JHQAX (reviewed series) annual distributions have been about 1% (though M* shows the fund has about 40% annual turnover). My thought was to put it in a taxable account. The inevitable question is, how tax risky is it to put it in a taxable account? It seems this fund provides a 15% downside protection, if S&P 500 falls 20% or more (no protection for first 5% loss). In a choppy, sideways market, it could lose more than the SPY because of the cost of its option outlays and the Calls written may not fetch as much premium as they have in the past. It would be a tragedy if the fund ends up distributing a lot of cap gains in a year when it is not performing well, which is probably the scenario when it would trigger cap gains because of AUM outflows. Prior to November 2021, the only month of net outflows was March 2020. The other month of net outflows was November 2021, which was a surprise to me. What do its shareholders expect from it? What would constitute "not performing well" for this fund? I do not know the psychological make up of a typical investor in this fund as it is not a mainstream strategy. (May be I should head over to the Bogleheads forum and see if there is an interest there for this strategy - I am told those guys tend to be buy and holders!)
As an aside, its performance from inception (2014) until the beginning of Covid is about the same (more or less) as a good high yield fund but bond funds had falling rates as a tail wind - may be not a fair comparison.
Please share your reasonable comments / thoughts.
JHQDX, headlined in this thread, is the institutional class of JHDAX. Thanks to @Observant1 we learned about the open JPMorgan Hedged Equity funds in the other thread you recently participated.
JHQAX, JHDAX (series 2), and JHTAX (series 3) are funds in the same series and they differ from each other only by the option expiration month of the quarter, which is relevant for the timing of your purchase but not for the overall strategy - of course, JHQAX is closed for new investors. https://am.jpmorgan.com/us/en/asset-management/adv/funds/hedged-equity-fund-series/
Just an FYI - Looking at the bio of the lead manager gives one all the funds managed by the manager. https://www.morningstar.com/funds/xnas/jhqax/quote
I hold it in my tax deferred IRA so I know nothing about the tax ramifications.
What do I expect from it? I expect it to out-perform bonds, high yield or otherwise, with just slightly more risk. It has averaged about 13+% per year over the last 3 years but I don't expect it to duplicate that return in the next 3-5 years. I expect volatility to be low. In the past 3 years the funds STD has been ~7% compared to SPY at ~18%. Going forward, 60-70% of the S&P 500 return with 1/2 the down side in a bear market would be good I think.
FWIW, so far I really like the fund.
Average Annual Returns
Description 1 Month 3 Month 6 Month 1 Year 3 Yrs 5 Yrs 10 Yrs Inception
SEC Pre-Liquidation2 -7.51% -5.47% -1.81% +7.51% +7.30% +8.51% -- +7.11%
SEC Post-Liquidation -4.42% -3.21% -1.01% +4.59% +5.76% +6.83% -- +5.81%
Tax Cost Ratio -- -- -- 0.22% 0.35% 0.32% -- --
Tax Cost Ratio represents the percentage-point reduction in returns that results from Federal income taxes (before shares in the fund are sold, and assuming the highest Federal tax bracket).
1Numbers are adjusted for possible sales charges, and assume reinvestment of dividends and capital gains over each time period.
2Pre-liquidation (before sale of shares): includes taxes on fund's distributions of dividends and capital gains. Figures based on highest Federal income tax bracket. State and local taxes are not
Taxing issues with JHQAX from Schwab
I also hold a small toe hold, add me to the list.
Per your initial post: Being curious, the below chart; starting at inception of JHQAX:
ARTFX is a decent active managed HY fund, SPY for a standard equity view and FBALX.
Your Dec. 9 post: My expectation for MFO members is that alternative funds are not necessarily a bright spot for money over the years. AND if one doesn't hold at least 10% of a portfolio in an alternative fund, any gain or loss is noise; and of little benefit to the portfolio.
Your comments: "My expectation for MFO members is that alternative funds are not necessarily a bright spot for money over the years."
If you meant the above for the future, please share your thoughts on why.
"AND if one doesn't hold at least 10% of a portfolio in an alternative fund, any gain or loss is noise; and of little benefit to the portfolio."
I am deducing from your statement that you do not expect JHQAX's historic 10% per year (not compounded) return (somewhat lower return, pre-Covid) to continue. But do you expect it to perform worse than a good HY fund, say, ARTFX? I am not one to quibble about predictions about the future but it would be helpful to know your thoughts. I am going to divert some of my bond (low volatility) sleeve to this fund. I do not own any dedicated investment grade fixed income.
I am not a big fan of alternative funds in general because a lot of them are idiosyncratic and potentially have a large range of outcomes. I experimented with a few of them over the years and never felt I understood their behavior. The last one I owned was an AQR fund - some 15% of my portfolio - I can not say I understood that fund at anytime of my ownership. JHQAX is very simple and its relative outcomes are reasonably predictable - or let us say, I understand it as well as any equity or bond fund I currently own. For the relative low volatility it is expected to have, I owning >10% of portfolio in JHQAX is not a problem.
I also own JHQAX for quite a while now, about 15% of portfolio. The fund has an excellent risk/reward profile since its inception in 2014. What's not to like for a conservative and retired investor, especially at a time when equity valuations are stretched? So far, so good.
1) I agree alts have not been a bright spot in the past, but I'm not confident in the traditional diversifier, bonds, being a bright spot going forward. It's possible bond funds may return zero% or worst. Use bond funds as a diversifier in a portfolio? Ok, but maybe you can do the same with a couple alternative funds. For me 'some' of these alts are an alternative to traditional bond funds, not equity or balanced funds). My expectation is they return what we have expected from core bond funds or even HY funds in the past.
2) Your 10% rule - I agree. I try not to be a fund collector or toe-dipper into a bunch of funds, but I see the term "alternative" as some what different than owning multiple similar-type traditional category funds. Alternative has such a diverse spread of style application. I think you can own a couple of these alt funds with differing approaches totaling 10% or more and get the average return you are looking for. In my case, FWIW, my sleeve of 3 alt funds total close to 20% of my self managed portfolio. Again, this is taking the place of traditional bond funds with the same return expectation of what core bond funds returned in the past.
I'll add, 30% of my self managed port is in 3 balanced funds, PRWCX easily the bulk of that, so I still have bonds in that aspect. Will alts work as bond alternatives? I'll let you know
Being curious was the main adventure of my post. Having observed "alternative" funds over the years has not caused me to need/want to travel that path, as our mix has provided. The chart allows for an observation for whomever to reflect for their own needs as to portfolio construction.
You stated: I, as with you, are not able to offer any forward/future prediction about how any fund will perform in a given market; from effects of the market and/or management skills and decisions. So, I don't have a clue as to JHQAX and its future ability to sail a smooth path for the next 1, 3 or 5 years; and be able to provide a positive ballast for a portfolio. Many here have discovered, over the years; that there are times when the big money houses and the economic educated and enlightened one's have been off course with their observations into the near term and future.
As with my prior chart, I was curious about matching other investments with JHQAX to discover return relationships. The below numbers are real world from a 529 educational account started 15 years ago, and for the heck of it; compared to JHQAX. The two initial holdings in the 529 have not been changed, being 50/50. The two funds are: VITPX and VBMPX. NOTE: A mandatory requirement of this 529 is that the 50/50 (equity/bond) balance is reset every September. So, neither holding has outrun the other, percentage wise; over the years.
The return numbers are annualized where appropriate, with the 529 numbers being a combination of the two holdings returns. The above is not an attempt to provide anything more meaningful than a simple portfolio may provide, regardless of ones choices over the long term. A two fund portfolio being QQQ and AGG would provide, IMHO.
We've (household) attempted, over many years; to maintain a low number of investment vehicles. As with every investor, we all have our choices; based upon whatever moves us in a particular direction to hopefully provide the most benefit to a portfolio. We are fortuitous that our career paths were directed towards technology and healthcare; which helped us focus our investments based upon our understanding and insight of these areas.
Our equity holdings today are directed towards technology and healthcare.
Bonds? Don't have a clue at this moment, as the large support of high rates is now missing, which is where the "running" room used to be to have advantage of falling rates and obtain the profits from pricing; versus the prior 40 years.
I wandered a bit........, eh?
At Lipper, it scores in the highest percentile pretty much across the board. MaxFunds rates this outstanding (97%). The site estimates the fund’s “worst case” as -35% in a year compared to -30% for TMSRX. Lipper gives it a very low beta - but higher than TMSRX. A couple places to check downside are 2018 Qtr. 4 and 2020 Qtr 1. For both it bested equities by a lot, loosing roughly 5%. TMSRX held up slightly better, loosing 3-4%. 5 year performance (JHQAX) is much higher than any alternative funds I own - though the lifetime is shorter. I’ve recently researched funds using put / call options (which this fund claims to use) and have a positive take on them, generally, for defense in what appears a frothy market. Puts, in particular, protect. So far so good.
When I compare holdings on Lipper this fund comes up as mostly equities (98%) and appears heavily loaded with the FANG-types that have led the market higher (ie: Tesla, Apple, Microsoft, Amazon). I can’t see evidence of substantial use of derivatives / shorts. Best guess* is that it’s 90% or more long - but could be wrong. When I look at holdings for a couple alternatives I use (ABRZX, TMSRX) the numbers are “flakey” - showing very low equity levels and high cash or Treasury bond levels. Such (“mixed / skewed”) readings are more typical of “non-correlated” funds which seek to protect against prolonged equity declines thru extensive use of derivatives. (Funds leaning on put & call options often reveal 90% Treasury bond exposure.) One more I looked at is HSGFX - a bit of a turkey. However, Hussman’s 50/50 positioning of equities and bonds is telling (likely reflects substantial use of puts & calls). So … while appealing in a lot of ways, I’m not ready to buy this one as an “alternative” fund replacement yet. Still - I understand the appeal and will follow this one closely.
Worth looking at: https://markets.ft.com/data/funds/tearsheet/summary?s=JHQAX
* If you click the “Assets & Holdings“ tab at the top of the FT link above, it will show the fund 97+% long equity and 0% short.
P.S.: I do not use long-short funds in any form - that is an added unpredictability and faith I am not looking for.
You say, "With due respect, I do not find your analysis of the inner workings or risk mitigation features of this fund far superior to mine", though I did not question your analysis of the fund or the relevance of your post. The information included in my OP, which you quoted, is what I considered to be relevant for the questions I posed / help I sought. I consider posters' time valuable and try to get to the point. (There is an off topic thread for entertainment.) Many posters in this thread provided very specific information and help with what I sought. Many, Many thanks to them. Perhaps, I should have thanked them sooner and closed the thread.
For me, posting in this forum is not a competition or to establish my personal presence. I suggested readers to go to the fund site (source) for getting fund holdings information, which is data science 101; while you happen to ask readers to go to third party sites for the same information. I am not interested in your personal relationship with these third party sites but I specifically chose not to quote your related post to give certain level of deference (politeness) and I wanted to make sure the thread is back on track.
Have a nice day!
Just fiddl'in here. I compared a few of the previously mentioned funds; being JHQAX , SPY (baseline), TMSRX and ABRZX.
Each chart is a 6 month before and after using SPY as the benchmark; at its low price during the period.
Chart 1 compare (July 2, 2018-July 3, 2019) is for the Xmas eve market melt in 2018. The SPY high in this period was about Oct. 3, 2018 and time frame low was on Dec. 24.
For SPY, the high to low was -19.2%.
Chart 2 is the Covid melt period, being from Sept. 20, 2019-Sept. 20, 2020. The SPY high in this period was about Feb. 19, 2020 and time frame low was on March 23, 2020.
For SPY, the high to low was -33.7%.
Following the charts to the right edge, one may view the recovery price date area and to the far right edge; performance for 6 months after the low price for each entry.
Pillow time here.
Wake up & shine, Derf