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.
Comments
edit: Charles' graph is a concern, maybe. Buying the hot group-think fund isn't usually a good idea.
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
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.
Options trading funds
JHQAX 12%
PHEFX 3%
Market neutral fund
QQMNX 5%
I have one alternative fund, QQMNX, which makes up 10% of my portfolio.
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)?
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 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.
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.
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 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.
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.)
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.
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.
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.
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 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.
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..)
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.)