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QQMNX is a Promising Alternative Fund

edited October 5 in Fund Discussions
For the past two months, I have been following two "Market Neutral" funds, QQMNX and VMNFX, which held up very well and provided some protection during recent market downturns. New managers have been at the helm of both funds since 2021.

As MikeM said: "I have to admit, QQMNX is a tempting alternative in this alternative field for a less bumpy ride and, so far, excellent returns."

..............QQMNX....VMNFX
YTD.........15.6%.......8.9%
3 YRS.......14.4........14.8
5 YRS.......10.3..........8.2
2022..........9.5.........13.5
Std. Dev....8.6%.......7.3%

As a retired investor who doesn't need a lot more money, preserving capital is more important to me than seeking sizeable returns on capital. While both funds have excellent risk/reward profiles, I have decided to add QQMNX to my portfolio at this time of fairly high equity valuations.


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Comments

  • QQMNX Flows and Return Since Inception

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  • edited October 1
    I pulled the trigger a couple weeks ago @fred495. I traded in my BLNDX money for QQMNX. BLNDX has been a fine fund, I think, but the ride can be as bumpy as the S&P 500 at times. I did want something less volatile to contrast the market, which QQMNX seems to be.

    edit: Charles' graph is a concern, maybe. Buying the hot group-think fund isn't usually a good idea.
  • Stepped into ADVNX North Square Strategic Income several weeks ago...I might be late to the party but maybe not...

    Snippet from the sub-advisor's website (Red Cedar Investment Mgmt)

    The strategy has flexibility to move into a wide variety of income producing asset classes, while operating under a relative value approach with research performed across the capital structure.
    Employs a top down macro perspective with bottom up security selection with an emphasis on high quality, relative value and high current income.
    We believe utilizing the preferred asset class allows us access to an asset class which provides higher current yield, where there are more opportunities to find value, while providing a less correlated result to fixed income.
    The strategy utilizes dynamic tail-risk hedging to mitigate the geopolitical and economic shocks that might impact a portfolio of income-producing assets.

    Not a recommendation but maybe oppty for higher interest and some downside flush protection?

    YMMV, good luck to all,

    Baseball Fan
  • @fred495 and @MikeM,

    If you are OK disclosing, what percentage of your portfolio makes up alternative funds and which one of the alternative funds do you currently own.
  • what percentage of your portfolio makes up alternative funds
    Hi @BaluBalu. About 20% total. Hedge/options funds make up 15% of portfolio. 5% now in a market neutral fund (traded out of BLNDX to buy).

    Options trading funds
    JHQAX 12%
    PHEFX 3%

    Market neutral fund
    QQMNX 5%
  • edited October 2
    Thanks @MikeM.
  • BaluBalu said:

    @fred495 and @MikeM,

    If you are OK disclosing, what percentage of your portfolio makes up alternative funds and which one of the alternative funds do you currently own.


    I have one alternative fund, QQMNX, which makes up 10% of my portfolio.
  • edited October 2
    Thanks you both for your replies. Did the alternative allocation come from (reducing) your historic equity allocation or from your historic fixed income allocation?

    For disclosure, since I am asked you about your info-

    I started PHEFX and HELO at 1% which were entered by reducing PRWCX. I am comfortable with both, but I have to figure out how to increase them (from equity or fixed income).

    I had previously experimented with BLNDX and closed that out at zero net gain / loss, except for the time value of money and opportunity cost.

    QQMNX chart looks good and from what I can see it is a pure long-short fund (correct me if I am wrong). I like that it is not trying to shoots the lights out and its chart looks less correlated to SPY than BLNDX or QLEIX (previous alt funds discussed here). I am inclined to take money out of fixed income to buy QQMNX but have not decided yet.

    @fred495, Do you no longer own Hedge equity fund(s)?

  • BaluBalu said:

    Thanks you both for your replies. Did the alternative allocation come from (reducing) your historic equity or historic fixed income allocation percentage?


    I don't think I ever had a "historic" equity or fixed income portfolio allocation. It was always a function of my age and the current economic/market environment.

    Thus, in the recent 5%+ interest rate environment, I was almost exclusively invested in CDs and Treasury bonds. As these instruments mature, I am now moving into bond and allocation funds, like ICMUX, RCTIX, BINC, PRCFX, etc.

    I used to have JHQAX in my portfolio but sold it in 2022. I guess you could say that QQMNX has had a better risk/reward profile over the past 3 years and has replaced JHQAX.
  • My concern about a fund like this is what prevents it from being like River Park Long-Short, classic great until it wasn't? QQMNX chart looks fantastic and the swings look a lot less than River Park, but both funds were/are ultimately reliant on stock picking.
  • fred495 said:

    For the past two months, I have been following two "Market Neutral" funds, QQMNX and VMNFX, which held up very well and provided some protection during recent market downturns. New managers have been at the helm of both funds since 2021.

    As MikeM said: "I have to admit, QQMNX is a tempting alternative in this alternative field for a less bumpy ride and, so far, excellent returns."

    ..............QQMNX....VMNFX
    YTD.........15.6%.......8.9%
    3 YRS.......14.4........14.8
    5 YRS.......10.3..........8.2
    2022..........9.5.........13.5
    Std. Dev....8.6%.......7.3%

    As a retired investor who doesn't need a lot more money, preserving capital is more important to me than seeking sizeable returns on capital. While both funds have excellent risk/reward profiles, I have decided to add QQMNX to my portfolio at this time.

    The 10 year return for VMNFX is 3.63%. That's my worry with QQMNFX. Is the risk/reward that much better than a solid bond fund particularly if rates fall as "expected"?
  • edited October 3
    wxman123 said:

    My concern about a fund like this is what prevents it from being like River Park Long-Short, classic great until it wasn't? QQMNX chart looks fantastic and the swings look a lot less than River Park, but both funds were/are ultimately reliant on stock picking.


    My simple answer is that if QQMNX underperforms at some point, I will just sell it. Just as I would sell any other underperforming fund. There are no guarantees in this business, and I am certainly not a buy-and-hold type of investor.

    Good luck.
  • wxman123 said:

    fred495 said:

    For the past two months, I have been following two "Market Neutral" funds, QQMNX and VMNFX, which held up very well and provided some protection during recent market downturns. New managers have been at the helm of both funds since 2021.

    As MikeM said: "I have to admit, QQMNX is a tempting alternative in this alternative field for a less bumpy ride and, so far, excellent returns."

    ..............QQMNX....VMNFX
    YTD.........15.6%.......8.9%
    3 YRS.......14.4........14.8
    5 YRS.......10.3..........8.2
    2022..........9.5.........13.5
    Std. Dev....8.6%.......7.3%

    As a retired investor who doesn't need a lot more money, preserving capital is more important to me than seeking sizeable returns on capital. While both funds have excellent risk/reward profiles, I have decided to add QQMNX to my portfolio at this time.

    The 10 year return for VMNFX is 3.63%. That's my worry with QQMNFX. Is the risk/reward that much better than a solid bond fund particularly if rates fall as "expected"?

    I didn't invest in VMNFX, but decided to pick QQMNFX instead. It's 10-year return is 7.1%, and its 15-year return is 8.7%. Not too shabby.

    If you can name a "solid bond fund" with a similar risk reward profile, I will be happy to check it out.
  • edited October 3
    Thanks Fred for your reply to my last post.

    Please post when you sell QQMNX. I think you posted when you sold BLNDX.

  • If you can name a "solid bond fund" with a similar risk reward profile, I will be happy to check it out.



    BGHIX would be one example that I've been in since before the managers joined BrandywineGlobal.
  • My simple answer is that if QQMNX underperforms at some point, I will just sell it. Just as I would sell any other underperforming fund. There are no guarantees in this business, and I am certainly not a buy-and-hold type of investor.

    My problem (which I recognize is a me problem) is I hate taking a loss. Those great slow and steady performers like this appears (though not that slow, granted) can take a very long time to dig out from say an 18% drawdown (the funds max in last 10 years) if you happen to invest at the wrong time (another me problem). That being said, I think I may take a chance on this one.

  • @wxman123,

    On point that the fund did not do a good job recovering from Covid loss. More surprising to me was that for a L/S fund it lost as much at that time. But we have a completely different management team since Sept 2021 and so I am going to ignore the prior history.

    I agree with you that, unlike with investing in SPY, this must be watched and acted on which should be easy for anyone participating in this forum.

    My question to you guys is, what are the parameters you use for a sell decision for a fund like this?

    (I recognize it is a very personal risk based decision but we all hate to lose money and so I presume the differences in parameters are nothing to quibble about.)
  • wxman123 said:


    If you can name a "solid bond fund" with a similar risk reward profile, I will be happy to check it out.


    BGHIX would be one example that I've been in since before the managers joined BrandywineGlobal.


    Thanks for the information. I will check it out.
  • @BaluBalu. For me it is always easier to make the buy decision then the sell. I have been at this since 1984 and my list of famous and successful managers that I have invested with is a long one. I could not prove it but I think I would be miles ahead if I had followed the Boglehead doctrine from the start. Less interesting but perhaps more lucrative. I know of one investor here who ALWAYS knows what to do and when to do it but he is the only one.
  • edited October 3
    wxman123 said:

    That's my worry with QQMNFX. Is the risk/reward that much better than a solid bond fund particularly if rates fall as "expected"?

    BGHIX would be one example that I've been in since before the managers joined BrandywineGlobal.


    Sorry, but a quick glance at BGHIX's Standard Deviation of 7.7% and a 3-year total return of only 4.2% doesn't qualify the fund to be on my personal watch list. If I invest in bond funds, I prefer funds like ICMUX or CBLDX, for example, that have significantly better risk/reward profiles than BGHIX.

    By the way, QQMNX, which has a slightly higher SD than BGHIX, 8.6% v. 7.7%, has a 3-year total return of 14.4%, a difference of over 10%. That's "much better" than any solid bond fund I am familiar with.
  • Market-neutral funds shouldn't be seen as bond alternatives. They are designed with 50-50 long-short exposure. A big risk is that the portfolio manager may be wrong on both ends - the longs AND the shorts. If everything works right, the upside may be limited.

    Of course, bonds have risks too - HY, EMs, etc. Then there was 2022, and those who said that couldn't happen again, there was 2023.

    But be careful in going from CDs, m-mkt funds, ultra-ST bond funds and ST-bond funds into market-neutral funds.

    Options-writing funds have also been mentioned. But keep in mind that upside is capped and realized upside basically converts CGs into (options) income. However, the downside isn't limited. These are great late-bull-market vehicles and JPM has capitalized on them like no other firm.
  • edited October 3
    larryB said:

    @BaluBalu. For me it is always easier to make the buy decision then the sell. I have been at this since 1984 and my list of famous and successful managers that I have invested with is a long one. I could not prove it but I think I would be miles ahead if I had followed the Boglehead doctrine from the start. Less interesting but perhaps more lucrative. I know of one investor here who ALWAYS knows what to do and when to do it but he is the only one.

    Yep. It is always on my selling when I lose money or profit because I do not know when to sell. That has always been a mystery.

    I am a proof that buy and hold would have put me miles ahead because my taxable account multiplies at a faster rate than my IRA. On top of that, withdrawal from my taxable account is taxed at zero to 20% (federal) long term tax rate whereas withdrawal from my IRA is at ordinary income tax rate (I do not recall when I saw a less than 25% federal rate.)

    We digress from the topic of the thread.
  • fred495 said:

    wxman123 said:

    That's my worry with QQMNFX. Is the risk/reward that much better than a solid bond fund particularly if rates fall as "expected"?

    BGHIX would be one example that I've been in since before the managers joined BrandywineGlobal.


    Sorry, but a quick glance at BGHIX's Standard Deviation of 7.7% and a 3-year total return of only 4.2% doesn't qualify the fund to be on my personal watch list. If I invest in bond funds, I prefer funds like ICMUX or CBLDX, for example, that have significantly better risk/reward profiles than BGHIX.

    By the way, QQMNX, which has a slightly higher SD than BGHIX, 8.6% v. 7.7%, has a 3-year total return of 14.4%, a difference of over 10%. That's "much better" than any solid bond fund I am familiar with.
    If your sample size is 3 years, fine. Over 10 years BGHIX outperformed QQMNX with a CAGR of 8.18 vs 7.24 and a sharpe ratio of .84 vs .61 and max drawdown of 13.29 vs. 18.27 (it's this last number that's most concerning). All that being said, I've decided to take a chance on this one.
  • BaluBalu said:

    larryB said:

    @BaluBalu. For me it is always easier to make the buy decision then the sell. I have been at this since 1984 and my list of famous and successful managers that I have invested with is a long one. I could not prove it but I think I would be miles ahead if I had followed the Boglehead doctrine from the start. Less interesting but perhaps more lucrative. I know of one investor here who ALWAYS knows what to do and when to do it but he is the only one.

    Yep. It is always on my selling when I lose money or profit because I do not know when to sell. That has always been a mystery.

    I am a proof that buy and hold would have put me miles ahead because my taxable account multiplies at a faster rate than my IRA. On top of that, withdrawal from my taxable account is taxed at zero to 20% (federal) long term tax rate whereas withdrawal from my IRA is at ordinary income tax rate (I do not recall when I saw a less than 25% federal rate.)

    We digress from the topic of the thread.
    The best investing decision I ever made was to invest in Wellington as a young lad, held forever. All the rest is a hobby.
  • I think the problem with selling is often the violation of a basic tenant: Never turn a trade into an investment. You go into a trade (hopefully) with an expectation of a specific outcome. You should also have a specific profit goal. When you reach the goal, or if your expectation turns out to have been in error, you ought to be selling for profit or cutting your losses. I think that far too many either decide to hold the trade indefinitely (invest), or hold waiting for a turnaround. If you were wrong, your reason for buying/owning no longer exists. Just admit it and move on.
  • edited October 4
    wxman123 said:

    If your sample size is 3 years, fine. Over 10 years BGHIX outperformed QQMNX with a CAGR of 8.18 vs 7.24 and a sharpe ratio of .84 vs .61 and max drawdown of 13.29 vs. 18.27 (it's this last number that's most concerning). All that being said, I've decided to take a chance on this one.


    The reason I picked 3 years is because a new management team took over QQMNX in 2021. So far so good. But, "Past results are not a guarantee of future results....".

    Good luck.

  • edited October 4
    Sell timing is a challenge for me too. I personally rely on various relative metrics in the monthly update for MFO Premium (SMA, 3,6 month performance, etc..).

    It isn't perfect of course but works reasonably well for me. Certainly worked well for me to exit BLNDX and BIVIX and get into QLEIX, QMNIX and CPIEX at the "right" time.

    My benchmark is VWELX -- for me to hold a fund other than VWELX there needs to be a catalyst, either absolute return over a 1-3 year period, risk adjusted return (I use Sortino) or intentional exposure to a strategy (small caps, international, etc..)
  • @racqueteer… A question for you. Excuse me if I am dense. Are you making a distinction between a trade and an investment? And where on that spectrum would we find a speculation?
  • edited October 4

    I think the problem with selling is often the violation of a basic tenant: Never turn a trade into an investment. You go into a trade (hopefully) with an expectation of a specific outcome. You should also have a specific profit goal. When you reach the goal, or if your expectation turns out to have been in error, you ought to be selling for profit or cutting your losses. I think that far too many either decide to hold the trade indefinitely (invest), or hold waiting for a turnaround. If you were wrong, your reason for buying/owning no longer exists. Just admit it and move on.

    Excellent. I think your thought / theory should also be applied to all investments of active funds.

    E.g., you invest in an active fund that has performed well in a particular macro environment or when the manager was at a good place in his life and you were not aware of either of those but you thought the fund's performance was entirely due to manager skill. You still have to make a choice to sell if the active fund underperforms because it can suck for a decade or more. When to sell?

    I guess, at the outset, one has to set specific parameters / expectations for the investment and sell when those parameters are violated and not assume at the outset that it is a forever investment. The vague assumptions / ideas at the outset screws one up.

    Did I capture your thinking properly?

    Edit: I now see Larry’s later post. (I was not trying to address his questions.)
  • larryB said:

    @racqueteer… A question for you. Excuse me if I am dense. Are you making a distinction between a trade and an investment? And where on that spectrum would we find a speculation?

    To the first question, the answer is yes. As to a speculation, I'm not sure everyone means the same thing by the term. For me, a speculation lies between the two; more of a long-term trade, but also with a lower probability than either. I associate it with more of a gamble. You believe there is a chance of a profitable outcome, but that may not happen promptly, or at all. I kind of think it would be something you are willing to simply write off. I don't think that's true of a trade or investment.
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