Lately, I have been following the AQR Diversifying Strategies N Fund (QDSNX) and been pleasantly surprised by its excellent risk/reward profile.
The fund company describes its investment approach as follows: "Leveraging AQR’s research and 20-year track record in alternative investing, the Diversifying Strategies Fund is designed to complement an investor’s traditional stock and bond portfolio. The Fund invests in a portfolio of AQR mutual funds, providing exposure to both Absolute Return strategies and Active Multi-Asset strategies."
With a Standard Deviation of 7%, the fund has a YTD total return of 11.8%, and a 3 Year return of 12.7%. In 2022 it gained 14.5%.
QDSNX is available at Fidelity with a minimum investment of $2,500 and no transaction fee.
I am curious of the opinion of anyone who has used this fund in their portfolio.
Looks like it could fit nicely into a conservative retirement portfolio.
Fred
Comments
"The Fund invests in a portfolio of AQR mutual funds, providing exposure to both Absolute Return strategies and Active Multi-Asset strategies."
Its benchmark is 3 mo T-Bill index
It has six managers four of whom have Ph.D.s.; the 2.62% ER is kind of justified! Joking aside, I generally do not pay attention to ER if a fund has return history. The ER includes acquired fund fees.
https://funds.aqr.com/funds/alternatives/aqr-diversifying-strategies-fund/qdsnx#about
Fact Sheet and Fund Profiles can only be downloaded as pdf at the link above.
Just sharing what I observed -
May be someone can compare this to other credible Absolute Return funds. I only know PVCMX and for the year 2023, PVCMX did much better than QDSNX which lost 6% during the March 2023 SVB tantrum and took five month to recover. I am sure bond gurus in this forum can come up with bond funds that had a much better risk adjusted or absolute return than QDSNX for 2023. However, QDSNX did well in 2024 with a 11.8% YTD total return (a nice chart)!
The fund started in June/July 2020 and so I am not aware of any left tail things to test against. Was SVB a real left tail? The fund did not impress at that time. is it a predictable trend follower? Per M*, the fund started with five managers, four of whom left before the third anniversary. Of the current six managers, only one has invested in the fund (>$1m).
M* portfolio indicates 221% net long exposure - use of leverage or derivative notional being reflected in net long?
May be others can fill in the rest.
But all that said, the steady return trend for this fund sure looks like a nice alternative to smooth-out a basic equity/bond portfolio. I actually do hold an alternative fund to do that, BLNDX, but maybe this one is better(?) I don't know.
This Fund of Funds (FOF) has performed with low volatility (OP mentioned 7% SD) in it's short life. Maybe that FOF diversification works here, and hopefully AQR has learned a few lessons from it's prior experience.
As to what you actually own here, I'd be curious to see what others say. It acts like a hedged fund (long-short?). I had purchased a small amount so as to watch it closely. Recent performance has been rock steady, even on ugly market days.
Sorry, but just for the record I checked Portfolio Visualizer, and I see that in March 2023 QDSNX lost 3.7%, not 6%. That's actually the highest monthly loss for QDSNX.
For the year 2023, PVCMX gained 9.5%, whereas QDSNX gained 8.5%. However, there is also a considerable difference in the standard deviation of these two very different funds. Why compare them?
Fred
Fred
I rechecked and stand by the approx 6% drop for QDSNX during SVB tantrum I had reported. (5.7% drop if I am getting paid to do this work.)
I do not believe in BS asymmetry and take great pains in trying to ensure I am objective and accurate in posting / sharing investment information because others may rely and make choices based on what I post. So, I appreciate others cross checking the information I post. You can either ask me how I got my information / numbers or simply post that I am wrong, whatever furthers a useful / productive conversation for the forum.
Disclosure: I did make money on AQR funds in the 2017 time frame and have not owned them since. I never owned PVCMX.
From one of David's earliest mentions of the fund, he describes as: Investopedia gives this definition of absolute return: FWIW.
I followed your advice and checked Portfolio Visualizer's March 2023 return for QDSNX and, as I posted above, it shows a loss of 3.7%, not 6%. I assume PV is a reliable source.
So, Balu, what is your source for the fund's 6% loss you posted?
Thanks,
Fred
I did not read anything that encouraged me to spend a lot of time learning about the funds underneath the fund.
They all managed to net positive gains for investors in calendar year 2022, a feat not accomplished by many mutual funds. Even bonds were beat down in 2022 - only commodities were in the green.
It's done better overall vs. QDSNX since the latter came on line, mostly due to a separation of return in 2023 and this year to date. (Another share class of QMNNX is one of the six funds shown on Fido as a constituent of QDSNX.)
I might be more amenable to the market neutral fund by itself right now; as I recall, it wasn't difficult from their reporting to see what they were doing. The argument for QDSNX instead would probably be steadier returns and apparently lower risk, maybe from a little more diversification.
Mike, Please post the excerpts.
BTW, QDSNX picks the 3 mo T-bill index as their benchmark - I think I posted this in my first post.
FWIW- OJ
Added for clarification: All of the utilities, and most of the consumer defensive funds, I monitor were in the green in 2022.
Yeah, my point there was that the S&P was -18% and the broader bond index was -13% in 2022, so it was a tough year to come out positive.
So, I'll give the ones I'm using. If others want to chime in that would be great.
I hold:
JHQAX, at about 10%, an options fund recently discussed in this month's commentary by @Devo
BLNDX/REMIX at about 5%, a multi asset fund, labeled as a L/S by M* (I don't agree)
LCR, which can be closer to a balanced fund, at about 5%
By the way, to give an opinion on your starting post, I do thing QDSNX would be as good a choice as others available to accomplish the "smoother" portfolio ride.
Besides QDSNX, both JHQAX and BLNDX are on my watch list . I feel fairly comfortable with JHQAX's 10 year performance record and investment approach. Still working on the other two funds. Wish there was more information available on BLNDX's site, just very sketchy data even though the fund has an excellent risk/reward record.
Good luck,
Fred
As of today (April 6) the ER of QDSNX, net of reimbursements, is stated to be 1.72%.
MFO shows the maximum drawdown of QDSNX to be 4.5%. That's not during March 2023, but it does serve as a cap on the March 2023 drawdown.
There is no contradiction in any of the figures given. Rather, it is important to know precisely what any number represents. Otherwise, one is comparing apples and oranges.
The 2.62% ER I mentioned is the Net Expenses stated in the Annual Fund Operating Expenses table at the fund site I linked. I do not see the 1.72% you mention at that link. If that is the Adjusted ER, that is fine. I have no desire to debate which one should be focused, especially when I already mentioned I do not pay attention to ER. I had included the information because I know others talk about it and for many it is a serious consideration.
As to the fund manager qualifications and ER, I thought I was clear that I was joking. That table in its very first line clearly shows Management fees is zero. I personally do not worry about how much money any one in this world makes, even if they are my service providers. As a service provider, my charge out rate was an ungodly number and I have learned early in my career not to worry about what others made. Not sure why my joking about fund manager qualifications and ER attracted a lecture. As some in this forum know, my close family members are fund managers.
As to the fund's draw down related to the SVB tantrum, I originally looked that up on M* charts. Then verified with Yahoo Finance. NAV went from $11.98 to 11.30, for a draw down of 5.7%, which I had indicated that I rounded to 6%. The fund NAV did not reach that peak again until sometime in August, which I also had indicated earlier.
My C-suite clients never asked me to justify everything I wrote or said to them and never made fruity comments. Here, I spent more time trying to help about a fund I do not own and unlikely to ever own than I spent on any fund I ever invested in. I hope to remember to never to repeat and to adapt to the forum culture.
For example, when using M* charts, sometimes M* graphs daily performance by default (when looking at short time periods), and sometimes M* graphs monthly performance by default (for longer, multiyear periods such as 5 years).
With respect to the fund's ER, the May 2023 prospectus says that it is 1.72%. The fund just put out a supplement saying that the ER is 2.62%. Even if one doesn't care about the size of an ER, ISTM that one should care about changes in ER. They affect how one regards past performance. That is, had the ER in previous years been 90 basis points higher, the performance might have been 90 basis points lower.
But that's not the end of the story. The supplement dated April 1 says that the ER change is due to an anticipated implementation change in some of the underlying funds. It hasn't even happened yet.
If one views the anticipated change in ER as merely a formality (as does M* when it calculates adjusted expense ratios), then the "true" (effective) ER remains 1.62%. If one views the anticipated change as something more than a formality, then perhaps one should expect future performance to be diminished by 90 basis points.
@MikeM - those are great ideas for the "smoother ride" approach. I have a few more suggestions:
-PSFF - FOF for options - prefer it to JHQAX, but really the same space.
-RSIVX Lower SD than LCR, but also lower Returns. Very conservative.
I am a soon-to-be early retiree. (Had planned to retire in Aug 2020, but COVID arrived, and my employer sent me home to work from my sofa -- so I decided to hang around a few years more, not out of financial necessity, but by choice...)
I mention this only because most of my lifetime investment contributions have been made. My primary concern is not maximizing return. Rather its to preserve and protect principal and the purchasing value thereof.. I've 'made it'. I don't wish to 'lose it'.
I discovered QDSNX at the end of last year -- on these message boards. I discovered REMIX (BLDNX), in the same time period. Based on their volatility/performance/risk-management philosophies, I opened positions in both funds very early in 2024, and have added to them periodically. QDSNX in particular seems to be positioned to benefit (modestly) during hard "down days" in the market.
Excepting my company plan -- which has the typical, plain-vanilla, unhedged, indexed type limited choices, QDSNX and REMIX are the 2nd and 3rd largest , non-cash positions in each of my accounts. The largest position is BAMBX -- another fund classified as 'alternative', but which I view as a tremendous bond fund substitute.
When the next recession/bear market hits, I will likely re-deploy more capital to more conventional / unhedged ETFs/funds, at lower prices. Until that happens, given the stretched valuations and exuberant market sentiment, I'm very content to rely on risk-managed funds to eke out returns.
My plan penalizes rollovers for those under 59 1/2. -- The punishment is 6 months of no contribution (which means I pay more taxes this year) -- which also means 6 months without a 7% company match.