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In this months commentary David identified QDSNX as having an e/r of 0.44%. The AQR site shows e/r as 3.3%, Vanguard 2.98%, and Fidelity 2.97%. However Mstar does show 0.44% - consequently I am confused as the fund would be a good option at 0.44% but 3.3% ?
I wouldn't buy a fund of funds anyway, but practically speaking, wouldn't the drag on on each constituent be the tacking on of the top level management fee? If you owned all of these funds separately you wouldn't add their ER's to each other, would you?
Often when a fund sponsor (e.g. AQR) offers a fund of fund, it does not charge a second level of management fees. No drag there, and if it eats the FoF's "other" fees, there may be no difference between the FoF and owning the underlying funds separately.
I say "may be" no difference because Vanguard's FoFs hold the more expensive Investor class shares of underlying funds. For example, VSCGX owns Vanguard Total Market Investor shares VTSMX (ER 0.14%) instead of Admiral Shares VTSAX ($3K min, ER 0.04%).
Acquired fund expenses are prorated when calculating the total acquired fund fees. QDSNX's acquired fund fees are so high because the underlying funds short securities, a costly strategy.
From the summary prospectus: "Acquired Fund Fees and Expenses include 1.79% related to fees and expenses associated with certain underlying funds' dividends on short sales and interest expense."
Acquired fund fees 2.86% (Magical accounting used to ignore these fees.)
TOTAL 3.30%
Ditto!
The FOFs I’ve used in the past (T Rowe Price / Cambrea) did not tack on a 12b-1 distribution fee or an additional management fee. That would be a turn-off. When I had money at Oppenheimer they did have a bunch of FOFs (multi-asset funds) that did add a management fee. They called it a “allocation fee” if I remember. Possibly those have migrated to Invesco? So, you were better off owning the components individually than as part of a FOF.
However, my bottom line is a fund's risk/reward profile, not its fees. QDSNX is a very steady and very low risk alternative fund. It's YTD gain is a very pleasing 8.97%, and the one year total return is 14.98%, but its standard deviation is an almost bond like 6.56%.
I am very happy holding this fund in my conservative low volatility portfolio.
When it comes to FoF I would consider looking at TDF, Target Date Funds.
Year ago I was impressed with FoF Vanguard Star Fund, VGSTX, (0.3 ER). FWIW, It is making changes to it's underlying FoF make up:
Changes to Vanguard Star’s holdings and sub-asset-class allocations are coming in the first quarter of 2025, but the fund’s strengths remain consistent.
This globally diversified balanced fund will stay true to its strategic 60/40 stock/bond split, but within those sleeves, investors will see a more defensive equity posture and increased exposure to lower-quality bonds.
Fred said ”However, my bottom line is a fund's risk/reward profile, not its fees”
I think there.’s a good case to be made for that line of thinking. More true I think in “frothy” markets like today or for someone in their “golden years”, more concerned about “not losing a lot” rather than with “making a lot”.
I’ve looked at QDSNX before and decided it’s not for me. Too short a track record for my comfort level. But the numbers are amazing since the fund opened in 2020.
"I’ve looked at QDSNX before and decided it’s not for me. Too short a track record for my comfort level. But the numbers are amazing since the fund opened in 2020."
I've taken a brief look at QDSNX. The fund has performed very well since inception. QDSNX is extremely complex since it is a fund of funds allocated to six AQR alternative funds. It could be challenging for me to stay invested in this fund if it experienced a severe decline because—in all likelihood—I would be unable to determine what caused the fall.
A few observations about this FoF, and replicating it on your own:
Unlike Vanguard that uses expensive share classes of underlying funds, AQR uses its cheapest (R-6) share class for acquired funds. In replicating this FoF, one would only have access to N class shares - adding 0.35% to the cost. That's still less than the 0.44% that QDSNX charges, but it is close.
Shorting is not cheap. One can see this in the underlying fund QMNRX. Its offical ER is 4.55%. When M* backs out the cost of shorting, it comes up with an "adjusted" ER of 1.23%.
M* says that the managers add value by tactically varying the weights of the underlying funds. I'm not so sure.
I took what appears to be the nominal weights by rounding the current weights. Over the past five years (nearly the whole lifetime of the fund), from end of July 2020 to end of July 2025 (60 months), M* says QDSNX returned 11.76% annualized. Portfolio Visualizer concurs exactly. But the DIY portfolio (annual rebalancing) returned 11.95%.
Unfortunately, after subtracting 0.35%/year to use the more costly retail shares, one falls a little short of the QDSNX return.
To address @hank's concern about this fund being too new, you can take the PV model, and set it for max timeframe (PV is limited to ten years). The static mix I used to approximate QDSNX did not distinguish itself over the ten year span. Perhaps the actual QDSNX would have done better with its managers resetting weights than with this static mix.
Interesting comment by poster keppelbay on the QLENX thread of BigBang regarding QDSNX:
"Somewhat to my surprise, PV shows that a 50:50 mix of QLENX with PIMIX did a tad better with just a tad more volatility. Since most of us also use bond funds, perhaps the allocation fund is adding complexity without lowering volatility overall. If its performance was better, maybe.
If your goal is to diversify risk away from traditional equity, while keeping some potential to do better than bond funds, this might have a place."
Congrats & thanks for sharing. Have you tried dissecting the fund’s holdings / positioning to determine where the outsized gains have come from? Things like opportunistic short positions, high yield bonds, exposure to gold … big tech or non-dollar denominated stuff? I know that kind of analysis takes a lot of time and perseverance. M* doesn’t seem to list QDSNX’s top investments in any specificity.
What I can glean from M* the top sector “exposure” is 17% in technology, followed by 16% in financial.
These numbers from M* (Classic View) appear a bit off-the-wall. I have owned L/S funds before, but can’t recall numbers as high as these.
Long equity 135% / Short Equity 127%
Long fixed income 291% / Short fixed income 278%
Short cash 174% / Long cash 204%
In defense of those large numbers, it does appear the bond duration is largely on the short end with approximately 50% under 1 year out. Bond quality looks good with about 70-80% investment grade.
Comments
Top-level management fee 0%
12b-1 distribution 0.25%
Other 0.19%
Acquired fund fees 2.86%
TOTAL 3.30%
12b-1 distribution 0.25%. Other 0.19% = 0.44%
Acquired fund fees 2.86% (Magical accounting used to ignore these fees.)
TOTAL 3.30%
I say "may be" no difference because Vanguard's FoFs hold the more expensive Investor class shares of underlying funds. For example, VSCGX owns Vanguard Total Market Investor shares VTSMX (ER 0.14%) instead of Admiral Shares VTSAX ($3K min, ER 0.04%).
Acquired fund expenses are prorated when calculating the total acquired fund fees. QDSNX's acquired fund fees are so high because the underlying funds short securities, a costly strategy.
From the summary prospectus: "Acquired Fund Fees and Expenses include 1.79% related to fees and expenses associated with certain underlying funds' dividends on short sales and interest expense."
The FOFs I’ve used in the past (T Rowe Price / Cambrea) did not tack on a 12b-1 distribution fee or an additional management fee. That would be a turn-off. When I had money at Oppenheimer they did have a bunch of FOFs (multi-asset funds) that did add a management fee. They called it a “allocation fee” if I remember. Possibly those have migrated to Invesco? So, you were better off owning the components individually than as part of a FOF.
I am very happy holding this fund in my conservative low volatility portfolio.
Year ago I was impressed with FoF Vanguard Star Fund, VGSTX, (0.3 ER). FWIW, It is making changes to it's underlying FoF make up: https://morningstar.com/funds/xnas/vgstx/quote
I think there.’s a good case to be made for that line of thinking. More true I think in “frothy” markets like today or for someone in their “golden years”, more concerned about “not losing a lot” rather than with “making a lot”.
I’ve looked at QDSNX before and decided it’s not for me. Too short a track record for my comfort level. But the numbers are amazing since the fund opened in 2020.
Too short a track record for my comfort level.
But the numbers are amazing since the fund opened in 2020."
I've taken a brief look at QDSNX.
The fund has performed very well since inception.
QDSNX is extremely complex since it is a fund of funds allocated to six AQR alternative funds.
It could be challenging for me to stay invested in this fund if it experienced a severe decline
because—in all likelihood—I would be unable to determine what caused the fall.
Unlike Vanguard that uses expensive share classes of underlying funds, AQR uses its cheapest (R-6) share class for acquired funds. In replicating this FoF, one would only have access to N class shares - adding 0.35% to the cost. That's still less than the 0.44% that QDSNX charges, but it is close.
Shorting is not cheap. One can see this in the underlying fund QMNRX. Its offical ER is 4.55%. When M* backs out the cost of shorting, it comes up with an "adjusted" ER of 1.23%.
M* says that the managers add value by tactically varying the weights of the underlying funds. I'm not so sure.
I took what appears to be the nominal weights by rounding the current weights. Over the past five years (nearly the whole lifetime of the fund), from end of July 2020 to end of July 2025 (60 months), M* says QDSNX returned 11.76% annualized. Portfolio Visualizer concurs exactly. But the DIY portfolio (annual rebalancing) returned 11.95%.
Portfolio Visualizer five year comparison
Unfortunately, after subtracting 0.35%/year to use the more costly retail shares, one falls a little short of the QDSNX return.
To address @hank's concern about this fund being too new, you can take the PV model, and set it for max timeframe (PV is limited to ten years). The static mix I used to approximate QDSNX did not distinguish itself over the ten year span. Perhaps the actual QDSNX would have done better with its managers resetting weights than with this static mix.
I also added a second portfolio, a blend of Wellington and cash, that gave similar performance over the past decade.
Portfolio Visualizer ten year performance
"Somewhat to my surprise, PV shows that a 50:50 mix of QLENX with PIMIX did a tad better with just a tad more volatility. Since most of us also use bond funds, perhaps the allocation fund is adding complexity without lowering volatility overall. If its performance was better, maybe.
If your goal is to diversify risk away from traditional equity, while keeping some potential to do better than bond funds, this might have a place."
Congrats & thanks for sharing. Have you tried dissecting the fund’s holdings / positioning to determine where the outsized gains have come from? Things like opportunistic short positions, high yield bonds, exposure to gold … big tech or non-dollar denominated stuff? I know that kind of analysis takes a lot of time and perseverance. M* doesn’t seem to list QDSNX’s top investments in any specificity.
What I can glean from M* the top sector “exposure” is 17% in technology, followed by 16% in financial.
These numbers from M* (Classic View) appear a bit off-the-wall. I have owned L/S funds before, but can’t recall numbers as high as these.
Long equity 135% / Short Equity 127%
Long fixed income 291% / Short fixed income 278%
Short cash 174% / Long cash 204%
In defense of those large numbers, it does appear the bond duration is largely on the short end with approximately 50% under 1 year out. Bond quality looks good with about 70-80% investment grade.