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Stupid Question on ARCNX

VintageFreakVintageFreak
edited July 2013 in Fund Discussions
Can someone please tell me how ARCNX manages to lose than practically any Commodities fund out there while holding 75% in cash?

This is my ONLY dedicated commidities exposure and not a large portion of portfolio. However, I would like to know WTF is happening. The AQR website and report does a good job of explaining HOW they invest, but not a very good job of why they suck at it. This fund is supposed to have a DD limit and ability to go long and short commodities. Want to try figure out if this is a case of Bill Nygren + Washingon Mutual Scenario, or I'm simply getting hoodwinked with all these PhDs on the manager roster.

Comments

  • InvestorInvestor
    I did not look at this fund but many commodity funds invest in commodity futures. As part of investment in futures they need to put collateral. They can use t-bills as collateral which appears as cash. PIMCO likes to use TIPS so other choices exist as well. So it looks like a bond fund or cash heavy. But investing in futures is amplified by inherent leverage. Thus, fund can gain or lose a lot. If the futures bets turn sour thing can get very ugly.

    Again, I have not specifically looked at this.
  • claimui
    edited July 2013
    AQR's ARCNX is only doing a little worse than Pimco's PCRIX, so they may be using a similar strategy. PCRIX holds TIPS for collateral. This strategy is expected to perform well in high inflation, when both commodities and TIPS are expected to go up.

    But TIPS have had it pretty bad this year. Just as a reference, Vanguard's TIPS fund VIPSX is down over 7% YTD. This is probably why PCRIX has suffered and maybe ARCNX as well.

    Pimco has another commodities fund, PCLIX, which does not use TIPS and is significantly less horrible this year.
  • scott
    edited July 2013
    I'd say the AQR fund is probably most comparable to the Highbridge Commodity Strategy fund. I'm adding here-and-there to ARCNX.
  • AndyJ
    +1 on PCLIX, per claimui ... I'm not in commodities now, but if we ever get to the late-cycle stage in this recovery before we get another recession, that's the source of commodity exposure I have in mind.
  • VintageFreakVintageFreak
    Okay, but PCRIX does not have 75% in cash. If you look at M* PCRIX shows long/short cash positions. I'm assuming that happens when options are written on futures. And it shows 95% net bond position.

    Something is not right.
  • scott
    Reply to @VintageFreak: Bonds as collateral on futures, perhaps.
  • InvestorInvestor
    Reply to @VintageFreak: Bonds are collateral for futures contracts. Again collateral is usually T-bills which M* consider as cash equivalent or they can be TIPS like PCRIX does hold or any relatively safe. If collateral loses value than they need to post more collateral.
  • VintageFreakVintageFreak
    edited July 2013
    Okay I have my answer to original question. M* has a bug in their database. Or are ANALysing and coming up with those numbers. It's Holding page for ARCNX is blank. This fund is 100% invested. I don't care to look at PCRIX because I know the real issue now.

    As far as ARCNX performance is concerned they have lost over 15%. They are targetting maximum drawdown of 15%. So they have already broken their promise (again forget M* YTD number, just go on AQR site). If this fund drops 20% YTD, then I'm going to sell and invest in commodity index fund instead. The DD was important for me when I invested. Same reason I bought ARLSX. You need to keep the manager honest.

    Anyone have any mutual fund suggestion for commodity indexing, please let me know. I don't do ETFs. Just in case, want to be ready.
  • InvestorInvestor
    Reply to @VintageFreak:
    Okay I have my answer to original question. M* has a bug in their database. Or are ANALysing and coming up with those numbers. It's Holding page for ARCNX is blank. This fund is 100% invested. I don't care to look at PCRIX because I know the real issue now
    M* might not have a bug. At least from their standpoint. The cash "equivalent" collateral is not showing up but it is shown in asset allocation. All the other is futures contracts so they do not show up as bond or equity when you look at Holdings (M* does not have "Other" category in holdings. It is not a bug but deficiency.
  • VintageFreakVintageFreak
    Reply to @Investor: Yes. Not sure why I was defending M*:). Deficient is certainly one word I would use for M*. I was being nice saying it is a "bug" because then I would expect them to correct it.
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