Here's a statement of the obvious: The opinions expressed here are those of the participants, not those of the Mutual Fund Observer. We cannot vouch for the accuracy or appropriateness of any of it, though we do encourage civility and good humor.
FYI: There is always a reason for investors to worry about the stock market, be it valuations at historically high levels, economic risks, the risk of inflation or geopolitical risk. That is why there is an equity risk premium, and why, historically, it has been large enough to be called the equity premium puzzle. Regards, Ted http://www.etf.com/sections/index-investor-corner/swedroe-what-investors-should-worry-about?nopaging=1
QSPRX and QRPIX available through USAA Marketplace. $100k minimum for QSPRX and $5M for QRPIX. Too rich for my wallet.
Screening for Multi-alternatives, I came up with these other choices: Screened for category: -low minimum -high Alpha -low beta -High Sharpe ratio -High 3 & 5 yr return
KCMTX seems a bit different than the other three listed here:
The funds Larry mentions in this article are not available to the public. Does anyone know how to access them?
Not only are they not available to the public but they have hedge fund-like restrictions on your ability to withdraw capital and a limit on their obligation to grant your withdrawal depending on what other investors want to do. Maybe advisors have negotiated different rules for themselves or they manage inflows and outflows against each other before making any transactions with the funds themselves, but somehow equity-like returns with bond-like volatility as an expectation Swedroe would be willing to put in writing sounds too good to be true.
Precisely bee!!! VTMFX or any other well managed balanced fund will out perform 95% of these magical alternative funds over a cycle.
Maybe @PBKCM would give us some insight on what might change the graph in their favor? The last 10 years have been a lot of good equity returns and most of the time has seen lower interest rates as well, but it wouldn't be a big surprise if there are situations where a balanced fund wouldn't have the options available to it that an alt fund would and that could change the relative performance. I'd just wonder what those situations are and how likely they are? After all, many balanced funds can and have moved to shorter durations to reduce interest rate risk and I'd presume most of them could even hold cash if they wanted.
...a balanced fund wouldn't have the options available to it that an alt fund would and that could change the relative performance.
Where is the evidence for that, other than what is said in the marketing brochure for these funds? And personally I don't want to invest in the word "could change" because the other side of the coin toss is "won't change" or worst "will not be as good as". But that's just me. I wouldn't invest the 10-20% needed to make an impact on the total portfolio anyway.
I think it is safe to say there are 100's of different schemes or formulas within this alternative category. Which formula or fund will out-perform a balanced fund over the entire economic cycle and which one's will have their shining moments only when the economic stars align? Again a gamble.
Not saying there aren't some alt-funds out there that might do the trick. Some of the AQR funds do look appealing at least at this moment. Just saying that picking the winner will be a gamble and that the overwhelming majority will not deliver better returns than a balanced fund.
I think it is safe to say there are 100's of different schemes or formulas within this alternative category. Which formula or fund will out-perform a balanced fund over the entire economic cycle and which one's will have their shining moments only when the economic stars align? Again a gamble.
I tracked AQR funds for several years and I don't see consistent patterns of out-performance especially during down cycles. Consider the high ER of these funds, a low cost balanced fund such as VTMFX is a better approach.
I was more interested in the Stone Ridge Alternative Lending Risk Premium Fund (LENDX)); Stone Ridge Reinsurance Risk Premium Interval Fund (SRRIX)); the variance risk premium Stone Ridge All Asset Variance Risk Premium Fund (AVRPX). THey are probably not low fee/medium to high return/non-correlated funds (aka Unicorns) but I couldn't find much on the website.
Nevermind, I just found the expenses etc. I just threw up in my mouth. It makes AQR funds and PCI/PDI look like a bargain. LENDX Annual Fund Operating Expenses (as a percentage of net assets attributable to the Shares) Management Fees ............................................................... 1.50% Interest Payments on Borrowed Funds(1) ............................................. 1.07% Service Fees ................................................................... 0.10% Other Expenses(2) Loan Servicing Fees ......................................................... 0.82% All Other Expenses .......................................................... 0.95% Total Other Expenses ............................................................ 1.77% Acquired Fund Fees and Expenses .................................................. 0.01% Total Annual Fund Operating Expenses .............................................. 4.45% (Fee Waiver and/or Expense Reimbursement)/Recoupment(3) ............................. (0.27)% Total Annual Fund Operating Expenses After (Fee Waiver/Expense Reimbursement)/ Recoupment ................................................................... 4.18%
I’ve never been a fan of alt funds. Seems to me that about a dozen or more years ago the SEC began requiring these L/S funds to include the interest paid on money borrowed to hold short positions to be reflected in their published ER. That resulted in much higher published ERs for these guys. I’d guess that the 1.07% figure is pretty typical.
Despite misgivings re the class of funds, I recently put some money into Oppenheimer’s QVOPX only after (1) reading the fund reports for a couple years to get a sense of how Michelle Borre runs the fund and thinks, (2) becoming really concerned about valuation of most risk assets, and (3) socking away about as much cash as I care to. I will note that QVOPX has a total ER just north of 2%. - certainly a lot less than the fund you listed above. (And, I have some load-waived money at that house.) 4.18%? Outrageous!
The fund has had a really unimpressive record for several years, and so I’m not recommending it (or any alts). One thing about Oppenheimer that troubles me is their funds seem more highly dependent on individual managers than most other companies. So, I’d be loath to stick with this fund if manager were to leave. Last time I checked, it was having a decent year compared to another conservative hybrid I own (and benchmark against), TRRIX.
Part of the problem with alternative funds today is for a long-time we've lived in a low interest rate, high valuation, low volatility world in which many asset classes move in tandem. That makes it hard for a long-short manager or any active manager really to differentiate themselves. This is especially so after deducting fees, and alternative fund manager fees are high. Overcoming that fee hurdle in a low vol high valuation world is hard. When volatility returns, valuations fall and rates rise, alternative funds will be interesting again.
Regarding, peer to peer lending funds, there's no reason investors can't do peer-to-peer lending directly themselves without a mutual fund. A retail investor can make several small loans directly and create a diversified portfolio without paying fund fees.
As for balanced funds (and risk parity funds), holding a significant position in bonds full time during a long-term bear market for bonds is not appealing to me. I'm sure some of these funds will pull it off much better than others.
Comments
Screening for Multi-alternatives, I came up with these other choices:
Screened for category:
-low minimum
-high Alpha
-low beta
-High Sharpe ratio
-High 3 & 5 yr return
KCMTX seems a bit different than the other three listed here:
...after all that, why not just own VTMFX:
I think it is safe to say there are 100's of different schemes or formulas within this alternative category. Which formula or fund will out-perform a balanced fund over the entire economic cycle and which one's will have their shining moments only when the economic stars align? Again a gamble.
Not saying there aren't some alt-funds out there that might do the trick. Some of the AQR funds do look appealing at least at this moment. Just saying that picking the winner will be a gamble and that the overwhelming majority will not deliver better returns than a balanced fund.
Mike
LENDX
Annual Fund Operating Expenses
(as a percentage of net assets attributable to the Shares)
Management Fees ............................................................... 1.50%
Interest Payments on Borrowed Funds(1) ............................................. 1.07%
Service Fees ................................................................... 0.10%
Other Expenses(2)
Loan Servicing Fees ......................................................... 0.82%
All Other Expenses .......................................................... 0.95%
Total Other Expenses ............................................................ 1.77%
Acquired Fund Fees and Expenses .................................................. 0.01%
Total Annual Fund Operating Expenses .............................................. 4.45%
(Fee Waiver and/or Expense Reimbursement)/Recoupment(3) ............................. (0.27)%
Total Annual Fund Operating Expenses After (Fee Waiver/Expense Reimbursement)/
Recoupment ................................................................... 4.18%
I’ve never been a fan of alt funds. Seems to me that about a dozen or more years ago the SEC began requiring these L/S funds to include the interest paid on money borrowed to hold short positions to be reflected in their published ER. That resulted in much higher published ERs for these guys. I’d guess that the 1.07% figure is pretty typical.
Despite misgivings re the class of funds, I recently put some money into Oppenheimer’s QVOPX only after (1) reading the fund reports for a couple years to get a sense of how Michelle Borre runs the fund and thinks, (2) becoming really concerned about valuation of most risk assets, and (3) socking away about as much cash as I care to. I will note that QVOPX has a total ER just north of 2%. - certainly a lot less than the fund you listed above. (And, I have some load-waived money at that house.) 4.18%? Outrageous!
The fund has had a really unimpressive record for several years, and so I’m not recommending it (or any alts). One thing about Oppenheimer that troubles me is their funds seem more highly dependent on individual managers than most other companies. So, I’d be loath to stick with this fund if manager were to leave. Last time I checked, it was having a decent year compared to another conservative hybrid I own (and benchmark against), TRRIX.
Regarding, peer to peer lending funds, there's no reason investors can't do peer-to-peer lending directly themselves without a mutual fund. A retail investor can make several small loans directly and create a diversified portfolio without paying fund fees.
We continue to focus on our process, as outlined in David's Elevator Talk piece this month, and let results take care of themselves.
https://www.mutualfundobserver.com/2018/02/elevator-talk-parker-binion-kcm-macro-trends-fund/
As for balanced funds (and risk parity funds), holding a significant position in bonds full time during a long-term bear market for bonds is not appealing to me. I'm sure some of these funds will pull it off much better than others.