A reminder: Stay away from AQR

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hdas
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A reminder: Stay away from AQR

Post by hdas » Thu Nov 08, 2018 5:47 pm

Theres a bloomberg article today about AQR terrible performance

Some takeaways:

> Not mentioned in the article, but their Managed Futures fund QMHRX(0.5 billion, 1.59% Fee)....It's basically where money goes to die. Down since inception, basically the worst in its category.

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> They keep their investors happy with quant stories.
> Their funds suck, and they blame it on investors for not wanting to stay in a money losing proposition.
> That business is optimized for the transfer of management fees to pay the lifestyle of 100 quants.

Here's a more in depth analysis of performance: https://www.ifa.com/articles/deeper_look_performance/

Some quotes

7% (16 funds) have underperformed their respective benchmarks since inception, having delivered a NEGATIVE alpha
33% (8 funds) have outperformed their respective benchmarks since inception, having delivered a POSTIVE alpha
0% (0 funds) have outperformed their respective benchmarks consistently enough since inception to provide 95% confidence that such outperformance will persist as opposed to being based on random outcomes

Based on the historical performance of their strategies, it seems AQR has not provided superior returns for their investors. The vast majority of their funds have failed to outperform their Morningstar assigned benchmark. The inclusion of statistical significance is key to this exercise as it indicates which outcome is the most likely vs. random-chance outcomes.
Our own Nisispirus looked into this here: viewtopic.php?f=10&t=263752

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Last edited by hdas on Sat Nov 17, 2018 10:57 pm, edited 4 times in total.

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HomerJ
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Re: A reminder: Stay away from AQR

Post by HomerJ » Thu Nov 08, 2018 5:58 pm

I don't know enough to judge AQR's performance.

But I do know that Cliff Asness is worth over $3 billion, and two of his partners are worth over $1 billion.

And it's all fairly recent money, since last year was the first year they made the Forbes Billionaire list.

https://www.forbes.com/sites/nathanvard ... 48058a23a4
He is now running one of the fastest-growing asset managers on Earth by popularizing what has become the latest investing craze.

At 50, Asness is today also a billionaire. His net worth is estimated at $3 billion. Two of his fellow AQR co-founders, David Kabiller and John Liew, are each worth $1 billion, making AQR one of the few Wall Street firms to mint three billionaires. All three men appear on Forbes’ list of billionaires for the first time.
Again, I can't speak about AQR's performance, but those fees apparently have made him VERY VERY rich.

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Re: A reminder: Stay away from AQR

Post by scout1 » Thu Nov 08, 2018 6:10 pm

Although the fund is down 20% over the last four years, it's up (slightly) since inception in 2010. Returns aren't quite as awful as advertised. It's a market neutral strategy so comparing it to the S&P isn't really appropriate. A 1.2% fee on a market neutral strategy is relatively cheap. (Morningstar classifies it as a low fee).

AQR isn't great but they're no worse than any other active mutual fund manager.


https://www.morningstar.com/funds/xnas/aqmix/quote.html

grok87
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Re: A reminder: Stay away from AQR

Post by grok87 » Thu Nov 08, 2018 6:13 pm

Vanguards market neutral fund is up 3.3% ytd
Keep calm and Boglehead on. KCBO.

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Re: A reminder: Stay away from AQR

Post by betablocker » Thu Nov 08, 2018 6:14 pm

This strikes me as an unfair attack. I have a bit of money in one of their funds so it’s not like I’m some fan boy but I read Asness’s essay referenced in the “article” from Bloomberg. I thought it was admirable, transparent, and more than any other manager ever does during a bad period. Of course factors and the funds that seek to track them have down times and sometimes those down times coincide but there’s were several years before this one that a strategy like QSPIX did great despite value being a drag because of...wait for it...diversification across factors.

I don’t really care if the AQR guys are rich but rather that they do what they say for a fair price. I think the fact that they have made expensive strategies affordable is a huge benefit and I don’t begrudge them wealth for doing so. Do you also not buy iPhones because Tim Cook is rich?

hdas
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Re: A reminder: Stay away from AQR

Post by hdas » Thu Nov 08, 2018 6:32 pm

betablocker wrote:
Thu Nov 08, 2018 6:14 pm
it’s not like I’m some fan boy but I read Asness’s essay referenced in the “article” from Bloomberg. I thought it was admirable, transparent, and more than any other manager ever does during a bad period.
A good example of the spell. For some reason investors are willing to pay 2% fee on AUM for reading his notes, while their funds diminish in value.
Transparency about things people don't really understand is their (an others) marketing strategy....

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Re: A reminder: Stay away from AQR

Post by alpenglow » Thu Nov 08, 2018 6:36 pm

hdas wrote:
Thu Nov 08, 2018 5:47 pm
Theres a bloomberg article today about AQR terrible performance

Some takeaways:

> Their funds suck, and they blame it on investors for not wanting to stay in a money losing proposition.
This is a little harsh. Nonetheless, AQR has been a money making machine for its principals. I drank the AQR Kool-Aid for a month or two before I came to my senses - not because of the performance, but because of the fees. Their strategy sounded so ... sophisticated. They do market themselves well. Bottom like, keep it simple, stupid.

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Re: A reminder: Stay away from AQR

Post by Random Walker » Thu Nov 08, 2018 6:38 pm

Pretty harsh criticism. I too am invested in one of the market neutral funds, QRPRX. From what I understand, the fund is steadfastly adhering to its strategy, which I view as quite passive and formulaic. I agree that there is substantial transparency. This Cliff Asness essay is an excellent read regarding recent performance and their commitment to the strategies.

https://www.aqr.com/Insights/Perspectiv ... t-Ragnarok

Dave

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Re: A reminder: Stay away from AQR

Post by nisiprius » Thu Nov 08, 2018 7:23 pm

hdas wrote:
Thu Nov 08, 2018 5:47 pm
...Not mentioned in the article, but they have a Managed Futures fund, god knows how many billions. It's basically where money goes to die. Down 20% in 4 years. Negative 5.5% annually. 1.5-2% Fee...
While knowing very little about either, I dislike managed futures, and I dislike AQR. To be fair, however, (though what fun is that?), the AQR Managed Futures fund, AQMIX
  • Has made money since inception. Not much, but it has made money, not lost it.
  • Has soundly beaten the Morningstar category average for managed futures fund, which has lost money over the same time period.
  • Has done more or less sorta-kinda about the same as Morningstar's benchmark for managed futures fund, the Credit Suisse Managed Futures Liquid Index.
So, it seems to me, the problem here is has been that in the time over which managed futures have been available as mutual funds, managed futures have sucked, not that AQMIX is a sucky managed futures fund.

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Re: A reminder: Stay away from AQR

Post by afan » Thu Nov 08, 2018 7:34 pm

Nice to hear that at least some people are rejecting the Koolaid. But given they were chasing pipe dreams, I don't have a lot of confidence they will stop paying people large shares of their assets to put them in funds with massive expense ratios.

I was hoping the article would compare the outflows from AQR to the inflows to VTI. And then compare the costs.
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Re: A reminder: Stay away from AQR

Post by AlexisAtEasternState » Thu Nov 08, 2018 7:36 pm

Should read: Stay away from AQR if you don't understand or wish to invest in a factor based strategy.

Growth has outperformed value over the past few years, propelled in large part by FANG megacap names. We saw similar outperformance of growth vs value during the tech bubble. Over long time horizons (10-20 years) equity factors outperform more reliably than the equity risk premium over government bonds.

AQR's strategies are not for everyone - but to judge a strategy over 3 years one could conclude govt bonds have a higher long term return than equities, which is about as intellectually honest as what you are doing.

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Re: A reminder: Stay away from AQR

Post by whodidntante » Thu Nov 08, 2018 7:42 pm

Nice chart, AlexisAtEasternState.

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Re: A reminder: Stay away from AQR

Post by betablocker » Thu Nov 08, 2018 8:05 pm

hdas wrote:
Thu Nov 08, 2018 6:32 pm
betablocker wrote:
Thu Nov 08, 2018 6:14 pm
it’s not like I’m some fan boy but I read Asness’s essay referenced in the “article” from Bloomberg. I thought it was admirable, transparent, and more than any other manager ever does during a bad period.
A good example of the spell. For some reason investors are willing to pay 2% fee on AUM for reading his notes, while their funds diminish in value.
Transparency about things people don't really understand is their (an others) marketing strategy....
Thanks for intelligent debate. I guess I’m ignorant and should read your past posts for illumination.

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Re: A reminder: Stay away from AQR

Post by nisiprius » Thu Nov 08, 2018 9:08 pm

whodidntante wrote:
Thu Nov 08, 2018 7:42 pm
Nice chart, AlexisAtEasternState.
It would be much nicer if it were risk-adjusted return, not raw return. It is very likely that you could come up with similarly impressive statistics showing that leveraged stocks beat unleveraged stocks, for example.
Last edited by nisiprius on Thu Nov 08, 2018 9:29 pm, edited 1 time in total.
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Taylor Larimore
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Re: A reminder: Stay away from AQR

Post by Taylor Larimore » Thu Nov 08, 2018 9:28 pm

Bogleheads:

It is interesting to learn that "AQR is one of the few Wall Street firms to mint three billionaires." AQR investors should ask AQR, "Where did their money come from?"

Two years ago I made a post about "Factor Investing." In the post was this statement:
AQR is noted for its factor funds. This 2017 study by Tom Allen and Mark Hebner found: (16 funds) have underperformed their respective benchmarks since inception and only 8 funds outperformed.
"The beauty of owning the market is that you eliminate individual stock risk, you eliminate market sector risk, and you eliminate manager risk. -- In my view, owning the market and holding it forever is the ultimate strategy for winners." -- John C. Bogle
hdas: Thank you for the link.

Best wishes.
Taylor
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Re: A reminder: Stay away from AQR

Post by Random Musings » Thu Nov 08, 2018 9:51 pm

I'd prefer and do purchase I-bonds or individual TIPS and hold to duration vs buying some 2% neutral strategy fund that, although better than their benchmark, has seemed to provide little for their investors and lots to those who market that strategy. I at least have a far better understanding of the products I have purchased. I really wonder how many of the AQR investors truly understand the inner workings of that product.

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Re: A reminder: Stay away from AQR

Post by grok87 » Thu Nov 08, 2018 10:11 pm

Random Walker wrote:
Thu Nov 08, 2018 6:38 pm
Pretty harsh criticism. I too am invested in one of the market neutral funds, QRPRX. From what I understand, the fund is steadfastly adhering to its strategy, which I view as quite passive and formulaic. I agree that there is substantial transparency. This Cliff Asness essay is an excellent read regarding recent performance and their commitment to the strategies.

https://www.aqr.com/Insights/Perspectiv ... t-Ragnarok

Dave
I read the essay. The one question i wish he had asked himself at the end was "Are we too leveraged?" to which my answer would be: YES!
qspix for example is leveraged 7:1.

why do they lever so much? it's pretty simple in my book. it's so they can extract more in the way of fees.
It's a pretty common game all the active managers play. if you look at oppenheimers muni funds for example they own a lot more risky bonds with higher yields. need to get more gross yield so they can siphon off fees. investors end up with return free risk.

vanguard tends to play the opposite game. since their fees are so low they can run less risky funds and still deliver competitive returns.
Keep calm and Boglehead on. KCBO.

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Re: A reminder: Stay away from AQR

Post by typical.investor » Thu Nov 08, 2018 10:19 pm

I read an AQR paper called something like “Value momentum everywhere” and the gyst I remember is mom can help offset the value droughts.

Is AQR not using MOM, their MOM is not performing or MOM in general is suffering along with value these days?
Last edited by typical.investor on Thu Nov 08, 2018 10:38 pm, edited 1 time in total.

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Re: A reminder: Stay away from AQR

Post by columbia » Thu Nov 08, 2018 10:31 pm

But I do know that Cliff Asness is worth over $3 billion, and two of his partners are worth over $1 billion.
Folks like to slobber over Cliff.

He’s undoubtedly intelligent and quite adept at separating people from their money.

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Re: A reminder: Stay away from AQR

Post by hdas » Thu Nov 08, 2018 10:56 pm

nisiprius wrote:
Thu Nov 08, 2018 7:23 pm

So, it seems to me, the problem here is has been that in the time over which managed futures have been available as mutual funds, managed futures have sucked, not that AQMIX is a sucky managed futures fund.
Mr. Nisiprius, look again, the fund I was refering to was this

AQR Managed Futures Strategy HV Fund Class R6 QMHRX - Where they 'relax' the volatility constrain.

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Re: A reminder: Stay away from AQR

Post by fennewaldaj » Thu Nov 08, 2018 11:57 pm

Random Walker wrote:
Thu Nov 08, 2018 6:38 pm
Pretty harsh criticism. I too am invested in one of the market neutral funds, QRPRX. From what I understand, the fund is steadfastly adhering to its strategy, which I view as quite passive and formulaic. I agree that there is substantial transparency. This Cliff Asness essay is an excellent read regarding recent performance and their commitment to the strategies.

https://www.aqr.com/Insights/Perspectiv ... t-Ragnarok

Dave
I have nothing against AQR but most of their funds are not passive by most definitions. And they don't consider themselves passive either.

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Re: A reminder: Stay away from AQR

Post by randomguy » Fri Nov 09, 2018 12:04 am

whodidntante wrote:
Thu Nov 08, 2018 7:42 pm
Nice chart, AlexisAtEasternState.
Yeah that was a nice presentation. You would probably need to read the fine print to see if their defintions of everything matches yours.

For fun lets look at gold over the past 40 years
1972-1981 25% CAGR
1982-1999 -1.73% CAGR
2000-2012 14% CAGR
2013-2018 -5.69 CAGR

1972-2018 7.23% CAGR

So over the time period buying gold went from a great investment, to a horrible one, to a great one, to a horrible one. That can happen with any strategy. Nobody bailed on stocks after 2002 or 2008 and say look at the horrible performance because while the performance was horrible it was in the realm of expected behavior. With any of these strategies you need to have an idea of expected outcomes.



And for real fun look at the performance of a 50/50 US stock and gold portfolio over the period. It is what the dream of diversification looks like:)

https://www.portfoliovisualizer.com/bac ... 0&Gold2=50

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Re: A reminder: Stay away from AQR

Post by Random Walker » Fri Nov 09, 2018 1:02 am

fennewaldaj wrote:
Thu Nov 08, 2018 11:57 pm
Random Walker wrote:
Thu Nov 08, 2018 6:38 pm
Pretty harsh criticism. I too am invested in one of the market neutral funds, QRPRX. From what I understand, the fund is steadfastly adhering to its strategy, which I view as quite passive and formulaic. I agree that there is substantial transparency. This Cliff Asness essay is an excellent read regarding recent performance and their commitment to the strategies.

https://www.aqr.com/Insights/Perspectiv ... t-Ragnarok

Dave
I have nothing against AQR but most of their funds are not passive by most definitions. And they don't consider themselves passive either.
I appreciate that, but as far as I know there is no market timing and agnostic to individual security selection. It is formulaic. Even the volatility scaling seems formulaic to me. This is at limits of my knowledge though.

Dave

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Re: A reminder: Stay away from AQR

Post by jalbert » Fri Nov 09, 2018 1:16 am

Why should trend following or momentum be a long-term strategy? If a bet on a trend fails, the holding no longer has positive momentum, or it would not have failed, so the strategy moves on to another momentum bet. This means the strategy is unlikely to harvest any mean reversion from failed momentum bets.
Risk is not a guarantor of return.

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Re: A reminder: Stay away from AQR

Post by Bodhi312 » Fri Nov 09, 2018 1:25 am

Cliff Asness is one of the few managers out there who seems willing to own mistakes and shortcomings. I’ve met and observed enough people at his level to know how rare that actually is.

Also, he’s not the only person at AQR, nor are mutual funds their sole business. Sometimes strategies work, sometimes they don’t. Unless the strategy is meant to be a core piece of a portfolio and advertised to beat some mainstream benchmark or stock bond allocation, you really should try understand a few things about a fund’a strategy so that you avoid heartache in the future.

1. What is the strategy supposed to do in isolation?
2. If you use the strategy in your portfolio, will it be redundant or will it enhance your portfolio’s risk adjusted returns?
3. Do correlations change when there’s a swift correction in your core portfolio? Specifically, when everything goes to seemingly beta 1, does this investment do the same?

No fund family (with more than a small number of funds can be expected to have a.) all “great” funds and b.) no down years.

Even stalwarts like Wellesley have had down years.

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Re: A reminder: Stay away from AQR

Post by betablocker » Fri Nov 09, 2018 8:25 am

typical.investor wrote:
Thu Nov 08, 2018 10:19 pm
I read an AQR paper called something like “Value momentum everywhere” and the gyst I remember is mom can help offset the value droughts.

Is AQR not using MOM, their MOM is not performing or MOM in general is suffering along with value these days?
Mom had been doing well and other factors as well in past years. This year momentum has not done and that has happened to coincide with other factors like value not doing well. The research from Larry’s factor book shows that there is very little chance that mom will under perform long term so the bet is mom will return to outperforming soon.

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Re: A reminder: Stay away from AQR

Post by betablocker » Fri Nov 09, 2018 8:29 am

jalbert wrote:
Fri Nov 09, 2018 1:16 am
Why should trend following or momentum be a long-term strategy? If a bet on a trend fails, the holding no longer has positive momentum, or it would not have failed, so the strategy moves on to another momentum bet. This means the strategy is unlikely to harvest any mean reversion from failed momentum bets.
This is probability. If the expected odds that you will win a game at a casino are say 55%(obviously no such game exists) then you don’t win on each hand or roll of the dice. You win over time. Momentum has very short periods of underperformance for a factor. There’s a great chart in Larry’s factor book that shows this.

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Re: A reminder: Stay away from AQR

Post by grok87 » Fri Nov 09, 2018 8:34 am

betablocker wrote:
Fri Nov 09, 2018 8:29 am
jalbert wrote:
Fri Nov 09, 2018 1:16 am
Why should trend following or momentum be a long-term strategy? If a bet on a trend fails, the holding no longer has positive momentum, or it would not have failed, so the strategy moves on to another momentum bet. This means the strategy is unlikely to harvest any mean reversion from failed momentum bets.
This is probability. If the expected odds that you will win a game at a casino are say 55%(obviously no such game exists) then you don’t win on each hand or roll of the dice. You win over time. Momentum has very short periods of underperformance for a factor. There’s a great chart in Larry’s factor book that shows this.
Momentum is picking up nickels in front of a steamroller. Momemntum was down 83% in 2009.
Keep calm and Boglehead on. KCBO.

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Re: A reminder: Stay away from AQR

Post by JoMoney » Fri Nov 09, 2018 8:35 am

http://longbets.org/362/
A lot of very smart people set out to do better than average in securities markets. Call them active investors.

Their opposites, passive investors, will by definition do about average. In aggregate their positions will more or less approximate those of an index fund. Therefore the balance of the universe—the active investors—must do about average as well. However, these investors will incur far greater costs. So, on balance, their aggregate results after these costs will be worse than those of the passive investors. ...
"To achieve satisfactory investment results is easier than most people realize; to achieve superior results is harder than it looks." - Benjamin Graham

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Re: A reminder: Stay away from AQR

Post by hdas » Fri Nov 09, 2018 8:56 am

Looking at the comments, some summary points:

1. Nobody has put numbers on the table for a group of AQR funds with a good long track record that did something better than the comparative low cost option.

2. Nobody stops the lunacy and asks...wait, but who need this type of strategies?

3. Ppl seem to be under the spell of their research (marketing). Quantity of marketing is inversely correlated with quality. And when you have no performance and still charging a lot. You have to appear nice and write a bunch of nice looking papers.

4. There's a plethora of studies supporting time series momentum but not a single successful fund with real money in the implementation to show for it.

5. There's a small group of sophisticated investors that have the knowledge and the stats background to pick and dump active managers. They are usually ppl who used to work in the industry. And they are definitely not in this forum.

6. The effects of marketing can't be overstated. There seems to be also an aspirational consumer effect. Ppl like to feel sophisticated and have access to 'magic sauce' they buy these atrocities of funds like they buy a $500 shirt they don't need to add to the 22 others they have in their wardrobe.

7. Part of the marketing machine are the pamphlet writers and wealth management firms. Let's hold them accountable as well

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Re: A reminder: Stay away from AQR

Post by hdas » Fri Nov 09, 2018 9:15 am

betablocker wrote:
Fri Nov 09, 2018 8:29 am
This is probability. If the expected odds that you will win a game at a casino are say 55%(obviously no such game exists) then you don’t win on each hand or roll of the dice. You win over time. Momentum has very short periods of underperformance for a factor. There’s a great chart in Larry’s factor book that shows this.
Mr betablocker, you seem well intentioned and motivated. But your model of the world of trend following has bunch of shaky assumptions, to say the least. Like capacity constrains, slippage and trading costs. It's also useful for you to not use a marketing pamphlet as your source of evidence. Lastly, there's a categorical difference between cross sectional mom and time series mom. H

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Re: A reminder: Stay away from AQR

Post by hdas » Fri Nov 09, 2018 9:17 am

grok87 wrote:
Fri Nov 09, 2018 8:34 am
Momentum is picking up nickels in front of a steamroller. Momemntum was down 83% in 2009.
This is wrong, momentum is the opposite of that. Mom down in 2009 was mean reversion from 2008. The models are very slow moving. But people do the opposite. If you happen to have a good year in one of these atrocities, the reasonable thing to do is to get out not get in. H

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Re: A reminder: Stay away from AQR

Post by afan » Fri Nov 09, 2018 9:21 am

hdas wrote:
Thu Nov 08, 2018 6:32 pm


A good example of the spell. For some reason investors are willing to pay 2% fee on AUM for reading his notes, while their funds diminish in value.
Of course, one can read his notes for free. It is only when you put money in the funds that you pay 2+% in fees.

He is on the list of "smart person, has interesting ideas, writes well. Would never let him manage my money."

He is in good company, with that list including plenty of high profile managers, some active on this board.

Enjoy the reading but put your money in VTI.
We don't know how to beat the market on a risk-adjusted basis, and we don't know anyone that does know either | --Swedroe | We assume that markets are efficient, that prices are right | --Fama

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Re: A reminder: Stay away from AQR

Post by matjen » Fri Nov 09, 2018 9:27 am

This is fun. Now do Vanguard Total International Stock Index Fund Investor Shares (VGTSX) and for a way longer time frame I might add than the (couple perhaps) popular AQR strategies/funds on this board.

What kind of fool would put a chunk (much larger than almost anyone is putting into AQR strategies on this board) of their equity in this money losing proposition! (compared to Total US)
A man is rich in proportion to the number of things he can afford to let alone.

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Re: A reminder: Stay away from AQR

Post by nisiprius » Fri Nov 09, 2018 10:01 am

Never mind. Stupid mistake on my part. :oops:
Last edited by nisiprius on Fri Nov 09, 2018 10:13 am, edited 2 times in total.
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Re: A reminder: Stay away from AQR

Post by hdas » Fri Nov 09, 2018 10:07 am

And on top of this.......the anomaly was discovered in 1980-1981. That should be the starting point for all metrics. H
Last edited by hdas on Fri Nov 09, 2018 12:56 pm, edited 1 time in total.

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Re: A reminder: Stay away from AQR

Post by vineviz » Fri Nov 09, 2018 10:07 am

nisiprius wrote:
Fri Nov 09, 2018 10:01 am
Why 1970?
I think you missed the fact that the bottom set of charts ( the ones starting with 1970) are for the world ex U.S. and are based on MSCI data that do, in fact, only extend to 1970.
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch

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Re: A reminder: Stay away from AQR

Post by nisiprius » Fri Nov 09, 2018 10:13 am

vineviz wrote:
Fri Nov 09, 2018 10:07 am
nisiprius wrote:
Fri Nov 09, 2018 10:01 am
Why 1970?
I think you missed the fact that the bottom set of charts ( the ones starting with 1970) are for the world ex U.S. and are based on MSCI data that do, in fact, only extend to 1970.
You are right. I was dumb. :oops:
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.

scout1
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Re: A reminder: Stay away from AQR

Post by scout1 » Fri Nov 09, 2018 10:22 am

This is a troll thread and should be closed.

1) The complaints are inflammatory for basically calling AQR investors suckers which they aren't.

2) The complaints aren't even AQR specific. The OP is highlighting AQR for the same stuff that this forum is based on (active doesn't outperform). This thread adds nothing to the conversation.

3) It isn't a well informed post.
3a) Stop comparing a market neutral fund to the S&P.
3b) The fees AQR charges on its funds aren't that high, Vanguard charges more for their market neutral fund.
3c) AQR funds perform okay. They're nothing special but they're fine. Just because one of AQR's many strategies has been awful it doesn't mean AQR is awful. The title should read "Stay away from active managers".
Last edited by scout1 on Fri Nov 09, 2018 10:26 am, edited 3 times in total.

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vineviz
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Re: A reminder: Stay away from AQR

Post by vineviz » Fri Nov 09, 2018 10:24 am

scout1 wrote:
Fri Nov 09, 2018 10:22 am
This is a troll thread and should be closed.

1) The complaints are inflammatory for basically calling AQR investors suckers which they aren't.

2) The complaints aren't even AQR specific. The OP is highlighting AQR for the same stuff that this forum is based on (active doesn't outperform). This thread adds nothing to the conversation.

3) It isn't a well informed post.
3a) Stop comparing a market neutral fund to the S&P.
3b) The fees AQR charges on its funds aren't that high, Vanguard charges more for their market neutral fund.
3c) AQR funds perform okay. They're nothing special but they're fine.
+1
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch

garlandwhizzer
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Re: A reminder: Stay away from AQR

Post by garlandwhizzer » Fri Nov 09, 2018 10:49 am

Cliff Asness is brilliant and knowledgeable as are many in AQR. They use sophisticated and complex strategies that are solidly based on academic backtesting which is a bit like being solidly based on shifting sand. There is a wide gulf between academic backtesting results and real world results of funds that attempt to use factor strategies, especially in recent years when value has been a persistent loser and momentum which is supposed to make up the slack when value underperforms has also had its problems. I have no problem with factor based strategies. They have convincing narratives. What I do have a problem with is high fees which typically AQR has. Fees are reliable and can be counted on. The returns of funds using complex factor strategies, long/short, leverage, and put/call options are much less reliable. Fees turn out to be a much more reliable predictor of long term fund returns than how brilliant and sophisticated the strategy is. I believe in the typical case the more the fund costs, the more moving parts and complexity in its strategy, the lower is the likely after cost returns for investors. There is a very limited quantity of alpha available in this competitive professionally dominated market. When you're paying high fees trying to source it, it is likely that any excess returns achieved will disappear into the cost structure. This is good for those who create and market such products, less reliably good for those who invest in them. It is low cost and broad diversification that usually produce reliably good long term returns for investors, not costly complexity and sophistication. More money has been made for investors by buying the entire haystack than by trying to locate the silver dollar buried in it.

Garland Whizzer

hdas
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Re: A reminder: Stay away from AQR

Post by hdas » Fri Nov 09, 2018 11:13 am

scout1 wrote:
Fri Nov 09, 2018 10:22 am
This is a troll thread and should be closed.

1) The complaints are inflammatory for basically calling AQR investors suckers which they aren't.

2) The complaints aren't even AQR specific. The OP is highlighting AQR for the same stuff that this forum is based on (active doesn't outperform). This thread adds nothing to the conversation.

3) It isn't a well informed post.
3a) Stop comparing a market neutral fund to the S&P.
3b) The fees AQR charges on its funds aren't that high, Vanguard charges more for their market neutral fund.
3c) AQR funds perform okay. They're nothing special but they're fine. Just because one of AQR's many strategies has been awful it doesn't mean AQR is awful. The title should read "Stay away from active managers".
1.) Yes they are. Unless you are timing this things correctly. But it is the semi-sucker kind, the one that things it has a handle on things.
2.) Managed Futures Fund with volatility relax is the worst fund of its category in the last 5 years
3.) Mostly because it goes against what you have an interest to believe in
3a.) High relative to abs performance
3b.) AQR has been getting a pass. Bunch of ppl in the forum victims of the Halo Effect.

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midareff
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Re: A reminder: Stay away from AQR

Post by midareff » Fri Nov 09, 2018 11:19 am

I just don't understand lots of things so I own it all. Total USA, Total International, a couple of Bond Index funds, some muni bond funds and a bit of HY. I keep it conservative, equities range from 42% to 48%. From 2010 to 2017, 8 years, averaged a 9% return on my conservative portfolio at Vanguard. I don't think I need to be any smarter.

bjr89
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Re: A reminder: Stay away from AQR

Post by bjr89 » Fri Nov 09, 2018 11:37 am

-----
Last edited by bjr89 on Fri Nov 16, 2018 7:16 pm, edited 3 times in total.

hdas
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Re: A reminder: Stay away from AQR

Post by hdas » Fri Nov 09, 2018 11:54 am

bjr89 wrote:
Fri Nov 09, 2018 11:37 am
AQR has some truly awfully designed products. Go down the list. https://funds.aqr.com/total-returns They pretty much all underperform their benchmarks. AQR specializes in the "classic" hedge fund strategies of yesterday. They literally make it a point to not innovate for the sake of making some sort of academic statement that these alphas should persist indefinitely. Unlike most hedge funds who like to sell beta as alpha for high fees, AQR likes to sell whats are actually largely alpha strategies as beta for low fees. And that's the most dangerous thing of all because branding everything some form of beta convinces people to hang on to something that very well may not have a reliable risk premium as it's source and is instead a now-dead alpha signal. What really happened is that better quant firms have taken these same strategies but gone about 500 steps forward and have effectively front run their trade, leaving them in the dust. It's almost like AQR doesn't know about the https://en.wikipedia.org/wiki/Adaptive_ ... hypothesis. Wait, yes they do, they're just unwilling and unable to innovate and enjoy too much selling their crap funds with cheesy research that makes you feel smart.

This board needs more of this, not less, as some are saying. Cliff Asness is a wolf in sheep's clothing.
Excellent precis by Mr. bjr89. Thanks for putting it nicely.H

Random Walker
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Re: A reminder: Stay away from AQR

Post by Random Walker » Fri Nov 09, 2018 11:54 am

garlandwhizzer wrote:
Fri Nov 09, 2018 10:49 am
It is low cost and broad diversification that usually produce reliably good long term returns for investors, not costly complexity and sophistication. More money has been made for investors by buying the entire haystack than by trying to locate the silver dollar buried in it.

Garland Whizzer
The problem is that “broad diversification” may in fact not be broad at all. If we think of diversification as number of independent sources of return as opposed to number of stocks held, then a typical TSM portfolio looks very undiversified. VTSAX has 3,680 stocks: market cap weighted, including big/small and growth/value. But it only has net exposure to one known source of return, market beta. Can’t we push a portfolio more towards the northwest corner of an efficient frontier plot by adding other uncorrelated sources of return? Can start with international and EM, then add SV, then other uncorrelated styles across different asset classes, and perhaps move on to reinsurance, variance risk premium, alternative lending. Each incremental improvement in portfolio efficiency comes at increased cost. It’s up to the individual investor to decide when additional cost outweighs additional benefit. A 60/40 TSM/TBM portfolio (a lot of people view this as conservative) has about 90% of its risk wrapped up in the single market factor. How diversified is that? There are other haystacks to be had.

Dave

rkhusky
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Re: A reminder: Stay away from AQR

Post by rkhusky » Fri Nov 09, 2018 12:06 pm

Random Walker wrote:
Fri Nov 09, 2018 11:54 am
garlandwhizzer wrote:
Fri Nov 09, 2018 10:49 am
It is low cost and broad diversification that usually produce reliably good long term returns for investors, not costly complexity and sophistication. More money has been made for investors by buying the entire haystack than by trying to locate the silver dollar buried in it.

Garland Whizzer
The problem is that “broad diversification” may in fact not be broad at all. If we think of diversification as number of independent sources of return as opposed to number of stocks held, then a typical TSM portfolio looks very undiversified. VTSAX has 3,680 stocks: market cap weighted, including big/small and growth/value. But it only has net exposure to one known source of return, market beta. Can’t we push a portfolio more towards the northwest corner of an efficient frontier plot by adding other uncorrelated sources of return? Can start with international and EM, then add SV, then other uncorrelated styles across different asset classes, and perhaps move on to reinsurance, variance risk premium, alternative lending. Each incremental improvement in portfolio efficiency comes at increased cost. It’s up to the individual investor to decide when additional cost outweighs additional benefit. A 60/40 TSM/TBM portfolio (a lot of people view this as conservative) has about 90% of its risk wrapped up in the single market factor. How diversified is that? There are other haystacks to be had.

Dave
The way that a factor portfolio is generated is to start with the total market, then subtract parts that are not wanted, such as large and mid-sized stocks, growth stocks, low-profitability stocks, etc, until one is left with a pot of stocks that all have the same characteristics. How is that diversified?

On the other hand, adding international stocks to US stocks does increase diversity. So does adding real estate, timberland or farmland. So does adding alternative lending, small businesses, etc. Note the word "adding", rather than "subtracting".

afan
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Re: A reminder: Stay away from AQR

Post by afan » Fri Nov 09, 2018 12:21 pm

Or save the fees and for some strategies the tax inefficiency and buy VTI. No one spending massive amounts to market the market. No one charging investors huge fees to pay for the advertising.

No elaborate excuses when the high prlced fund does not match its benchmark. No massive fees to an advisor to pick overpriced funds.

Just a nearly free investment in the market.
We don't know how to beat the market on a risk-adjusted basis, and we don't know anyone that does know either | --Swedroe | We assume that markets are efficient, that prices are right | --Fama

JackoC
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Re: A reminder: Stay away from AQR

Post by JackoC » Fri Nov 09, 2018 12:24 pm

bjr89 wrote:
Fri Nov 09, 2018 11:37 am
... Unlike most hedge funds who like to sell beta as alpha for high fees, AQR likes to sell what are actually largely alpha strategies as beta for low fees. And that's the most dangerous thing of all because branding everything some form of beta convinces people to hang on to something that very well may not have a reliable risk premium as its source and is instead a now-dead alpha signal. What really happened is that better quant firms have taken these same strategies but gone about 500 steps forward and have effectively front run their trade, leaving them in the dust.
Can you give some examples, with as many details or specific references as possible? Otherwise it's hard to judge the validity of your claim. We can see the AQR returns page. Some 5yr returns are bad by any standard, some are pretty reasonable if the implicit comparison is not the stock market, which it should not be for strategies not correlated to the stock market. And also pretty influenced by a bad year this year in some cases, for example the fund QSPIX often debated more specifically here. The sophistication implied in your post suggests that's not your comparison, and you specifically mention 'their benchmarks'. But the stock market seem to be still the benchmark for many AQR-dislikers here. And again OTOH you refer to better strategies (in the general realm of what AQR does) but don't say what they are. I'm mainly genuinely curious, not trying to be critical.

Random Walker
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Re: A reminder: Stay away from AQR

Post by Random Walker » Fri Nov 09, 2018 12:28 pm

afan wrote:
Fri Nov 09, 2018 12:21 pm
Or save the fees and for some strategies the tax inefficiency and buy VTI. No one spending massive amounts to market the market. No one charging investors huge fees to pay for the advertising.

No elaborate excuses when the high prlced fund does not match its benchmark. No massive fees to an advisor to pick overpriced funds.

Just a nearly free investment in the market.
Yes, agree. Each individual investor needs to decide where to draw the line. But way better to be able to draw that line through an informed decision acknowledging the implicit trade offs, than to be drawing a line when, with head in sand, one does not even know a line exists. Trade offs: rational people can come to very different decisions.

Dave

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