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T. Rowe Price Hedged Equity Fund will be available November 8
That seems low. Sorry, haven had time to read it all. But wondering if it will short stocks and whether the interest paid on short positions is included in that ER.
For comparison: JHQAX ER .83% (which also seems low to me)
Just want to make it clear, JHQAX doesn't short stocks. I've actually tried to find a balanced or allocation fund that returns as well, with lower or the same volatility. I haven't been able to find one. It's my second largest fund holding behind PRWCX.
It seems that nonpublic classes were launched on 7/5/23 (advisory & retirement a/c) and have gathered $2.3 billion AUM already (M* shows the total for all available classes). Apparently, all tickers have been valid since then. But as the filing notes, public "Investor" and "I" classes will become available on 11/8/23.
This is an interesting phased way to launch new funds. It's unlike Vanguard's new fund launch nearby with a silly "Subscription period" (LINK).
From SEC/Edgar filing for PHEFX / PHEIX / PZHEX,
"The fund’s Investor and I Classes will become available to the public for purchases beginning on November 8, 2023.
The Z Class is only available to funds managed by T. Rowe Price and other advisory clients of T. Rowe Price or its affiliates that are subject to a contractual fee for investment management services. There is no minimum initial investment and no minimum for additional purchases."
Edit/Add. FWIW, these tickers are NOT recognized yet at Price-Retail or Price-Institutional, but are recognized at Yahoo Finance, M*, etc.
Just want to make it clear, JHQAX doesn't short stocks. I've actually tried to find a balanced or allocation fund that returns as well, with lower or the same volatility.
HFSAX has returned nearly the same amount as JHQAX (6.54% vs 6.71% annualized) over the latter's lifetime with significantly lower volatility (6.10% vs 7.44% std dev) resulting in better risk adjusted returns (Sharpe ratio, Sortino ratio). Per PortfolioVisualizer.
Very high ER, and a very high (over 500%) turnover ratio. Neither is surprising for a tactical allocation fund.
Tactical allocation funds had an average expense ratio of 1.39% (they are very expensive) and an average turnover of 289% (trading costs are high and tax efficiency is low).
I edited the PHEFX ER info in my post above to decrease from 0.78% to 0.58%.
Also, today I reduced (on the way to eliminate) TCAF and bought PHEFX. I already have a lot of PRWCX and TCAF is also overweight HC and Utilities. It was difficult to give up an ETF and get into a new mutual fund.
PHEFX at TRP website does not have portfolio holdings but M* says it has 318 equity holdings (but lists 96 which is similar to JHQAX).
Info available about PHEFX is very sparse but JHQAX website has excellent amount of information, including how the JPM strategy is implemented. JPM team is seasoned while TRP team (a single manager) is relatively green.
PHEFX AUM up to $3.1B (JPM Hedge equity strategies have a combined AUM of $25B).
@BaluBalu, good luck with PHEFX. I'll be interested to watch how it performs. Looks pretty good out of the gate.
JHQAX is one of the larger pieces in my portfolio. I think of it the same as a good moderate balanced/allocation fund because of its similar risk adjusted returns. Fits the same use for me.
Very interesting that M* rates PHEFX Silver while rating JHQAX Bronze. When I saw PHEFX rating by M*, i got excited hoping to learn about the fund as the TRP website hardly has any useful information about this fund. JHQAX fund analysis has an analyst listed but PHEFX does not and also PHEFX fund analysis reads like garbage and machine generated. @yogibearbull, any insight?
M* published a quantitatively-driven analysis for PHEFX Since the sole manager is a quant analyst, that seems somehow appropriate
(The M* analysis 10% analyst-driven, i.e. the parent "pillar" is written by a human being.)
Because the fund is new, there's little to be gleaned from the fund itself. One could do a bit more diligent research by looking into the fund manager Sean P. McWilliams. He's the third wheel (most recently added of three managers) on a couple of annuity portfolios: SunAmerica's T. Rowe Price VCP (volatility control portfolio) Balanced Portfolio and VCP Index Allocation Portfolio. https://www.sec.gov/Archives/edgar/data/892538/000119312519023995/d695956d497k.htm
The Fact Sheet there gives key benefits: stabilize volatility over time, mitigate tail risk, minimize impact on long term return. The PHEFX prospectus (Principal Investment Strategies) echoes this: "mitigate tail risk ... and provide strong risk-adjusted returns with lower volatility". You can look at the graphs and numbers to see how well the Risk Managed Dynamic Allocation SMA is meeting its objectives.
Regarding comparisons with JHQAX, the strategies seem a bit different. JPM is using an explicit disciplined collar strategy to limit risk. While TRP says it is doing something similar, it is using options on individual securities rather than on the market (S&P 500) as a whole. TRP also says explicitly that it is using "modest leverage", though that appears only implicitly in the risk factors (under derivative risks).
There are differences between Price PHEFX and JPM JHQAX.
PHEFX just started, 07/2023-, so its M* analyst evaluation is based on its future potential/promise, not any record. JHQAX has almost 10-yr record that can be evaluated - both with Star-ratings and Analyst-ratings.
Their classifications are different. PHEFX claims to employ a broad range of derivative strategies to manage tail-risks (disasters, crashes). For now, it is classified just as LC-blend. JHQAX uses a narrower sets of options tools and is classified as Options Trading fund.
M* ratings depend on the time periods involved and fund classifications. So, one shouldn't get too excited by what M* says about PHEFX, or disappointed by what it says about JHQAX. FWIW, JPM is swimming with money in options-based OEFs and ETFs.
I did not read the M* analysis on JHQAX as I had previously read the JPM site for the fund, which is robust. So, M* Bronze rating did not color my thinking. My looking at M* site for JHQAX is to see whether the analysis and rating process for PHEFX is now the standard for funds at M*.
I remember M* used to put a “Q” next to its rating when it is machine generated and I used to ignore looking at those analysis. When did they change / stop letting us know that something is machine generated? The insight I was looking for is the M* process. But appreciate the detailed replies.
PHEFX Summary Prospectus: Principal Investment Strategies includes this -
"The fund incorporates hedging and tail risk mitigating strategies primarily through the use of a derivatives overlay that is generally designed to manage the fund’s overall volatility and correlation to equity markets. The derivatives overlay typically involves buying and/or selling futures and options that reference particular U.S. large-cap equity securities, broad equity indexes, and U.S. Treasury securities." [Italics and bold added.]
The above sentence in the Prospectus appears to be incomplete (could be an editing error) and so, I had looked up the Summary Prospectus.
Here is my quick summary (but as msf suggested, read the fact sheet at the link above) -
In the four years since inception, the Dynamic Allocation strategy gathered $13.5M in assets. It has a hefty wrap fees. Aside from the small AUM, this essentially tactical allocation (equity and fixed income and no derivatives or hedging) strategy did not beat PRWCX and its draw down during 2022 was not good. Not sure what the strategy's limitation is to go to cash to limit risk. As of Sept, 30, 2023, the strategy was 100% in equities. (Fact Sheet: Approximately 50% of the portfolio is dynamically allocated between fixed income and equities, primarily through broad market index-based ETFs (and cash), to dynamically adjust asset allocation in response to short-horizon risk forecasts.)
Somehow, PHEFX managed to garner large AUM, given its infancy. In the first month alone it gathered $1B AUM and now has $3.1B AUM. I never thought TRP are a marketing machine but they are able to market this very well.
I will watch the manager's risk management in real time before increasing my current 1% of PV in the fund. Notwithstanding his 100% equity bias in the Dynamic Allocation strategy, PHEFX did alright against JHQAX during Sept and Oct equity market draw down.
Fidelity website still does not show the fund is available to purchase. When I checked with Fidelity on the date of my earlier post, Fidelity said they do not have any ETA when the fund might be available on their platform.
Does anyone want to share their thoughts regarding PHEFX vs VELIX? I'm fairly pleased with the VELIX fund so far after investing in it. First heard about it from an article that Dennis Baran wrote here on MFO.
These funds are what I'm looking for in my portfolio... exposure to the markets with one foot out the door....keeps me from bailing out every 2 percent drawdown...as y'all know I believe these are casino type false markets built on egregious monetary and fiscal policies and are kook job overvalued.
@msf, The link you posted by Robin Powell stated the following: 1. Tactical allocation funds had an average expense ratio of 1.39% (they are very expensive) and an average turnover of 289% (trading costs are high and tax efficiency is low). 2. TAA funds on average had about 49% of their assets in U.S. equity, about 33% in bonds, about 15% in foreign equities, about 8% in foreign bonds and about 13% in cash. 3. TAA funds underperformed all benchmark indexes and had lower absolute and risk-adjusted performance. The average TAA fund had cumulative returns of 215% versus 486% for P1 and 406% for P2. They even underperformed the Barclays Aggregate Bond Index, which returned 242%. 4. TAA funds produced an average Sharpe ratio of just 0.10 versus 0.17 for P1 and 0.15 for P2. Their Sortino ratio (a measure of downside risk) was also much lower, at 0.14 versus 0.25 for P1 and 0.22 for P2. 5. Benchmarked against a seven-factor asset pricing model (the four Fama-French-Carhart factors of beta, size, value and momentum plus factors for foreign equities and domestic and international bonds), TAA funds had a highly significant (t-stat = 4.6) negative monthly alpha of -0.16 over the entire period. The negative monthly alpha was even worse, at -0.20% (t-stat = 5.2), over the period beginning in 2004. 6. TAA funds failed when needed most, during the Great Financial Crisis — over the period 10/2007-3/2009, they produced a negative monthly alpha of -0.37% (t-stat = 2.7).
It concluded that “Our findings indicate that tactical allocation funds did not outperform the benchmarks, and investors would have been better off with passively managed funds that followed benchmark indexes.”
I responded to a comment about finding allocation funds that performed at least as well as JHQAX with lower volatility.
One can start with equity and attempt to reduce volatility in various ways. One can use options, as JHQAX does. One can add ballast (bonds and cash) via asset allocation. The allocations can be static (e.g. moderate allocation funds) or dynamic (tactical allocation). Tactical allocation is more costly and essentially by definition trades frequently. I linked to a piece documenting these attributes.
The fact that on average tactical allocation funds don't deliver does not mean tactical allocation cannot be executed successfully, just that the odds are against it. Whether by luck or skill HFSAX has beaten the odds for over a decade.
Here's another way one can match or beat JHQAX with equity and ballast. A 72/28 mix of PRWCX and cash (rebalanced annually) outperformed JHQAX 8.02% to 7.29% over the lifetime of the latter, with nearly identical volatility (8.56% vs 8.55%). Want lower volatility? Add cash. You'll reduce performance but still keep it ahead of JHQAX, so long as you don't dial up the cash too high.
“Our findings indicate that tactical allocation funds did not outperform the benchmarks, and investors would have been better off with passively managed funds that followed benchmark indexes.”
Over its lifetime, HFSAX has achieved the same return as a 51/49 mix of VFIAX / VBTLX rebalanced monthly, doing that with significantly lower volatility (6.11% vs 8.28%). Alpha? 3.73% vs. 0.45% for the blended benchmark.
As always, past performance does not guarantee future returns. 20/20 hindsight, back testing and all that.
If an investor wishes to hold multiple moderate allocation funds in their portfolio, can JHQAX be one of those funds, even though it is not structured as an allocation fund?
I have incurred too much opportunity cost chasing purported holy grails (including tactical allocation funds). Simpler strategies (with an occasional risk management (e.g., change in cash levels) from me)) do alright for me. If it turns out PHEFX is similar to the manager's Dynamic Allocation Strategy, I am likely not increasing my investment in it and may even liquidate it.
I do not understand the interest in hedge funds. Most of them underperform simple market index funds, and some fail spectacularly. T Rowe Price started allocating about 10% of the holdings in their allocation funds several years ago, and I can discern no improvement in their mediocre returns.
@msf and @BaluBalu, thank you for your comments on hedged equity funds. Just want to better understand these strategies.
In the past, I have invested small allocation on alternatives and decided they do not add much value while incurring high management fees. Thus I stick with high cash (equivalents) to balance my portfolio better. Certainly this approach has been more predictable in last few years. In the end,I want to have fewer funds for ease of management.
I do not understand the interest in hedge funds. Most of them underperform simple market index funds, and some fail spectacularly. T Rowe Price started allocating about 10% of the holdings in their allocation funds several years ago, and I can discern no improvement in their mediocre returns.
I agree, don't see what value the black box provides.
In my case, I think I'm my own 'alternative' since I don't follow benchmarks or indexes when investing.
"I do not understand the interest in hedge funds. . . . T Rowe Price started allocating about 10% of the holdings in their allocation funds several years ago, and I can discern no improvement in their mediocre returns."
@Tarwheel, could you please share specific TRP allocation fund(s) that invest in Hedge Funds? (I read and re-read your statements several times and am not able to reach a different conclusion.) If you think I misunderstood your statements, please elaborate.
TRP Global Allocation fund, RPGAX, employs about 10% hedge fund in its portfolio. Buried in the prospectus states:
The adviser generally selects hedge funds and other alternative funds, as well as any investment subadvisers, based on their investment strategies, historical performance, and their ability to seek alternative investments that have shown the potential to perform independently of each other and achieve a relatively low correlation to the major equity and fixed income markets.
@BaluBalu In addition to RPGAX, TRP uses hedge funds in some of their Spectrum allocation funds, such as TRPBX. In the last two bear markets, TRPBX (which I owned for many years) did not perform any better than most comparable funds. I owned TRPBX for about 20 years, and its performance has steadily declined. I’m not sure exactly when they started using hedge funds, but I think it’s been at least five years and its performance has been below average over that period.
I just checked their website, and TRPBX had about 4% of its holdings in Blackstone hedge fund in 2023, and perhaps others. At times, it’s held as much as 10% in hedge funds, if I recall correctly, or perhaps that’s the amount they limit it too. Anyway, that’s one of the reasons I dropped the fund after many years.
According to the TRP website, RPGAX has about 7.5% in Blackstone and PRSIX about 6%.
Comments
That seems low. Sorry, haven had time to read it all. But wondering if it will short stocks and whether the interest paid on short positions is included in that ER.
For comparison: JHQAX ER .83% (which also seems low to me)
Thanks @TheShadow for posting this.
Why does the OP say the fund will be available on Nov 8?
It seems that nonpublic classes were launched on 7/5/23 (advisory & retirement a/c) and have gathered $2.3 billion AUM already (M* shows the total for all available classes). Apparently, all tickers have been valid since then. But as the filing notes, public "Investor" and "I" classes will become available on 11/8/23.
This is an interesting phased way to launch new funds. It's unlike Vanguard's new fund launch nearby with a silly "Subscription period" (LINK).
From SEC/Edgar filing for PHEFX / PHEIX / PZHEX,
"The fund’s Investor and I Classes will become available to the public for purchases beginning on November 8, 2023.
The Z Class is only available to funds managed by T. Rowe Price and other advisory clients of T. Rowe Price or its affiliates that are subject to a contractual fee for investment management services. There is no minimum initial investment and no minimum for additional purchases."
Edit/Add. FWIW, these tickers are NOT recognized yet at Price-Retail or Price-Institutional, but are recognized at Yahoo Finance, M*, etc.
HFSAX has returned nearly the same amount as JHQAX (6.54% vs 6.71% annualized) over the latter's lifetime with significantly lower volatility (6.10% vs 7.44% std dev) resulting in better risk adjusted returns (Sharpe ratio, Sortino ratio). Per PortfolioVisualizer.
Very high ER, and a very high (over 500%) turnover ratio. Neither is surprising for a tactical allocation fund. https://www.evidenceinvestor.com/tactical-allocation-vs-static-indexing-which-one-wins
(Swedroe referencing a study of tactical allocation funds between Jan 1994 and Oct 2016.)
Also, today I reduced (on the way to eliminate) TCAF and bought PHEFX. I already have a lot of PRWCX and TCAF is also overweight HC and Utilities. It was difficult to give up an ETF and get into a new mutual fund.
PHEFX at TRP website does not have portfolio holdings but M* says it has 318 equity holdings (but lists 96 which is similar to JHQAX).
Info available about PHEFX is very sparse but JHQAX website has excellent amount of information, including how the JPM strategy is implemented. JPM team is seasoned while TRP team (a single manager) is relatively green.
PHEFX AUM up to $3.1B (JPM Hedge equity strategies have a combined AUM of $25B).
JHQAX is one of the larger pieces in my portfolio. I think of it the same as a good moderate balanced/allocation fund because of its similar risk adjusted returns. Fits the same use for me.
PHEFX is available at Vanguard but not at Fidelity yet. Likely will be next week.
These M* quant analyses are often incomprehensible and provide little value.
Since the sole manager is a quant analyst, that seems somehow appropriate
(The M* analysis 10% analyst-driven, i.e. the parent "pillar" is written by a human being.)
Because the fund is new, there's little to be gleaned from the fund itself. One could do a bit more diligent research by looking into the fund manager Sean P. McWilliams. He's the third wheel (most recently added of three managers) on a couple of annuity portfolios: SunAmerica's T. Rowe Price VCP (volatility control portfolio) Balanced Portfolio and VCP Index Allocation Portfolio.
https://www.sec.gov/Archives/edgar/data/892538/000119312519023995/d695956d497k.htm
Here are the SEC filings for the Balanced Portfolio and the Index Allocation Portfolio respectively:
https://www.sec.gov/cgi-bin/browse-edgar?CIK=S000052512&action=getcompany&scd=filings
https://www.sec.gov/cgi-bin/browse-edgar?CIK=S000059205&action=getcompany&scd=filings
And the prospectus for all the Sun America portfolios:
https://www.sec.gov/ix?doc=/Archives/edgar/data/0000892538/000119312523122077/d397945d485bpos.htm
McWilliams is also the sole manager of T. Rowe Price's U.S. Risk Managed Dynamic Allocation SMA (separately managed account strategy)
https://www.troweprice.com/financial-intermediary/us/en/investments/separately-managed-accounts/us-risk-managed-dynamic-allocation-sma.html
The Fact Sheet there gives key benefits: stabilize volatility over time, mitigate tail risk, minimize impact on long term return. The PHEFX prospectus (Principal Investment Strategies) echoes this: "mitigate tail risk ... and provide strong risk-adjusted returns with lower volatility". You can look at the graphs and numbers to see how well the Risk Managed Dynamic Allocation SMA is meeting its objectives.
Regarding comparisons with JHQAX, the strategies seem a bit different. JPM is using an explicit disciplined collar strategy to limit risk. While TRP says it is doing something similar, it is using options on individual securities rather than on the market (S&P 500) as a whole. TRP also says explicitly that it is using "modest leverage", though that appears only implicitly in the risk factors (under derivative risks).
PHEFX just started, 07/2023-, so its M* analyst evaluation is based on its future potential/promise, not any record. JHQAX has almost 10-yr record that can be evaluated - both with Star-ratings and Analyst-ratings.
Their classifications are different. PHEFX claims to employ a broad range of derivative strategies to manage tail-risks (disasters, crashes). For now, it is classified just as LC-blend. JHQAX uses a narrower sets of options tools and is classified as Options Trading fund.
M* ratings depend on the time periods involved and fund classifications. So, one shouldn't get too excited by what M* says about PHEFX, or disappointed by what it says about JHQAX. FWIW, JPM is swimming with money in options-based OEFs and ETFs.
I did not read the M* analysis on JHQAX as I had previously read the JPM site for the fund, which is robust. So, M* Bronze rating did not color my thinking. My looking at M* site for JHQAX is to see whether the analysis and rating process for PHEFX is now the standard for funds at M*.
I remember M* used to put a “Q” next to its rating when it is machine generated and I used to ignore looking at those analysis. When did they change / stop letting us know that something is machine generated? The insight I was looking for is the M* process. But appreciate the detailed replies.
PHEFX Summary Prospectus: Principal Investment Strategies includes this -
"The fund incorporates hedging and tail risk mitigating strategies primarily through the use of a derivatives overlay that is generally designed to manage the fund’s overall volatility and correlation to equity markets. The derivatives overlay typically involves buying and/or selling futures and options that reference particular U.S. large-cap equity securities, broad equity indexes, and U.S. Treasury securities." [Italics and bold added.]
The above sentence in the Prospectus appears to be incomplete (could be an editing error) and so, I had looked up the Summary Prospectus.
Thanks.
"McWilliams is also the sole manager of T. Rowe Price's U.S. Risk Managed Dynamic Allocation SMA (separately managed account strategy)
https://www.troweprice.com/financial-intermediary/us/en/investments/separately-managed-accounts/us-risk-managed-dynamic-allocation-sma.html"
That is a useful link.
Here is my quick summary (but as msf suggested, read the fact sheet at the link above) -
In the four years since inception, the Dynamic Allocation strategy gathered $13.5M in assets. It has a hefty wrap fees. Aside from the small AUM, this essentially tactical allocation (equity and fixed income and no derivatives or hedging) strategy did not beat PRWCX and its draw down during 2022 was not good. Not sure what the strategy's limitation is to go to cash to limit risk. As of Sept, 30, 2023, the strategy was 100% in equities. (Fact Sheet: Approximately 50% of the portfolio is dynamically allocated between fixed income and equities, primarily through broad market index-based ETFs (and cash), to dynamically adjust asset allocation in response to short-horizon risk forecasts.)
Somehow, PHEFX managed to garner large AUM, given its infancy. In the first month alone it gathered $1B AUM and now has $3.1B AUM. I never thought TRP are a marketing machine but they are able to market this very well.
I will watch the manager's risk management in real time before increasing my current 1% of PV in the fund. Notwithstanding his 100% equity bias in the Dynamic Allocation strategy, PHEFX did alright against JHQAX during Sept and Oct equity market draw down.
Currently available at Vanguard and Schwab - NTF.
These funds are what I'm looking for in my portfolio... exposure to the markets with one foot out the door....keeps me from bailing out every 2 percent drawdown...as y'all know I believe these are casino type false markets built on egregious monetary and fiscal policies and are kook job overvalued.
Best
Baseball fan
The link you posted by Robin Powell stated the following:
1. Tactical allocation funds had an average expense ratio of 1.39% (they are very expensive) and an average turnover of 289% (trading costs are high and tax efficiency is low).
2. TAA funds on average had about 49% of their assets in U.S. equity, about 33% in bonds, about 15% in foreign equities, about 8% in foreign bonds and about 13% in cash.
3. TAA funds underperformed all benchmark indexes and had lower absolute and risk-adjusted performance. The average TAA fund had cumulative returns of 215% versus 486% for P1 and 406% for P2. They even underperformed the Barclays Aggregate Bond Index, which returned 242%.
4. TAA funds produced an average Sharpe ratio of just 0.10 versus 0.17 for P1 and 0.15 for P2. Their Sortino ratio (a measure of downside risk) was also much lower, at 0.14 versus 0.25 for P1 and 0.22 for P2.
5. Benchmarked against a seven-factor asset pricing model (the four Fama-French-Carhart factors of beta, size, value and momentum plus factors for foreign equities and domestic and international bonds), TAA funds had a highly significant (t-stat = 4.6) negative monthly alpha of -0.16 over the entire period. The negative monthly alpha was even worse, at -0.20% (t-stat = 5.2), over the period beginning in 2004.
6. TAA funds failed when needed most, during the Great Financial Crisis — over the period 10/2007-3/2009, they produced a negative monthly alpha of -0.37% (t-stat = 2.7).
It concluded that “Our findings indicate that tactical allocation funds did not outperform the benchmarks, and investors would have been better off with passively managed funds that followed benchmark indexes.”
Am I missing something on this tread?
One can start with equity and attempt to reduce volatility in various ways. One can use options, as JHQAX does. One can add ballast (bonds and cash) via asset allocation. The allocations can be static (e.g. moderate allocation funds) or dynamic (tactical allocation). Tactical allocation is more costly and essentially by definition trades frequently. I linked to a piece documenting these attributes.
The fact that on average tactical allocation funds don't deliver does not mean tactical allocation cannot be executed successfully, just that the odds are against it. Whether by luck or skill HFSAX has beaten the odds for over a decade.
Here's another way one can match or beat JHQAX with equity and ballast. A 72/28 mix of PRWCX and cash (rebalanced annually) outperformed JHQAX 8.02% to 7.29% over the lifetime of the latter, with nearly identical volatility (8.56% vs 8.55%). Want lower volatility? Add cash. You'll reduce performance but still keep it ahead of JHQAX, so long as you don't dial up the cash too high.
“Our findings indicate that tactical allocation funds did not outperform the benchmarks, and investors would have been better off with passively managed funds that followed benchmark indexes.”
Over its lifetime, HFSAX has achieved the same return as a 51/49 mix of VFIAX / VBTLX rebalanced monthly, doing that with significantly lower volatility (6.11% vs 8.28%). Alpha? 3.73% vs. 0.45% for the blended benchmark.
As always, past performance does not guarantee future returns. 20/20 hindsight, back testing and all that.
I have incurred too much opportunity cost chasing purported holy grails (including tactical allocation funds). Simpler strategies (with an occasional risk management (e.g., change in cash levels) from me)) do alright for me. If it turns out PHEFX is similar to the manager's Dynamic Allocation Strategy, I am likely not increasing my investment in it and may even liquidate it.
In the past, I have invested small allocation on alternatives and decided they do not add much value while incurring high management fees. Thus I stick with high cash (equivalents) to balance my portfolio better. Certainly this approach has been more predictable in last few years. In the end,I want to have fewer funds for ease of management.
In my case, I think I'm my own 'alternative' since I don't follow benchmarks or indexes when investing.
@Tarwheel, could you please share specific TRP allocation fund(s) that invest in Hedge Funds? (I read and re-read your statements several times and am not able to reach a different conclusion.) If you think I misunderstood your statements, please elaborate.
Nevertheless, the performance record of this fund showed little downside protection and overall being very average in my opinion.
In addition to RPGAX, TRP uses hedge funds in some of their Spectrum allocation funds, such as TRPBX. In the last two bear markets, TRPBX (which I owned for many years) did not perform any better than most comparable funds. I owned TRPBX for about 20 years, and its performance has steadily declined. I’m not sure exactly when they started using hedge funds, but I think it’s been at least five years and its performance has been below average over that period.
I just checked their website, and TRPBX had about 4% of its holdings in Blackstone hedge fund in 2023, and perhaps others. At times, it’s held as much as 10% in hedge funds, if I recall correctly, or perhaps that’s the amount they limit it too. Anyway, that’s one of the reasons I dropped the fund after many years.
According to the TRP website, RPGAX has about 7.5% in Blackstone and PRSIX about 6%.