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Not something I would invest in. It is too young a fund and with that kind of minimum investment that is a lot of exposure to one style unless your assets are really beaucoup bucks.
Risk parity is a levered bond fund with small amounts of equity and commodities exposure and I'm going to venture a guess that levering up bonds when 10 year treasuries are at 2% is a bad idea.
Not sure about that specific fund, but the RP schtick in general is equal risk among stocks, bonds, & commodities, and when there's a lot of correlation across asset classes and the direction is more down than up, it's not going to do well. Levered bonds are hurting, and so are commodities, and I wouldn't look for stocks to make up the difference at this point.
RP to me is a very long term proposition, like in a B&H-ish portfolio of 3-4 allocation funds only, for example. And now doesn't strike me as a great time to get into or be in an RP fund.
I sold my AQRIX down to a foothold when it breached the 50SMA on 5/23/2013. Fortunately I was on watch due to the use of levered bonds. Right here the RP funds do not interest me, especially in a rising interest rate environment.
OK, this fund is close to my heart and wallet. I'm been AQRIX heavy for some time.
Yes, the young fund and attendant strategy certainly being tested again right now. Last time it drew down this much was when equities pulled back in 3Q2011.
Certainly, two of its allocation assets, world bonds and commodities, being hammered...plus, like folks above have mentioned, leverage likely aggravating problem. At same time, this type of leverage (when it's working) can increase risk adjusted return.
The strategy of allocating based on risk appeals to me. I like that AQRIX is all asset all authority. I like that it uses draw down controls. And, I certainly like the shop, AQR.
Against a couple popular moderate allocation funds, AQRIX handled the draw down in 2011 pretty well, but it's suffering now:
Here's comparison with another similar and more established fund ABRYX, as well as against PAUIX and PAAIX, which tend to be bond and EM biased (note...scale on this plot is half one above):
Clearly, all these active asset allocation funds being more impacted by latest draw down in world bonds and commodities, but AQRIX dropping the most.
And absolute return? Until recently, AQRIX has done pretty well. Here again againt DODBX, VWENX, and FPACX:
Better perhaps against PAUIX, PAAIX, and even ABRYX:
Here's tabular summary of numbers since AQRIX inception through yesterday:
Hey, AQRIX is still young. And it has not had to endure a 2008-like crisis. But this is good test. If it adjusts and recovers, I'll be inclined to stick with it.
Looks like Invesco has a smoother ride with not as much potential upside; haven't looked at the strategies to see how different they are, but that might be worthwhile for RP-leaning investors.
Reply to @AndyJ: Yes indeed. I believe ABRYX targets 8% volatility versus 10% for AQRIX. Just watch out for loads and/or high ERs with Invesco on its various other share classes.
Reply to @Charles: These are very informative and useful tables/charts. Thanks. There is a newer, lower volatility RP fund available from AQR - QRMIX. Too early to tell if it offers a much smoother ride.
Sometimes what works on paper or spreadsheets or computer models doesn't go as planned in real life. Many of these 'risk parity' funds have target max drawdowns, some of which are very close to being breached I would bet. We have not used this fund, but we do use PAUIX, which is a very different structure and philosophy. Most of the funds mentioned are run using mathematical formulas with very little manager input. Arnott is most definitely actively managing his funds. While he may have made some miscalculation recently, I would not sell him short. He believes the U.S. stock market is overbought. I agree, but one and a half brains (I am the half) does not mean the strategy is timed right. And I don't get all the whining with PAUIX. The fund is down 3.83% year to-date, up 8.76% for 12 months. Definitely no reason to sell. But I agree with the whole leveraged bond concerns with some of the AQR products. Could be a big problem.
I used this fund very short test drive time. During that time I did not like its behavior, and portfolio manager view and I decided that I was better off investing monies through my other funds. Sold the last bit after the fund closed. I am glad I did not stay with this. Most of what was invested in AQRNX is invested in GLRBX.
I own AQRNX and ARCNX. I bought them as ONCE a year DCA funds. With such funds, one has to pray it pays off over 15-20 years. Ditto PAUDX, PGMDX, et. al.
Risk parity is simply jargon for leveraging bonds. Is this a good investment at current interest rates? In my opinion it's more of a spin on so-called asset allocation. Bond prices went up so risk parity strategies made money. If fixed-income markets go down they will lose, possibly a lot. My two cents for what its worth is to avoid "new" spins on old beta. Don't risk poverty on risk parity.
"Risk parity" and "low vol" are almost as bad as prior "solutions" like portable alpha and 130/30. Remember them? Leveraged bond beta is asking for trouble. Buyer beware.
Although "Mr. Asness et al down again today" is not true, a more accurate statement would be "Charles et al down again today." You see, according to the latest AQRIX SAI, Mr. Asness is not invested in this fund. The guy knows his wines and where he should invest his money.
Reply to @kevindow: Ha! You're right. Liew, Hurst, and Mendelson do, its actual portfolio managers, but Asness does not...ouch! You gotta love this business.
I Sold AQRIX IN THE MIDDLE OF JUNE WHEN IT WAS DOWN AROUND 4 or 5 PERCENT. I SHOULD HAVE SOLD IT SOONER, BUT I DID NOT FULLY UNDERSTAND THE AMOUNT OF THE BOND HOLDINGS. I DID NOT KNOW THEY LEVERAGED THE BONDS. I ALSO HELD MMASX AND ABRIX BUT I SOLD THEM EARLY IN THE YEAR BECAUSE I KNEW THEIR BOND HOLDINGS WERE LEVERAGED. MY MISTAKE FOR NOT FULLY UNDERSTANDING AQRIX.
Reply to @VintageFreak: I first learned how from bee. The secret is an easy-to-use screen capture program called Jing available for free at http://www.techsmith.com/jing.html. Then, sign up for free account at http://www.screencast.com, which is where you can store your images on line. Once an image is uploaded, you can than share with others in various ways, including cut/paste into blogs like MFO board. I'd say it's becoming a must have tool for bloggers, on-line reporters, etc. Don't hesitate to ask again if you need help. Charles
Reply to @ducrow: I too did not fully appreciate the fund's bond, currency, and commodity exposure, or the amount of leverage...it's pretty high. (QRMIX and QRHIX even higher.)
But unlike you, I've held on, because the strategy and shop still appeal to me...for now at least. Simple trend following would have had me out in May, if not April.
Current situation is first real test, I suspect, of an "out of sample" environment. Looking to see how they recover, presuming they do.
So far, I'd say they are not handling any adjustment very well, based on their stated investment strategy:
The strategy will dynamically invest in over 60 markets based on the fund managers’ views while maintaining a diversified, risk-balanced portfolio. The Fund will incorporate drawdown control, stress testing, and volatility forecasting to help manage risk while implementing the strategy.
Below is attendant young lifetime performance of the higher risk offering QRHIX. So typical of our business, both AQR Risk Parity II funds were opened when AQRIX was closed after its success drew over $1B in assets. Easy guess that these will have tougher time attracting AUM.
PTTDX went down .56% today, yet ABRIX went up .56% and AQRIX went up .36%. They don't appear to have any correlation with the bond market. I really don't understand risk parity funds and am hoping that ABRIX goes up an additional 2% so that I can break even and liquidate this fund.
Reply to @3yards: Now they don't because AQR has finally adjusted, as the strategy dictates. But trust me, through June they were highly correlated with bonds. Still, no 2Q commentary posted yet...a pet peeve of mine.
We decided to pass on this a long time back because it was essentially betting heavily on bonds. It has not been terrible by any means. It has, however, pretty much done what we thought it would. How it performs after its 'adjustment' is another thing. Sometimes, I think great minds come up with some theoretically good ideas, but something this complicated to explain and understand may be difficult to do in the real world.
BobC, it has not done at all what I thought it would. During the recent mini correction, AQRIX and ABRIX went down much more than the S&P 500. I thought they would offer some downside protection. Actually the exact opposite was true.
Reply to @3yards: I too thought AQR would have exercised its drawdown controls sooner. If I remember, I think ARLSX uses 2-4-6% thresholds. AQRIX may use 5-10%, but I'm just guessing based on what I have seen. They have never published their levels. Still better (for me) than strategies that will ride down a vehicle if belief remains in valuation.
Again, this recent "out of sample" market behavior will be true test for young AQRIX. I suspect their AUM will suffer for performance behavior inconsistent with shareholder expectations, especially for the newer and more highly leveraged RP II offerings.
Right now I'm still heavy the fund (along with FAAFX) and relieved that when bonds tanked yesterday AQRIX did not for a change. Hoping to get more insight with 2Q commentary...if they ever publish one.
Comments
Just my opinion
RP to me is a very long term proposition, like in a B&H-ish portfolio of 3-4 allocation funds only, for example. And now doesn't strike me as a great time to get into or be in an RP fund.
Kevin
Yes, the young fund and attendant strategy certainly being tested again right now. Last time it drew down this much was when equities pulled back in 3Q2011.
Certainly, two of its allocation assets, world bonds and commodities, being hammered...plus, like folks above have mentioned, leverage likely aggravating problem. At same time, this type of leverage (when it's working) can increase risk adjusted return.
The strategy of allocating based on risk appeals to me. I like that AQRIX is all asset all authority. I like that it uses draw down controls. And, I certainly like the shop, AQR.
Against a couple popular moderate allocation funds, AQRIX handled the draw down in 2011 pretty well, but it's suffering now:
Here's comparison with another similar and more established fund ABRYX, as well as against PAUIX and PAAIX, which tend to be bond and EM biased (note...scale on this plot is half one above):
Clearly, all these active asset allocation funds being more impacted by latest draw down in world bonds and commodities, but AQRIX dropping the most.
And absolute return? Until recently, AQRIX has done pretty well. Here again againt DODBX, VWENX, and FPACX:
Better perhaps against PAUIX, PAAIX, and even ABRYX:
Here's tabular summary of numbers since AQRIX inception through yesterday:
Hey, AQRIX is still young. And it has not had to endure a 2008-like crisis. But this is good test. If it adjusts and recovers, I'll be inclined to stick with it.
BWG
Risk parity is simply jargon for leveraging bonds. Is this a good investment at current interest rates? In my opinion it's more of a spin on so-called asset allocation. Bond prices went up so risk parity strategies made money. If fixed-income markets go down they will lose, possibly a lot. My two cents for what its worth is to avoid "new" spins on old beta. Don't risk poverty on risk parity.
"Risk parity" and "low vol" are almost as bad as prior "solutions" like portable alpha and 130/30. Remember them? Leveraged bond beta is asking for trouble. Buyer beware.
Here's M* YTD performace plot:
And here's lifetime plot from AQR's own site, which they must find embarrassing:
Although "Mr. Asness et al down again today" is not true, a more accurate statement would be "Charles et al down again today." You see, according to the latest AQRIX SAI, Mr. Asness is not invested in this fund. The guy knows his wines and where he should invest his money.
Kevin
But unlike you, I've held on, because the strategy and shop still appeal to me...for now at least. Simple trend following would have had me out in May, if not April.
Current situation is first real test, I suspect, of an "out of sample" environment. Looking to see how they recover, presuming they do.
So far, I'd say they are not handling any adjustment very well, based on their stated investment strategy: Below is attendant young lifetime performance of the higher risk offering QRHIX. So typical of our business, both AQR Risk Parity II funds were opened when AQRIX was closed after its success drew over $1B in assets. Easy guess that these will have tougher time attracting AUM.
Again, this recent "out of sample" market behavior will be true test for young AQRIX. I suspect their AUM will suffer for performance behavior inconsistent with shareholder expectations, especially for the newer and more highly leveraged RP II offerings.
Right now I'm still heavy the fund (along with FAAFX) and relieved that when bonds tanked yesterday AQRIX did not for a change. Hoping to get more insight with 2Q commentary...if they ever publish one