

Post by Elysium » Sun Sep 22, 2019 6:23 am

AndroAsc wrote:
Sat Sep 21, 2019 8:19 pm
LENDX, SRRIX, AVRPX gets less attention here. What do you guys think about the non-AQR alternatives? Is it accessible to DIY investors? They seem to be from Stone Ridge fund company that appears to favor institutional investors? :(
I used to like Larry when he was still on board with low costs index/passive investments much along the lines of Jack Bogle other than just a Value tilt and added Intl exposure. These were good ideas worth discussing even when you disagreed with some of them. But then he went down the rabbit hole in search of exotic alternative hedge fund type of investments, possibly pressure of being in a role that requires him to be responsible for strategies that bring in more revenue to the advisory firm. First, he started with CCF, where he was the most vocal proponent of PCRIX here for many years, that bombed big time and the discussion totally died. He was so sure you'll get double returns from Commodities and TIPS (T-Bills later). Then the AQR and Alternative investments saga has lost total credibility in my view. Anyhow, let's keep his judgmental errors aside, and focus on merits.

I don't see the merits, it has been discussed here before. AQR has been discussed, several pages of it, others have also been discussed. First, they are not liquid, you cannot get your money when you want, and liquidity could dry up even more when you need it the most. Second, the fees are too high, any returns you get will get diluted away. Third, these are highly competitive fields where professional hedge fund managers and experts in the fields are looking to make any extra returns possible. They will not give away nice and juicy returns to retail investors (even those who come through RIA).

Bottomline, expect high fees, low returns, liquidity problems, disappointment.

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Re: Swedroe Advocates: LENDX, SRRIX, AVRPX, QRPRX/QSPRX

Post by typical.investor » Sun Sep 22, 2019 6:34 am

Elysium wrote:
Sun Sep 22, 2019 6:23 am
But then he went down the rabbit hole in search of exotic alternative hedge fund type of investments, possibly pressure of being in a role that requires him to be responsible for strategies that bring in more revenue to the advisory firm. First, he started with CCF, where he was the most vocal proponent of PCRIX here for many years, that bombed big time and the discussion totally died. He was so sure you'll get double returns from Commodities and TIPS (T-Bills later). Then the AQR and Alternative investments saga has lost total credibility in my view. Anyhow, let's keep his judgmental errors aside, and focus on merits.
It's the industry actually.

Listen to Heather Shemilt explain how she promoted commodities to institutional investors who didn't need them (her words). She used the diversification angle.

Then, after the crisis, sovereign funds researched their active performance and asked for products that would systematically and cheaply produce type of exposure they were getting from their active management. What they came up with was risk-premia funds. Again, she says she used the same strategy to promote a product nobody thinks they need -diversification.

Larry is just following the industry.

https://www.goldmansachs.com/insights/p ... leake.html
Elysium wrote:
Sun Sep 22, 2019 6:23 am
I don't see the merits, it has been discussed here before. AQR has been discussed, several pages of it, others have also been discussed. First, they are not liquid, you cannot get your money when you want, and liquidity could dry up even more when you need it the most. Second, the fees are too high, any returns you get will get diluted away.
I am receptive to the iCEF structure, but then again hold CEFs and so probably readily see their advantage. Fees are another thing but maybe worth it.
Elysium wrote:
Sun Sep 22, 2019 6:23 am
Third, these are highly competitive fields where professional hedge fund managers and experts in the fields are looking to make any extra returns possible. They will not give away nice and juicy returns to retail investors (even those who come through RIA).

Bottomline, expect high fees, low returns, liquidity problems, disappointment.
This to me is the big problem. I am not sure if Stone Ridge can swim with the big fish.

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Re: Swedroe Advocates: LENDX, SRRIX, AVRPX, QRPRX/QSPRX

Post by Forester » Sun Sep 22, 2019 7:34 am

I would use any of the Pacer TrendPilot products before the AQR funds. Simple, rules-based, cheaper.

https://www.paceretfs.com/products/trendpilot

Some of that exotic stuff is a zero-sum game, the backtest will appear great but look at what CTAs have achieved since the GFC; https://portal.barclayhedge.com/cgi-bin ... -CTA-Index

How many investors would actually understand these strategies enough, to judge whether they're worth persevering with after five or ten years of disappointment?

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Re: Swedroe Advocates: LENDX, SRRIX, AVRPX, QRPRX/QSPRX

Post by columbia » Sun Sep 22, 2019 7:39 am

nisiprius wrote:
Sat Sep 21, 2019 9:16 pm
Actually, few if any of the funds Larry Swedroe suggests are supposed to be used by do-it-yourself retail investors, although forum members have found loopholes. All of them--Dimensional, AQR, Stone Ridge--are "supposed" to be purchased through, and with consultation with, advisors. Some Dimensional funds are available directly in some 401(k) plans, and some forum members have been able to purchase AQR funds just by placing online orders at some brokerages although it is suspected that this was a bug, not a feature.

This is especially true for the Stone Ridge funds, which are not mutual funds, can't be purchased through any brokerages as far as I know, and probably can't be purchased directly from Stone Ridge unless you can meet "institutional" purchase minimums of millions of dollars. There is very little information on their website beyond what they are required to provide through regulation; your advisor is supposed to be your conduit to information. So far I haven't come across any website that displays a total return growth-of-$10,000 chart for the Stone Ridge funds, the charts you see are always price charts (which makes them look worse than they are).

I tried to get, simply, the average annualized return (CAGR) over the longest period for which I could find data. This is what I found.

1) QSPIX, 2.56% per year.. This is the AQR Style Premia Alternatives fund. Data from inception, 10/31/2013, according to Morningstar.

For Stone Ridge, I calculated these numbers from their most recent annual or semiannual report.

2) For LENDX, 6.95%/year. CAGR for three years 2/28/2016 through 2/28/2019.

3) For AVRPX, 2.67%/year. CAGR for 4-1/2 years 10/31/2014 through 4/30/2019.

4) For SRRIX, 0.25%/year. CAGR for CAGR for 4-1/2 years 10/31/2014 through 4/30/2019.
I enjoy reading about these products from a purely educational standpoint; they’re clearly not for me, for a number of reasons. However, what percentage of Bogleheads would have both the means and opportunity to utilize them?
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Re: Swedroe Advocates: LENDX, SRRIX, AVRPX, QRPRX/QSPRX

Post by Taylor Larimore » Sun Sep 22, 2019 8:53 am

Bogleheads:

In his free booklet, "IF YOU CAN", former neurologist, author, and advisor to millionaires, Dr.Bill Bernstein has a chapter titled: The Financial Services Industry Wants To Make You Poor and Stupid. This is the chapter's last sentence:

Act as if every broker, insurance salesman, mutual fund salesperson, and financial advisor you encounter is a hardened criminal, and stick to low-cost index funds, and you'll do just fine.

Best wishes
Taylor
Jack Bogle's Words of Wisdom: “We have a mutual fund industry that has become a giant marketing system [where] the idea is to bring in the most money by fair means or foul.”
"Simplicity is the master key to financial success." -- Jack Bogle

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Re: Swedroe Advocates: LENDX, SRRIX, AVRPX, QRPRX/QSPRX

Post by stlutz » Sun Sep 22, 2019 10:09 am

OP: You may want to search for other threads on the Stone Ridge funds as they have been discussed in quite a bit of detail in the past.

It's probably worth keeping in mind the context in which Swedroe makes these recommendations. Real interest rates are right around zero. He forsees muted US equity returns (he is more optimistic about non-US). Thus, investors who are seeking return on capital should look for further alternatives to achieve positive return. If stocks were trading at 10x earnings and bonds had real yields of 2 or 3%, why go elsewhere?

How much return these funds offer and how much risk is embedded has been a subject of debate here. I've been concerned about the disconnect between the amount of risk laid out in the fund prospectuses vs. what Swedroe and others who invest in these funds say the risks are. Are they closer to being stocks or closer to being CDs? What returns one should expect has also been a subject of much debate. Obviously on this board we tend to be very skeptical of claims about the perfect combination of equity-like returns, bond-like volatility, and returns not correlated to the stock market.

Alternatives can be used as an alternative to fixed income or equities or some of both. But the actual practice I've seen from those actually using them is that they are used as alternatives to fixed income in real life. And thus far, it would seem that the returns and volatility have basically been along the lines of investing in shorter-term corporate bonds.

These funds aren't open to investment by me, so I'm interested in following them but haven't given any serious thought about whether or not to invest.

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Re: Swedroe Advocates: LENDX, SRRIX, AVRPX, QRPRX/QSPRX

Post by HomerJ » Sun Sep 22, 2019 10:21 am

nedsaid wrote:
Sun Sep 22, 2019 1:22 am
I directly or indirectly benefited from financial innovations that made their inventors rich: the discount brokerage, the no-load mutual fund, ETFs, etc. Just making a point that something isn't a rip-off just because it makes someone rich.
You are absolutely correct. :sharebeer
A Goldman Sachs associate provided a variety of detailed explanations, but then offered a caveat, “If I’m being dead-### honest, though, nobody knows what’s really going on.”

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Re: Swedroe Advocates: LENDX, SRRIX, AVRPX, QRPRX/QSPRX

Post by Random Walker » Sun Sep 22, 2019 11:12 am

There are rational reasons to expect these funds to do better in the future.

LENDX involves direct participation in consumer loans, small business loans, student loans. This fund has performed pretty well but there may be room for improvement. As a big provider of money to the various lending platforms, Stone Ridge can negotiate better terms with loan providers who are not performing as expected.

SRRIX involves direct participation in reinsurance. After years where the fund takes a bad hit such as recent hurricanes or wild fires, reinsurance contracts are renewed at increased rates. I believe this is referred to as hardening in the industry.

AVRPX is an investment in volatility insurance. Consumers of goods want to hedge against price increases and producers want to hedge against price decreases. On average realized volatility is less than implied volatility because market participants are willing to pay a premium for the price protection. At times when volatility spikes and the fund loses money, the options prices adjust for the expected increased volatility and investors are paying more for the price protection. The best predictor of volatility in the next period is volatility in the prior period. The options prices harden in much the same way as premium rates harden in the reinsurance market.

Dave

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Re: Swedroe Advocates: LENDX, SRRIX, AVRPX, QRPRX/QSPRX

Post by Day9 » Sun Sep 22, 2019 12:01 pm

I wonder if the critics in this thread agree or not with the abstract premise of diversifying by adding more unique sources of risk & return to a stock & bond portfolio.

I feel like this discussion would be more fruitful if we can agree on some underlying assumptions so we can pinpoint exactly where we disagree. It reminds me of David Swensen who diversified the Yale endowment and had a big success with timber. Now the average investor cannot buy forests of timberland but they can buy these funds. I bet the attitude of many detractors would be different if Swedroe's alts had high recent results like Swensen did with timber at the time. Like many debates (value, international), it comes down to the last couple years have been great for US Mega Cap Growth/Tech and many posters here extrapolate that to the infinite future.
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Re: Swedroe Advocates: LENDX, SRRIX, AVRPX, QRPRX/QSPRX

Post by Elysium » Sun Sep 22, 2019 12:55 pm

Day9 wrote:
Sun Sep 22, 2019 12:01 pm
I wonder if the critics in this thread agree or not with the abstract premise of diversifying by adding more unique sources of risk & return to a stock & bond portfolio.

I feel like this discussion would be more fruitful if we can agree on some underlying assumptions so we can pinpoint exactly where we disagree. It reminds me of David Swensen who diversified the Yale endowment and had a big success with timber. Now the average investor cannot buy forests of timberland but they can buy these funds. I bet the attitude of many detractors would be different if Swedroe's alts had high recent results like Swensen did with timber at the time. Like many debates (value, international), it comes down to the last couple years have been great for US Mega Cap Growth/Tech and many posters here extrapolate that to the infinite future.
Not correct. People disagree with these ideas because they understand how capital markets function. There is no free lunch in capital markets. The quest for investments that are not stocks or bonds is one that the financial industry has spent billions on and ongoing as far the industry existed. The reason why no one is able to find anything that can provide the same returns as common stocks or high quality bonds for the comparable risk is because they do not exist. The few that does have high barriers of entry that a few big money players have significant advantage over everyone else. What is remaining is sold down to retail investors, even those who have a few millions to invest fall in this group.

Understanding capital markets also require one to know that capital is not to be given away frivolously to all kinds of investment opportunities. They need to be carefully evaluated and consider their risk/returns in relation to your goals. After all that, most people would come down to realize that given no systemic advantages we are better served by low cost mutual funds investing on broad market indexes.

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Re: Swedroe Advocates: LENDX, SRRIX, AVRPX, QRPRX/QSPRX

Post by Elysium » Sun Sep 22, 2019 1:07 pm

typical.investor wrote:
Sat Sep 21, 2019 8:29 pm
Anyway about peer lending, if rates go to zero or negative, I bet we are all in LENDX and taking the credit risk.
Not necessary, right? If rates go to zero or negative (it has already overseas), then that is the premium (or lack of) that the market has determined is appropriate for keeping your money safe. You are in fact paying the issuers for the safety of your money. That also means you take risk elsewhere like in stocks, or real estate (if you know that market well), hopefully your risky money will still earn a positive premium that offsets the zero or negative premium from your safe money. Taking on LENDX at that time is only risking safety of your investment (which the market has decided is not worth). This is very similar to renting a bank locker to keep physical gold or other precious metals/stones that you cannot keep at home for risk of losing. You end up paying the bank a fees for the safety, similarly zero or negative rates are a premium you pay the issuer for protecting your principal. Just different mental accounting here.

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Re: Swedroe Advocates: LENDX, SRRIX, AVRPX, QRPRX/QSPRX

Post by Northern Flicker » Sun Sep 22, 2019 1:56 pm

SRRIX (Stone Ridge) is one company. Doesn’t Larry write that individual stocks increases your risk? Aren’t reinsurers in the index?
While I’m not a big fan of Stone Ridge products, they are an asset management company not a reinsurer. SRRIX is an interval fund, which is like a mutual fund, but does not offer daily liquidity, so cannot be an actual mutual fund. It is not a member of a stock index. Stone Ridge, the company that offers SRRIX as a product, may be a member of some stock indices. Stone Ridge is also the provider of LENDX.
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Re: Swedroe Advocates: LENDX, SRRIX, AVRPX, QRPRX/QSPRX

Post by bluquark » Sun Sep 22, 2019 2:16 pm

Day9 wrote:
Sun Sep 22, 2019 12:01 pm
I wonder if the critics in this thread agree or not with the abstract premise of diversifying by adding more unique sources of risk & return to a stock & bond portfolio.
I'd definitely agree with the basic idea. The thing is, most unique sources of risk & return can feasibly be structured as either a "stock" or a "bond". These are two very versatile and efficient financial structures.

My question is do you actually get exposure to other distinct sources of risk by using a more unconventional financial structure? Or do you simply get one of the same ones in a less efficient package? After all, these "alts" aren't on planet Mars but are participating in the same real US economy as the stocks and bonds.

Personally, in my quest for "alts" I have opted for a moderate holding of local currency EM bonds. They are efficient and simple instruments, and Latin American governments seem like the closest thing to "planet Mars".
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Re: Swedroe Advocates: LENDX, SRRIX, AVRPX, QRPRX/QSPRX

Post by Alchemist » Sun Sep 22, 2019 2:27 pm

Day9 wrote:
Sun Sep 22, 2019 12:01 pm
I wonder if the critics in this thread agree or not with the abstract premise of diversifying by adding more unique sources of risk & return to a stock & bond portfolio.
Low cost stock and bond index funds provide excellent diversification on their own. In order for something additional to be added there needs to be a compelling advantage to it. Direct real estate investing is probably the best diversifier in regards to risk/return but it comes with an order of magnitude higher level of effort and cost to implement. So it is worth it if someone is willing to put in the work required to make it work. There is no free lunch.

The alternatives mentioned by the OP are high risk and high cost. They are also immensely complex and opaque. There is not a compelling case or track record for them like there is for direct real estate investing. Thus we should be highly skeptical of them at the outset. It does not mean they are automatically disregarded, but rather that their extraordinary claims require extraordinary evidence.
I bet the attitude of many detractors would be different if Swedroe's alts had high recent results like Swensen did with timber at the time. Like many debates (value, international), it comes down to the last couple years have been great for US Mega Cap Growth/Tech and many posters here extrapolate that to the infinite future.
When Swedroe first recommended these funds it was in order to achieve "equity like returns with bond like risk". Instead we have seen the opposite with bond-like (and worse...) returns with stock-like risk and volatility. In other words, they have simply failed to achieve what they were sold to do. If I bought a car that was supposed to get Porsche like performance with Prius economy, and instead it got 8 second 0-60 time's with 12 MPG I would consider that car to be a failure. Why would these funds be given some special pass at failure?

To be clear, I fully believe Swedroe is sincere in his recommendations. I just think that it is easy for investment professionals to fall for the complexity trap. They are researching this stuff constantly and it must be pretty boring to just repeat the index fund mantra all the time for people who are 100% focused on the investment world. It is like asking a computer engineer for advice on computer purchasing and getting recommendations for building a custom built rig running Linux with 17 VMs when all you need is a simple PC or even an iPad.

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Re: Swedroe Advocates: LENDX, SRRIX, AVRPX, QRPRX/QSPRX

Post by skeptical » Sun Sep 22, 2019 2:47 pm

Day9 wrote:
Sun Sep 22, 2019 12:01 pm
I wonder if the critics in this thread agree or not with the abstract premise of diversifying by adding more unique sources of risk & return to a stock & bond portfolio.

I feel like this discussion would be more fruitful if we can agree on some underlying assumptions so we can pinpoint exactly where we disagree. It reminds me of David Swensen who diversified the Yale endowment and had a big success with timber. Now the average investor cannot buy forests of timberland but they can buy these funds. I bet the attitude of many detractors would be different if Swedroe's alts had high recent results like Swensen did with timber at the time. Like many debates (value, international), it comes down to the last couple years have been great for US Mega Cap Growth/Tech and many posters here extrapolate that to the infinite future.
I absolutely would invest in something that would provide a unique, and positive, source of risk and return to my simple portfolio. However, to say that these funds provide that is pure speculation.

There is actually good reason to believe that these funds are not independent sources of risk/return, let alone ones that provide stock like returns with bond like variance/risk. It is unlikely that four independent sources of risk/return would all significantly fail to meet these expectations over a 4-5 year period, especially in a strong market. I would think that at least one would show promise. It is certainly possible that more time is needed to see the risk/return profiles play out, and I am curious to see how these funds perform during the next market correction.

I also do not understand how SRRIX and LENDX can be considered independent sources of return. There are other companies that are in these type of businesses, and they are already represented in the total market. I would consider these funds esoteric tilts toward specific market segments. The other two funds are financial engineering approaches to investments. Most of these type of funds are born in the aftermath of a market correction, and die in the subsequent correction.

Yes, I am Skeptical.

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Re: Swedroe Advocates: LENDX, SRRIX, AVRPX, QRPRX/QSPRX

Post by heyyou » Sun Sep 22, 2019 4:37 pm

Relevant, but not on topic, aimed at no one in particular:
Have you looked in the mirror to ask why you are interested in trying to get higher returns elsewhere, than are currently available in the stock and bond markets? As usual, saving more and/or spending less are still good methods of protecting your portfolio's future.

As mentioned elsewhere, the markets will fluctuate and we have to stay the course for long periods, taking all of the risk to hopefully, eventually get a reward.

As a previous owner of PCRIX, I'm now skeptical of sparkly new products that dangle the promise of more return in the current, new environment. Perhaps some of the risks may not become obvious until later. For PCRIX, it was very low interest rates that doomed a product designed to buffer the variations in a high rate environment. No one buying PCRIX had imagined a future, quite like what did develop.

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Re: Swedroe Advocates: LENDX, SRRIX, AVRPX, QRPRX/QSPRX

Post by nisiprius » Sun Sep 22, 2019 4:40 pm

AndroAsc wrote:
Sat Sep 21, 2019 8:19 pm
Anyone know how a non-millionaire investor can get access to these or equivalents?
Through an advisor.
jh wrote:
Sat Sep 21, 2019 9:26 pm
However, what percentage of Bogleheads would have both the means and opportunity to utilize them?
Whatever percentage of Bogleheads is able to meet a $500,000 minimum investment. There's at least one big advisory service offering all of these funds for a $500,000 minimum and a $5,000/year minimum fee. There are probably many others.

I don't mean to intimidate those who have portfolios under $500,000, I'm a humble "mass affluent" investor myself. But the portfolio size needed to use an advisor who offers these funds has only one comma in it, and it is less than the portfolio size needed to have Flagship status at Vanguard.

It is worth paying an advisory fee? Shrug. Add up the extra return you realistically expect the advisor can make for you through better portfolios, plus the value to you of the other services the advisor provides, and compare it to the fee.

I think it's reasonable to say that all of these funds are "supposed" to be used through advisors and that the fund providers don't want small investors using them without guidance. Stone Ridge, for example, says:
Stone Ridge Funds are generally 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; (ii) clients of such institutional investors; and (iii) certain other eligible investors.
Certainly, some Bogleheads have reported finding clever ways to buy some of these funds without an advisor. Similarly, it certainly looks like I can buy five pounds of liquid mercury for $843 from Fisher Scientific without producing proof of age or any evidence that I can handle it safely.
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Re: Swedroe Advocates: LENDX, SRRIX, AVRPX, QRPRX/QSPRX

Post by typical.investor » Sun Sep 22, 2019 5:06 pm

Northern Flicker wrote:
Sun Sep 22, 2019 1:56 pm
SRRIX (Stone Ridge) is one company. Doesn’t Larry write that individual stocks increases your risk? Aren’t reinsurers in the index?
While I’m not a big fan of Stone Ridge products, they are an asset management company not a reinsurer. SRRIX is an interval fund, which is like a mutual fund, but does not offer daily liquidity, so cannot be an actual mutual fund. It is not a member of a stock index. Stone Ridge, the company that offers SRRIX as a product, may be a member of some stock indices. Stone Ridge is also the provider of LENDX.
SRRIX is still a business though isn’t it?

You aren’t holding shares of reinsurers in SRRIX are you?

Stone Ridge has negotiated deals with other (reinsurance) businesses to share their profit and loss in exchange for capital.

Are those deal a traded commodity that Stone Ridge is accessing the way a CEF or mutual fund holds a security? No.

How do you know is getting a good deal? There is a business risk.

From what I can tell, Stone Ridge returns have been lower than the industry (per S&P reinsurance report), but their losses are on par with the industry (per Stone Ridge docs).

So are they getting less return for the same risk due to the deals they have in place or what?
nisiprius wrote:
Sat Sep 21, 2019 9:16 pm
I tried to get, simply, the average annualized return (CAGR) over the longest period for which I could find data. This is what I found.

4) For SRRIX, 0.25%/year. CAGR for CAGR for 4-1/2 years 10/31/2014 through 4/30/2019.
Why is it so awful?

Morningstar has the reinsurance category at 10.56% for 5 year returns.
---------------------------------------------------------------------------
Reinsurance Group of America Inc RGA 15.10%
Everest Re Group Ltd RE 12.08%
RenaissanceRe Holdings Ltd RNR 14.24%
Maiden Holdings Ltd MHLD -24.15%

I conclude that SRRIX isn't really tracking the market, and that possibly they have a tie up with Maiden Holdings Ltd MHLD or companies like it. What else would explain their results.

RGA, RE, RNR, and MHLD are all held in Vanguard Total Market.

RGA, RE, RNR are held in higher proportion in Vanguard Midcap Value (which I own).

Why is paying an advisor 1% to access SRRIX a better option? (From an investor's standpoint, not the advisors)

Other reinsurance companies such as Blue Capital Reinsurance Holdings Ltd BCRH and Third Point Reinsurance Ltd
TPRE are found more heavily in DFA small cap value.

Why do we need a higher concentration of reinsurance in our portfolios? Is this going to be a case like REITs and commodities where Larry turns around and says based on market changes, I don't recommend them anymore?

SRRIX says they are capturing the beta of the market. If an index fund by Vanguard, Schwab, Fidelity, iShares or anyone else returned 0.25% over five years and the market returned around 10%, that fund would be nuked in our minds.

Is Morningstar's reinsurance category returns flawed? Perhaps so. But I believe reinsurance industry reports indicate 5 year returns at least 20X that of SRRIX (and that may have included foreign companies which could explain the lower returns for the industry compared to M*'s).

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Re: Swedroe Advocates: LENDX, SRRIX, AVRPX, QRPRX/QSPRX

Post by Taylor Larimore » Sun Sep 22, 2019 7:02 pm

AndroAsc wrote:
Sat Sep 21, 2019 8:19 pm
Read Larry Swedroe's new book "Your Complete Guide to a Successful & Secure Retirement".

It's interesting that he advocates for a bunch of alternative investments:
- Alternative Lending (LENDX)
- Reinsurance (SRRIX)
- Variable Risk Premium (AVRPX)
- Alternative Risk Premium (QRPRX/QSPRX).

I've definitely seen all the AQR posts on Bogleheads, especially how it's flopping big time. AQR aside... not going down that rabbit hole...

LENDX, SRRIX, AVRPX gets less attention here. What do you guys think about the non-AQR alternatives? Is it accessible to DIY investors? They seem to be from Stone Ridge fund company that appears to favor institutional investors? :(
AndroAsc:

Mr. Swedroe works for the advisory industry. It appears that he has changed his mind about advocating 100% in small-cap value stocks.

Whatever Happened To The Larry Portfolio?

Best wishes
Taylor
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Re: Swedroe Advocates: LENDX, SRRIX, AVRPX, QRPRX/QSPRX

Post by Random Walker » Sun Sep 22, 2019 10:04 pm

Taylor Larimore wrote:
Sun Sep 22, 2019 7:02 pm

Mr. Swedroe works for the advisory industry. It appears that he has changed his mind about advocating 100% in small-cap value stocks.

Whatever Happened To The Larry Portfolio?

Best wishes
Taylor
I disagree with this statement. Larry has consistently advocated diversification. He views SV more diversified than TSM because he looks at equity diversification as diversification across factors rather than only number of stocks. His thoughts on tilting the equities to SV in a big way and decreasing overall equity allocation have not changed. His recommendation of the alternatives is consistent with his focus on improved portfolio efficiency through diversification across unique independent sources of risk and return. The alternatives have only become publicly available (though the strategies have long histories of being run internally by financial institutions) in the last several years, so it makes sense to adapt. Track records are short and as stated in another thread, we can’t confuse strategy and outcome. One certainly can criticize the strategy based on non Bogleheadish costs, but it is unfair to say Larry has changed his mind. I believe Larry’s focus is on modern portfolio theory and portfolio efficiency. Any changes in his recommendations over time simply reflect consistent focus on improved portfolio efficiency.

Dave

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Re: Swedroe Advocates: LENDX, SRRIX, AVRPX, QRPRX/QSPRX

Post by Elysium » Sun Sep 22, 2019 10:23 pm

Random Walker wrote:
Sun Sep 22, 2019 10:04 pm
Taylor Larimore wrote:
Sun Sep 22, 2019 7:02 pm

Mr. Swedroe works for the advisory industry. It appears that he has changed his mind about advocating 100% in small-cap value stocks.

Whatever Happened To The Larry Portfolio?

Best wishes
Taylor
I disagree with this statement. Larry has consistently advocated diversification. He views SV more diversified than TSM because he looks at equity diversification as diversification across factors rather than only number of stocks. His thoughts on tilting the equities to SV in a big way and decreasing overall equity allocation have not changed. His recommendation of the alternatives is consistent with his focus on improved portfolio efficiency through diversification across unique independent sources of risk and return. The alternatives have only become publicly available (though the strategies have long histories of being run internally by financial institutions) in the last several years, so it makes sense to adapt. Track records are short and as stated in another thread, we can’t confuse strategy and outcome. One certainly can criticize the strategy based on non Bogleheadish costs, but it is unfair to say Larry has changed his mind. I believe Larry’s focus is on modern portfolio theory and portfolio efficiency. Any changes in his recommendations over time simply reflect consistent focus on improved portfolio efficiency.

Dave
RW, Totally not true. Perhaps you are not aware of his debates with Jeff Troutner, another FA focused on DFA funds back in the days (still active, a simple search will find him), on the inclusion of REITs at the expense of SV. Larry was not always 100% SV for tilt, he was for everything including LV, SV, LC, SC, and RE. Perhaps you were aware of this but somehow do not recollect?

Anyhow, they had debates on REIT vs SV going on for pages and pages, where Troutner argued SV is all you need and when Larry included RE at the expense of SV he was unnecessarily decreasing expected returns while not increasing efficiency. As usual, Larry has to be always right, so kept arguing that RE brought unique diversification that SV did not, even at the expense of reduced allocation to SV. It seems he has changed his mind since then on RE vs SV, and never offered an apology for being wrong in the first place.

One cannot revise history when one has a long record of switching positions as he did. Let's not even get started on CCFs.

I do not wish to discuss about Larry personally, but since you chose to defend him as always being consistent, I had to correct that misstatement.
Last edited by Elysium on Sun Sep 22, 2019 10:42 pm, edited 1 time in total.

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Re: Swedroe Advocates: LENDX, SRRIX, AVRPX, QRPRX/QSPRX

Post by Alchemist » Sun Sep 22, 2019 10:42 pm

Just for context, performance of a 25/75 LP vs a simple 60/40 TSM/TBM for as long as we have live data (March 1993, inception of DFSVX DFA's small cap value fund) the results are:

Larry Portfolio: 5.76% CAGR with ending value of $44,085

Bogle Portfolio TSM/TBM: 8.15% CAGR with ending of $79,713

Link: https://www.portfoliovisualizer.com/bac ... 0&total3=0

Stocks are under no obligation to act in accordance with our assumptions. Reducing your equity allocation by more than half but expecting the same results because you can pick a special section of the market that will outperform enough to make up the difference is incredibly risky.

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Re: Swedroe Advocates: LENDX, SRRIX, AVRPX, QRPRX/QSPRX

Post by Random Walker » Sun Sep 22, 2019 10:48 pm

Elysium,
I don’t think I’ve really misstated anything. If I have the mistake is entirely mine; after all I’m not Larry. I’m just an amateur investor. I do think it’s fair to say Larry has always been focused on diversification, portfolio efficiency, value added per unit cost. As new information has accumulated and new investment vehicles have become available, specific recommendations have changed. But I believe there is a strong underlying unifying consistent theme to his recommendations over time.

Dave

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Re: Swedroe Advocates: LENDX, SRRIX, AVRPX, QRPRX/QSPRX

Post by Elysium » Sun Sep 22, 2019 10:58 pm

Random Walker wrote:
Sun Sep 22, 2019 10:48 pm
Elysium,
I don’t think I’ve really misstated anything. If I have the mistake is entirely mine; after all I’m not Larry. I’m just an amateur investor. I do think it’s fair to say Larry has always been focused on diversification, portfolio efficiency, value added per unit cost. As new information has accumulated and new investment vehicles have become available, specific recommendations have changed. But I believe there is a strong underlying unifying consistent theme to his recommendations over time.

Dave
RW, He has a long record of switching positions and they are here and on old forum for everyone to go find if they wish so. This thing he had about 100% SV was not so always, as I pointed out he argued in favor of inclusion of RE by taking away from SV, when both asset classes were clearly available at Vanguard and DFA. He changed his mind later and came to the conclusion that RE was not worth taking away from SV, and it wasn't based on any new investment that came out. His debates with Jeff Troutner often became really contentious. Anyhow, let's just agree to disagree and move on.

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Re: Swedroe Advocates: LENDX, SRRIX, AVRPX, QRPRX/QSPRX

Post by Random Walker » Sun Sep 22, 2019 11:02 pm

Alchemist wrote:
Sun Sep 22, 2019 10:42 pm
Just for context, performance of a 25/75 LP vs a simple 60/40 TSM/TBM for as long as we have live data (March 1993, inception of DFSVX DFA's small cap value fund) the results are:

Larry Portfolio: 5.76% CAGR with ending value of $44,085

Bogle Portfolio TSM/TBM: 8.15% CAGR with ending of $79,713

Link: https://www.portfoliovisualizer.com/bac ... 0&total3=0

Stocks are under no obligation to act in accordance with our assumptions. Reducing your equity allocation by more than half but expecting the same results because you can pick a special section of the market that will outperform enough to make up the difference is incredibly risky.
Not really a fair comparison: the difference in equity allocations is too big and the bond components are different. The 25/75 LP did have lower SD and higher Sharpe. I would off the top of my head compare SV 40/60 to TSM 60/40. I did this and was surprised the TSM 60/40 won. I modified the above PV LP allocation to 45/55 and used TBM for bond component in both portfolios. The CAGR, SD, and Sharpes are essentially identical. This surprises me a bit too.

https://www.portfoliovisualizer.com/bac ... 0&total3=0

Dave

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Re: Swedroe Advocates: LENDX, SRRIX, AVRPX, QRPRX/QSPRX

Post by Random Walker » Sun Sep 22, 2019 11:09 pm

I believe Larry and BAM simply feel that the returns of REITs are explained by the market, size, value, term factors. That after accounting for underlying factors, there is nothing unique about REITs. I think they feel it is more efficient to access those factors through equities and bonds. Learn new information and adapt. Not really a willy nilly performance chasing change.

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Re: Swedroe Advocates: LENDX, SRRIX, AVRPX, QRPRX/QSPRX

Post by Day9 » Sun Sep 22, 2019 11:34 pm

Random Walker wrote:
Sun Sep 22, 2019 11:09 pm
I believe Larry and BAM simply feel that the returns of REITs are explained by the market, size, value, term factors. That after accounting for underlying factors, there is nothing unique about REITs. I think they feel it is more efficient to access those factors through equities and bonds. Learn new information and adapt. Not really a willy nilly performance chasing change.

Dave
Yes here is Larry's article on this:

https://www.etf.com/sections/index-inve ... nt-special

Posters here are accusing Larry of switching positions using negative connotation words and implications. But in this case he learned more information and adjusted in light of that. That isn't a bad thing. We should all adjust our plans if we learn new pertinent information or our assumptions change.
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Re: Swedroe Advocates: LENDX, SRRIX, AVRPX, QRPRX/QSPRX

Post by nedsaid » Sun Sep 22, 2019 11:45 pm

HomerJ wrote:
Sun Sep 22, 2019 10:21 am
nedsaid wrote:
Sun Sep 22, 2019 1:22 am
I directly or indirectly benefited from financial innovations that made their inventors rich: the discount brokerage, the no-load mutual fund, ETFs, etc. Just making a point that something isn't a rip-off just because it makes someone rich.
You are absolutely correct. :sharebeer
You have reset the clock. Now I won't be right about anything again until March 22, 2020. My being right every 6 months quota has now been used up. Darn it. Feel free to ignore everything I say until then.
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Re: Swedroe Advocates: LENDX, SRRIX, AVRPX, QRPRX/QSPRX

Post by Alchemist » Mon Sep 23, 2019 12:13 am

Random Walker wrote:
Sun Sep 22, 2019 11:02 pm
Not really a fair comparison: the difference in equity allocations is too big and the bond components are different. The 25/75 LP did have lower SD and higher Sharpe. I would off the top of my head compare SV 40/60 to TSM 60/40. I did this and was surprised the TSM 60/40 won. I modified the above PV LP allocation to 45/55 and used TBM for bond component in both portfolios. The CAGR, SD, and Sharpes are essentially identical. This surprises me a bit too.

https://www.portfoliovisualizer.com/bac ... 0&total3=0

Dave
I did not intend any unfairness and was just replicating the 'classic' LP referred to in the linked thread from Taylor's post. Thank you for running through a few different versions to add better context. I know that the LP has evolved over time with the bond component (short vs intermediate vs TBM, etc) varying quite a bit as well adding international SCV and EM. Though those later equity additions would actually hurt it if included in the post-DFSVX period.

Usually when the Larry Portfolio is discussed historical SCV returns that long pre-date the live mutual funds are used to accomplish the amazing feat of halving equity and getting the same returns. But as you demonstrated, even with smaller reductions in equity and using TBM instead of the original STT's, it has not worked for as long as anyone could have actually attempted it. If you compare the returns since it was first mentioned by Mr Swedroe it is even worse.

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Re: Swedroe Advocates: LENDX, SRRIX, AVRPX, QRPRX/QSPRX

Post by marcopolo » Mon Sep 23, 2019 3:17 am

Day9 wrote:
Sun Sep 22, 2019 11:34 pm
Random Walker wrote:
Sun Sep 22, 2019 11:09 pm
I believe Larry and BAM simply feel that the returns of REITs are explained by the market, size, value, term factors. That after accounting for underlying factors, there is nothing unique about REITs. I think they feel it is more efficient to access those factors through equities and bonds. Learn new information and adapt. Not really a willy nilly performance chasing change.

Dave
Yes here is Larry's article on this:

https://www.etf.com/sections/index-inve ... nt-special

Posters here are accusing Larry of switching positions using negative connotation words and implications. But in this case he learned more information and adjusted in light of that. That isn't a bad thing. We should all adjust our plans if we learn new pertinent information or our assumptions change.
The problem is that we get two opposing arguments about factors/alts/etc.
1) We should adjust our plans when we have new information or underlying assumptions change.
2) We should be patient because these strategies can under perform sometimes for long periods of time


Any strategy could be justified by employing one or the other of these edicts conveniently as desired.

It seems both REITs and CCFs were abandoned after a period of under performance, maybe it was due to new information. Why not remain patient? Now we see a long period of other factors and ALTs under performing. Will those also be abandoned before we get to reap the eventual rewards that were promised? Again, I am sure it will be due to some new information that is discovered. But, to an admitted novice, it is sometimes difficult to see the difference between that and performance chasing.
Once in a while you get shown the light, in the strangest of places if you look at it right.

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Re: Swedroe Advocates: LENDX, SRRIX, AVRPX, QRPRX/QSPRX

Post by larryswedroe » Mon Sep 23, 2019 4:11 am

I thought I would just make few comments to correct the amazingly totally wrong statements made by several people, including Taylor about my views and what I have said or recommended

First, re Taylor's about recommended all SV. I have never RECOMMENDED ALL SV. for those who have read my books, including the Only Guide to the Right Financial Plan you know I believe there is no one right portfolio, just one right for each individual. That book specifically looks at each asset class and discusses who should own more or less than the market and why, what the considerations should be, including for bonds as well as stocks and even commodities. Second, what I have suggested about SV is that is has the highest expected returns and thus investors could consider using that information in two ways. The first is to tilt more, even all SV (globally diversified), if willing to accept tracking variance problem, which many cannot, as well as risk it may underperform, like all risk assets for long time, or even perhaps forever. Second, you can lower equity allocation by tilting to SV allowing you to hold more safe bonds, the LP type portfolio (meaning mine specifically). This has worked very well and accomplished it's goals since I made the switch over 20 years ago. So repeating I NEVER made any specific allocation recommendations. All model portfolios were only to be used as starting points for dicussions.

Second, re this absurd comment " He was so sure you'll get double returns from Commodities and TIPS (T-Bills later)."
My forecast for commodity returns was that it would provide a small positive real return based on the return on the collateral being higher than tbills plus the ER of the fund. Rick was forecasting zero real return and I suggested slightly higher based on assumption that despite small persistent average backwardation my assumption was more conservative at zero. And double digit returns on TIPS? I know human memories are bad but that is beyond the pale.

Also just briefly on CCF, it was recommended to CONSIDER as hedge against unexpected inflation and NEGATIVE supply shocks. Not for returns. And what all the critics seem to conveniently forget is I also recommended one extend their bond portfolio maturity as the CCF would act as hedge against that risk. Of course that has played out exceptionally well yet conveniently forgotten. While ago I showed that had one take small percent and allocated to CCF and also extend bonds results would have been similarly to doing nothing. Note I also totally got out of CCF when the VALUATIONS changed, meaning we had persistent contango--noting the research showed they tend to do well in backwardation and poorly in contango (another value or carry story). People forget that as well. Valuations matter and they can matter a great deal. I never got back in because today IMO we have far better alts available with superior expected returns and low correlations, that also can reduce inflation risk as they have little to no duration.

Re this on AQR by the same poster: " First, they are not liquid, you cannot get your money when you want, and liquidity could dry up even more when you need it the most. Second, the fees are too high, any returns you get will get diluted away. Third, these are highly competitive fields where professional hedge fund managers and experts in the fields are looking to make any extra returns possible. They will not give away nice and juicy returns to retail investors (even those who come through RIA).
First none of the AQR are illiquid in any way, all have daily liquidity. Second, the fees are well below those of typical hedge funds engaging in the same strategies. Their equity funds are DFA like in Fees. Third, there are some alt strategies like for QSPRX where there is plenty of capacity and thus they are willing to offer to public at lower than hedge fund fees to attract those assets. Other strategies they keep private and charge more.

'Third, the poster who commented on SRRIX [misunderstands --admin LadyGeek] what he is discussing. The insurance companies have other risks on their books including their stock, bond and RE investment portfolios. Those also provide returns in addition to reinsurance risks. Investors have no need for those risks as they already have them in their portfolios. SRRIX is the way to ISOLATE those risks. Also the idea of overcapacity and collapse in returns is just factually incorrect. In fact the no loss return (no one expects no losses) is now over 4% higher than it was at start of 2017 for variety of reasons. While more capital comes in demand for insurance globally rises as places like China, India and other countries with emerging middle and upper class and business markets develop. Also I would note as typically happens dumb retail money flees as the sign of losses, so some capital left, helping to books premiums. The expected return to SRRiX today is now higher than when I first recommended it.

Fourth re returns to alts and SD. Individually expected about 5% above cash with about 10% vol (so not bond like vol) but equity like expected returns, with exception of LENDX where SD expected about 5. But equal weighted portfolio of the 3 Stone Ridge and QSPRX would have expected vol of about 5 due to low correlation--meaning have to own them all to get there, not individually. I have not looked lately in terms of doing the math but would guess the volatilities have been about right, maybe even less. LENDX returns about right on while others lower. Time will tell.
Note that since LENDX avoids junk lending we estimate that even in 2008 it would have lost under 10%. And that's worst recession since 1930s. Could it have losses, of course. But with equity like returns and about 1/6 of loss of stocks in 2008 I would say worth the risks

Finally, there has never been any pressure on me or my firm to recommend anything. We recommend because we believe it is in best interest of our clients and we also put our money where our mouths are. AS you know I invest in each of these funds.

I hope that is helpful and at least corrects some false statements. One reason I left is the amazing amount of false statements and they keep being repeated, even after I explain how wrong they are. Hopefully that won't happen this time.

BEst wishes
Larry

typical.investor
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Re: Swedroe Advocates: LENDX, SRRIX, AVRPX, QRPRX/QSPRX

Post by typical.investor » Mon Sep 23, 2019 4:58 am

larryswedroe wrote:
Mon Sep 23, 2019 4:11 am
'Third, the poster who commented on SRRIX literally has no clue what he is discussing.

Also the idea of overcapacity and collapse in returns is just factually incorrect.
Says who?
Alternative capital from investors looking to diversify away from traditional financial markets has added to overcapacity, to the detriment of reinsurers' margins.
Excess reinsurance capacity continues to exist, despite an increase in demand for reinsurance solutions on a global basis.
I guess I find those sources more reliable.
larryswedroe wrote:
Mon Sep 23, 2019 4:11 am
The expected return to SRRiX today is now higher than when I first recommended it.
Because as things get cheaper, their expected returns increase. Yeah we know.
Fitch's expectation that premium rates will continue to edge up, but profitability will remain subdued, with risk-adjusted prices still low by historical standards and low investment yields persisting amid a weak global economic outlook
And it looks like those expected returns might stay high for quite some time.
Outlook for 2019

Demand for reinsurance usually expands following catastrophic disasters, during which time reinsurers will enjoy a hard market, increasing prices to offset underwriting losses.19 However, following losses after major catastrophic events in 2017, the industry has not yet entered into a traditional hard cycle. Therefore, for companies to remain profitable, lower premiums and increased frequency of and/or severity of catastrophic loss events must be offset by higher investment returns and enhanced underwriting discipline. Nevertheless, a challenging business environment lies ahead for reinsurers as a soft pricing market and alternative capital providers put pressure on margins and the costs of capital continue to rise.
2.2019
It has to be asked whether some re/insurers have miscalculated their ability to sustain the lower pricing over the last five years or more and whether they are now looking to address the issue at a time when insurance-linked securities (ILS) capital is too abundant, experienced and available to allow them to recoup their losses?
http://thoughtleadership.aonbenfield.co ... l-2019.pdf
https://www.irmi.com/articles/expert-co ... ion-trends
https://www.captive.com/news/2019/09/06 ... ory-stable
https://www.artemis.bm/news/reinsurance ... ysts-hope/

Elysium
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Re: Swedroe Advocates: LENDX, SRRIX, AVRPX, QRPRX/QSPRX

Post by Elysium » Mon Sep 23, 2019 7:21 am

Random Walker wrote:
Sun Sep 22, 2019 11:09 pm
I believe Larry and BAM simply feel that the returns of REITs are explained by the market, size, value, term factors. That after accounting for underlying factors, there is nothing unique about REITs. I think they feel it is more efficient to access those factors through equities and bonds. Learn new information and adapt. Not really a willy nilly performance chasing change.

Dave
RW, The point is that was not his position just about 10 years back when he was very vocal about including REITs at the expense of SV. He didn't think that REIT returns were explained by those factors, instead he argued they had unique characteristics worthy of separate allocation, they are in print on his early books. In fact, his current position is something like what Jeff Troutner had argued and clearly Larry didn't agree to it. As I said, I have no desire to discuss this, but can't let these misstatements stand. It is okay to change positions, and admit that you had considered information that you hadn't known before, or overlooked, and changing to a new position, but not okay to claim you never said that.

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Re: Swedroe Advocates: LENDX, SRRIX, AVRPX, QRPRX/QSPRX

Post by larryswedroe » Mon Sep 23, 2019 7:23 am

I thought I would just make few comments to correct the amazingly totally wrong statements made by several people, including Taylor about my views and what I have said or recommended

First, re Taylor's about recommended all SV. I have never RECOMMENDED ALL SV. for those who have read my books, including the Only Guide to the Right Financial Plan you know I believe there is no one right portfolio, just one right for each individual. That book specifically looks at each asset class and discusses who should own more or less than the market and why, what the considerations should be, including for bonds as well as stocks and even commodities. Second, what I have suggested about SV is that is has the highest expected returns and thus investors could consider using that information in two ways. The first is to tilt more, even all SV (globally diversified), if willing to accept tracking variance problem, which many cannot, as well as risk it may underperform, like all risk assets for long time, or even perhaps forever. Second, you can lower equity allocation by tilting to SV allowing you to hold more safe bonds, the LP type portfolio (meaning mine specifically). This has worked very well and accomplished it's goals since I made the switch over 20 years ago. So repeating I NEVER made any specific allocation recommendations. All model portfolios were only to be used as starting points for dicussions.

Second, re this absurd comment " He was so sure you'll get double returns from Commodities and TIPS (T-Bills later)."
My forecast for commodity returns was that it would provide a small positive real return based on the return on the collateral being higher than tbills plus the ER of the fund. Rick was forecasting zero real return and I suggested slightly higher based on assumption that despite small persistent average backwardation my assumption was more conservative at zero. And double digit returns on TIPS? I know human memories are bad but that is beyond the pale.

Also just briefly on CCF, it was recommended to CONSIDER as hedge against unexpected inflation and NEGATIVE supply shocks. Not for returns. And what all the critics seem to conveniently forget is I also recommended one extend their bond portfolio maturity as the CCF would act as hedge against that risk. Of course that has played out exceptionally well yet conveniently forgotten. While ago I showed that had one take small percent and allocated to CCF and also extend bonds results would have been similarly to doing nothing. Note I also totally got out of CCF when the VALUATIONS changed, meaning we had persistent contango--noting the research showed they tend to do well in backwardation and poorly in contango (another value or carry story). People forget that as well. Valuations matter and they can matter a great deal. I never got back in because today IMO we have far better alts available with superior expected returns and low correlations, that also can reduce inflation risk as they have little to no duration.

Re this on AQR by the same poster: " First, they are not liquid, you cannot get your money when you want, and liquidity could dry up even more when you need it the most. Second, the fees are too high, any returns you get will get diluted away. Third, these are highly competitive fields where professional hedge fund managers and experts in the fields are looking to make any extra returns possible. They will not give away nice and juicy returns to retail investors (even those who come through RIA).
First none of the AQR are illiquid in any way, all have daily liquidity. Second, the fees are well below those of typical hedge funds engaging in the same strategies. Their equity funds are DFA like in Fees. Third, there are some alt strategies like for QSPRX where there is plenty of capacity and thus they are willing to offer to public at lower than hedge fund fees to attract those assets. Other strategies they keep private and charge more.

'Third, the poster who commented on SRRIX [misunderstands --admin LadyGeek] what he is discussing. The insurance companies have other risks on their books including their stock, bond and RE investment portfolios. Those also provide returns in addition to reinsurance risks. Investors have no need for those risks as they already have them in their portfolios. SRRIX is the way to ISOLATE those risks. Also the idea of overcapacity and collapse in returns is just factually incorrect. In fact the no loss return (no one expects no losses) is now over 4% higher than it was at start of 2017 for variety of reasons. While more capital comes in demand for insurance globally rises as places like China, India and other countries with emerging middle and upper class and business markets develop. Also I would note as typically happens dumb retail money flees as the sign of losses, so some capital left, helping to books premiums. The expected return to SRRiX today is now higher than when I first recommended it.

Fourth re returns to alts and SD. Individually expected about 5% above cash with about 10% vol (so not bond like vol) but equity like expected returns, with exception of LENDX where SD expected about 5. But equal weighted portfolio of the 3 Stone Ridge and QSPRX would have expected vol of about 5 due to low correlation--meaning have to own them all to get there, not individually. I have not looked lately in terms of doing the math but would guess the volatilities have been about right, maybe even less. LENDX returns about right on while others lower. Time will tell.
Note that since LENDX avoids junk lending we estimate that even in 2008 it would have lost under 10%. And that's worst recession since 1930s. Could it have losses, of course. But with equity like returns and about 1/6 of loss of stocks in 2008 I would say worth the risks

Fifth, re RE. I don't know about others, but intelligent people when they learn something new they change their view, for consistency for it's own sake is foolish consistency. The research we did over time led us to conclude that once you added TERM to the other factors then RE did not add sufficient extra diversification benefits relative to the other alternatives to warrant an allocation. Especially for investors who already own RE in TSM type portfolios or in value funds like Vanguard's which don't exclude RE. But nothing wrong with including it, as market is efficient and RE has similar risk adjusted returns to other risk assets. Also I would not have stated to include RE at expense of SV, which of course depends on many issues including the fact that RE has lower expected returns. I did think RE wanted consideration as separate asset class, which however is very different than what was stated.

Finally, there has never been any pressure on me or my firm to recommend anything. We recommend because we believe it is in best interest of our clients and we also put our money where our mouths are. AS you know I invest in each of these funds.

I hope that is helpful and at least corrects some false statements. One reason I left is the amazing amount of false statements and they keep being repeated, even after I explain how wrong they are. Hopefully that won't happen this time.

BEst wishes
Larry

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nedsaid
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Re: Swedroe Advocates: LENDX, SRRIX, AVRPX, QRPRX/QSPRX

Post by nedsaid » Mon Sep 23, 2019 9:21 am

Elysium wrote:
Mon Sep 23, 2019 7:21 am
Random Walker wrote:
Sun Sep 22, 2019 11:09 pm
I believe Larry and BAM simply feel that the returns of REITs are explained by the market, size, value, term factors. That after accounting for underlying factors, there is nothing unique about REITs. I think they feel it is more efficient to access those factors through equities and bonds. Learn new information and adapt. Not really a willy nilly performance chasing change.

Dave
RW, The point is that was not his position just about 10 years back when he was very vocal about including REITs at the expense of SV. He didn't think that REIT returns were explained by those factors, instead he argued they had unique characteristics worthy of separate allocation, they are in print on his early books. In fact, his current position is something like what Jeff Troutner had argued and clearly Larry didn't agree to it. As I said, I have no desire to discuss this, but can't let these misstatements stand. It is okay to change positions, and admit that you had considered information that you hadn't known before, or overlooked, and changing to a new position, but not okay to claim you never said that.
Larry was not alone in recommending REITs. Rick Ferri, Paul Merriman, Bill Schultheis and other advocates of factor tilting also recommended them. A big reason that Larry quit recommending them was that investors chased them very hard for yield and REITs got to be quite expensive, the real returns after inflation were at one time projected to be 0.30% going forward which were not attractive. Later on, the academics explained REIT returns by underlying factors, said there was nothing special about them, and stopped recommending them as a unique asset class. It would be fair to say that Larry is neutral on REITs, he is okay with a market weighting in them. Not sure where the comment came from that Larry recommended REITs at the expense of Small Value. The factor tilters mentioned above all recommended both Small Value and REITs.

I have read a few of Larry's books, numerous articles, and his posts here. Don't think he is hiding anything or denying what he had written years ago. He has pretty clearly stated what has changed and why recommendations have changed and done this in pretty great detail. All I can say is that the world looked different when you go back 10-12 years or more.

Larry has changed his views on REITs, he discussed that here. Larry altered his position on commodities and also discussed this here at length. This wasn't done in secret and he didn't deny his previous work. In both cases, valuations were a big factor in his changed viewpoints. Asset classes can get so expensive that future returns become very muted. I think it is fine to disagree with his opinions but ALL of this was discussed openly. There is nuance to his arguments and one should read carefully what he says.

As far as Alternatives, this is newer and most controversial. Larry has invested significant dollars into the Alt investments he has recommended to others. Chef Larry is eating his own cooking. We can argue about the effectiveness of Alternatives but we can't say that down deep Larry doesn't believe in them. For the record, I now own a couple of Liquid Alt funds in a managed account that manages about 30% of my retirement, they just came with the package. They are a pretty small position and it will be informative to monitor them. I am not a Buckingham client.
A fool and his money are good for business.

Elysium
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Re: Swedroe Advocates: LENDX, SRRIX, AVRPX, QRPRX/QSPRX

Post by Elysium » Mon Sep 23, 2019 9:41 am

I stand by my comments. Search function is there for anyone interested in finding these conversations on both forums and figure out for themselves.

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Re: Swedroe Advocates: LENDX, SRRIX, AVRPX, QRPRX/QSPRX

Post by countmein » Mon Sep 23, 2019 1:32 pm

Alchemist wrote:
Mon Sep 23, 2019 12:13 am

I did not intend any unfairness and was just replicating the 'classic' LP referred to in the linked thread from Taylor's post. Thank you for running through a few different versions to add better context. I know that the LP has evolved over time with the bond component (short vs intermediate vs TBM, etc) varying quite a bit as well adding international SCV and EM. Though those later equity additions would actually hurt it if included in the post-DFSVX period.

Usually when the Larry Portfolio is discussed historical SCV returns that long pre-date the live mutual funds are used to accomplish the amazing feat of halving equity and getting the same returns. But as you demonstrated, even with smaller reductions in equity and using TBM instead of the original STT's, it has not worked for as long as anyone could have actually attempted it. If you compare the returns since it was first mentioned by Mr Swedroe it is even worse.
I think you are misrepresenting the LP. Seems to me it has fulfilled its goals (raised Sharpe, lowered drawdown).

30/70 DFSVX / ITT
• 7.3% CAGR
• .84 Sharpe
• 13% drawdown

60/40 TSM/TBM
• 8.2% CAGR
• .67 Sharpe
• 31% drawdown

One oft-forgotten point about the LP is that the AA mix is to taste. So if you wanted, you could've had 60-40 like returns with better efficiency using a 45/55 LP, which gave you:

• 8.2% CAGR
• .71 Sharpe
• 24% drawdown

...all the while cutting left tail risk.

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Re: Swedroe Advocates: LENDX, SRRIX, AVRPX, QRPRX/QSPRX

Post by abuss368 » Mon Sep 23, 2019 7:46 pm

I am not sure but at first glance it seems like additional complexity. We are moving further away from a market cap weighted index. I also have to wonder if the money has been made in these alternative asset classes by the big institutional money.
John C. Bogle: Two Fund Portfolio - Total Stock & Total Bond - “Simplicity is the master key to financial success."

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