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Like most funds scott owns, I'm intrigued by this one...AQR Risk Parity AQRIX (or AQRNX), a hedged, dynamic global allocation fund.
Its approach must appeal to the mathematician in me. That of trying to hold a certain level of volatility while seeking total return through a dynamic allocation across diverse investment types. An attempt to mitigate near-term capital loss that is inevitable in the business cycle, but tough to swallow for the typical investor, even if that same investment will gain twice as much down the road...on the other end of the cycle. AQRIX is a fairly new fund that suggests perhaps modern trading tools may make such an attempt more successful than the typical 60/40 allocation funds.
I like that AQRIX has done well since inception against other formidable established offerings, like PIMIX, MFLDX, BBALX, VWIAX:
I like that AQR discloses fund manger investments and other account responsibilities.
I like that its four managers are invested in the fund:
John Liew, Ph.D from $100,001 - 500,000
Brian Hurst from $100,001 - 500,000
Michael Mendelson from $500,001 - 1,000,000
Yao Hua Ooi from $1 - 10,000
I like that Liew holds degrees from University of Chicago where he remains is a trustee. That Mendelson holds three degrees from MIT (can you believe?), including one in mathematics. That Hurst and Ooi are Wharton School grads. That the three senior managers did time at Goldman Sachs.
I like that the expense ratio is under 1% and the fund has attracted healthy amount of assets at $825M. The fund has hedge-fund like flexibility without the attendant 1%/10% or even 2%/20% fees.
I like that AQR's website offers a lot of information about the fund, including a downloadable Excel spreadsheet of current holdings.
I do not like that AQR appears to have launched 7 new funds within the past year, nearly doubling the portfolio of publicly managed funds, which is now at 16. I understand from an article in WSJ that the Greenwich, Connecticut-based firm built its reputation managing hedge funds for wealthy and institutional investors. It stumbled like many others in 2007/8 as the credit crunch hit, but quickly recovered.
I do not like that two other AQR international public funds, AQIIX and AQGIX, where Mr. Liew is shown as a participant but not principal manager, have under-performed their benchmarks. The principal manager of those two funds is Cliff Asness, who along with Liew, started AQR Capital Management in 1998. The other AQR fund where Liew appears as principal manager is the heavily hedged Multi-Strategy Alternative Fund ASAIX, and while young, it looks to be doing ok compared to its benchmark.
And, I guess, I do not like that Affiliated Managers Group now owns a minority stake AQR Capital Management, but I know that seems to be the way of things these days.
Overall, there is a lot I like about this new fund AQRIX and, honestly, about AQR. I will probably take up a position soon. That said, I'll remain sensitive to AQR Capital keeping investors first in its quest to grow their firm.
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AQR is a famed hedge fund company lead by legendary quant Cliff Asness, who is listed as manager of a few of the stock funds that AQR offers. One can read more about Asness and AQR in Scott Patterson's enjoyable book, "The Quants", which looks into the experiences of Asness and other famed quant managers during the 2008 crisis. Asness is also known for his (I think) amusingly outspoken nature. (Patterson's new "Dark Pools" is also an enjoyable look into the world of electronic/high frequency trading.)
Risk Parity is hard to offer an apples-to-apples comparison for, but I've called it a "modern, actively managed" take on the "Permanent Portfolio" (different, distinct buckets, actively managed). There are a few risk parity funds on the market, but none seem (that I've seen) to have quite the level of depth that the AQR fund.
AQR has also started the process of MV (moderate volatility - targeted annualized volatility of 10%) and HV Risk Parity funds (high volatility - targeted annualized volatility of 15%), which have no date of arrival, but SEC papers have been filed. I'm rather curious about the HV version, but I'm otherwise quite fine with the normal version. Risk Parity can have short positions, but minimally and only to hedge other positions and will not take net short positions on any particular market: "The Fund may have exposure in long and short positions across all of the asset classes, however, short positions will
generally only be taken to hedge other investments made by the Fund. The Adviser does not anticipate that the Fund will be net short
any particular market."
There was an announced low volatility version of the commodities fund, but it has not come out yet, either.
My concern about Multi-Strategy is not the strategies themselves or AQR's ability to pull them off individually, but attempting to balance 9 hedge fund strategies under one fund is something that I think may be difficult to pull off on a consistent basis. It's sort of a :"fund of alternative strategies", but I'm just not convinced that lumping all these strategies together works. That said, I'd love to see some of the strategies within that fund that aren't available as separate AQR funds already to be made available on their own. (in particular, I'd love to see an AQR EM long/short fund and AQR Global Macro.)
I've also mentioned my concern that managed futures is a strategy that seems difficult to pull off in a mutual fund structure. There is not one managed futures mutual fund that has fared well, and some of the most structurally basic have been particularly whipsawed (such as the Rydex Managed Futures fund, which did well when everything went straight down in 2008 and gained 8%, but has basically appeared broken since, as the fund - which updates its positions only once a month - has been whipsawed for the 3 years since.)
I'd like to like the Multi-Strategy fund, but it has not done much so far and I'm just a little concerned that the balancing act of all the different strategies under one roof may be difficult to pull off consistently.
As for the amount of AQR funds, I don't find that quite as concerning as I would with other companies, because they are really more "categories" - AQR offers momentum funds (both us and foreign), their core global/international funds (which were previously private funds reorganized into mutual funds) and then the new line of defensive funds (US, International and EM). The categories allow investors to choose and blend investment style/risk, and in this article Asness talks about blending value and momentum - http://finance.fortune.cnn.com/2011/12/19/cliff-asness-aqr-hedge-fund/
"According to Asness, the highest and best use of momentum is to blend it 50-50 in a portfolio with the other high-octane category: value. "Momentum is good on its own, but it's amazing when you add it to value," he says enthusiastically. AQR's back-testing shows that combining the two should produce exceptional returns with far fewer losing streaks than either value or momentum display on their own. It's been a pillar of finance theory for over 30 years that value stocks far outperform growth stocks in the long term. The problem with value is that it goes through horrible periods, as when it fared 29 percentage points worse than the market during the tech bubble. Though it's a long-term winner, momentum encounters similarly rocky periods. But together, they are tough to beat."
That article from fortune is a very detailed look into the initial funds.
Publisher's Summary
In March 2006, the world's richest men sipped champagne in an opulent New York hotel. They were preparing to compete in a poker tournament with million-dollar stakes. At the card table that night was Peter Muller, who managed a fabulously successful hedge fund called PDT. With him was Ken Griffin, who was the tough-as-nails head of Citadel Investment Group. There, too, were Cliff Asness, the sharp-tongued, mercurial founder of the hedge fund AQR Capital Management, and Boaz Weinstein, chess "life master" and king of the credit-default swap.
Muller, Griffin, Asness, and Weinstein were among the best and brightest of a new breed, the quants. Over the past 20 years, this species of math whiz had usurped the testosterone-fueled, kill-or-be-killed risk takers who'd long been the alpha males of the world's largest casino. The quants believed that a cocktail of differential calculus, quantum physics, and advanced geometry held the key to reaping riches from the financial markets. And they helped create a digitized money-trading machine that could shift billions around the globe with the click of a mouse. Few realized that night, though, that in creating this extraordinary system, men like Muller, Griffin, Asness, and Weinstein had sown the seeds for history's greatest financial disaster.
©2010 Scott Patterson, Random House
Scott..do you have any idea how the new MV fund will differ from AQRIX? Both have the same targeted volatility range (10%; ranging from 7-13%). Are you likely to stick with AQRIX or look at the HV version?
The SEC filing was done in mid August with a wait period of 75 days. So the MV and HV funds should be out after end October.
BWG
ARCNX I expect to DCA into taxable
Best part - available for $100 at Scottrade and NTF.
I'll also add a recommendation for "Street Freak", a dark (sort of Anthony Bourdain/"Kitchen Confidential"-y) account of one very troubled trader working through the rise and fall of Lehman.
Minimums
Initial 100.00 Additional 100.00 IRA 100.00 Additional IRA 100.00