QDSNX - A Fund for Retirees?

[fred495]

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

[archer]

Thanks for bringing this to our attention. It looks good on PV. It has gained more than the S&P over its life, and with low SD. Also only .06 market correlation. Lower SD and better gains than 60/40 funds as well, including PRWCX. Of course they are very different, but from a risk/reward perspective, it looks hard to beat. On the other hand, it is a newer fund, and it's performance in 2022 gave it a relative advantage to many other funds during its time frame.

This reminds me of CTFAX which looked great due to holding its price in 2020, but not as remarkable since then.

[fred495]

Along those lines, archer, here is a quote from JD on MFO:

"All this love for QDSNX...kiss of death. It finally had a down day. Let's see if we are still enamored with this fund a year from now. Hopefully that low SD continues via it's diversified holdings."

Fred

[Norbert]

QDSNX is a "fund of funds", several of which have a longer record. Read here:

funds.aqr.com/funds/alternatives/aqr-diversifying-strategies-fund/qdsnx#

Looking quickly at the record of a few component finds, several of the AQR funds have done quite well over the past three years, but lost money in a couple of years before.

Based on this, it's not obvious to me that QDSNX is a "Buy" thanks to its strong, short-term record.

[fred495]

Norbert said: "Looking quickly at the record of a few component finds, several of the AQR funds have done quite well over the past three years, but lost money in a couple of years before.

Based on this, it's not obvious to me that QDSNX is a "Buy" thanks to its strong, short-term record."


Chinfist, a poster on MFO, suggested the following approach that may be of interest to investors with a longer time horizon:

"QDSNX looks like an interesting fund. Rather than invest directly with this fund, I decided to put money into sort of a modified “best of” of this fund and made a combination of 3 of the underlying funds. Looking at the returns, the diversified arbitrage fund component seemed like dead money, so I wanted to eliminate that. I wanted to choose one fund between Macro opportunities fund, managed futures strategy HV fund, and style Premia alternatives fund (as these seem to be in a similar category of funds). I went with the premia alternatives fund, as plotting the returns of these funds on a chart, just going with the “eyeball” test, that fund looks the best (it also has the best alpha and sharpe ratio for the past 3 years among the 3), The market neutral fund is another component of QDSNX, but comparing it to the long-short fund by AQR (which is not in QDSNX), the long-short fund passes the eyeball test looking at the chart beteeen the 2. The long-short fund has better alpha and sharpe ratio over the last 3 years, and the standard deviation isn’t much different. The long-short fund looks close to a market neutral fund (the website describes it’s holdings as 237% of NAV long, 216% of NAV short). So I decided to go with 1/3rd multi-asset fund (another underlying fund of QDSNX), 1/3rd style premia alternative fund, and 1/3rd long-short fund. We’ll see if that combination beats out QDSNX."


Here is my reply: "Using Chinfist's above three fund suggestions, I decided to use Portfolio Visualizer to compare 1/3rd multi-asset fund (AQRNX)), 1/3rd style premia alternative fund (QSPNX), and 1/3rd long-short fund (QLENX) with QDSNX for the available period of July 2020 to March 2024:

Fund:        CAG   MAX DD   SD   SHARPE   SORTINO

QDSNX    13.4%  -4.6%   6.9%    1.5          3.1

CHINFIST 18.5    -13.6    12.2      1.3          2.6

As a conservative and retired investor I might still go with QDSNX. At this later stage of my life, and quoting a poster from another forum (BBI): "I don't really need a lot more money, but I certainly don't want to lose a lot".

Good luck,

Fred

[fred495]

AQR describes its investment approach as follows:

"QDSNX is designed to complement an investor's traditional stock and bond portfolio."

It may reduce a portfolio's volatility when today, for example, IVV and PRWCX lost 0.97% and 0.93%, respectively, but QDSNX gained 0.64%.

Fred

[sgra]

Apr 10, 2024 22:03:53 GMT fred495 said:

"I don't really need a lot more money, but I certainly don't want to lose a lot".

That is my underlying attitude and positioning as well. I constantly have to remind myself.

[Chahta]

The fund is all of 3 years old. It looks to be a leveraged fund. Their secret sauce works until it doesn’t I suppose. It is some kind of black box.

[fred495]

Apr 11, 2024 3:43:00 GMT Chahta said:

The fund is all of 3 years old. It looks to be a leveraged fund. Their secret sauce works until it doesn’t I suppose. 

Since am not a buy-and-hold investor, if the fund's "secret sauce" stops working, I would sell it.

I would treat it just like any other fund that stops working, I suppose. 

Fred

[Norbert]

Apr 10, 2024 22:03:53 GMT fred495 said:

Norbert said: "Looking quickly at the record of a few component finds, several of the AQR funds have done quite well over the past three years, but lost money in a couple of years before.

Based on this, it's not obvious to me that QDSNX is a "Buy" thanks to its strong, short-term record."


Chinfist, a poster on MFO, suggested the following approach that may be of interest to investors with a longer time horizon:

"QDSNX looks like an interesting fund. Rather than invest directly with this fund, I decided to put money into sort of a modified “best of” of this fund and made a combination of 3 of the underlying funds. Looking at the returns, the diversified arbitrage fund component seemed like dead money, so I wanted to eliminate that. I wanted to choose one fund between Macro opportunities fund, managed futures strategy HV fund, and style Premia alternatives fund (as these seem to be in a similar category of funds). I went with the premia alternatives fund, as plotting the returns of these funds on a chart, just going with the “eyeball” test, that fund looks the best (it also has the best alpha and sharpe ratio for the past 3 years among the 3), The market neutral fund is another component of QDSNX, but comparing it to the long-short fund by AQR (which is not in QDSNX), the long-short fund passes the eyeball test looking at the chart beteeen the 2. The long-short fund has better alpha and sharpe ratio over the last 3 years, and the standard deviation isn’t much different. The long-short fund looks close to a market neutral fund (the website describes it’s holdings as 237% of NAV long, 216% of NAV short). So I decided to go with 1/3rd multi-asset fund (another underlying fund of QDSNX), 1/3rd style premia alternative fund, and 1/3rd long-short fund. We’ll see if that combination beats out QDSNX."


Here is my reply: "Using Chinfist's above three fund suggestions, I decided to use Portfolio Visualizer to compare 1/3rd multi-asset fund (AQRNX)), 1/3rd style premia alternative fund (QSPNX), and 1/3rd long-short fund (QLENX) with QDSNX for the available period of July 2020 to March 2024:

Fund:        CAG   MAX DD   SD   SHARPE   SORTINO

QDSNX    13.4%  -4.6%   6.9%    1.5          3.1

CHINFIST 18.5    -13.6    12.2      1.3          2.6

As a conservative and retired investor I might still go with QDSNX. At this later stage of my life, and quoting a poster from another forum (BBI): "I don't really need a lot more money, but I certainly don't want to lose a lot".

Good luck,

Fred

Just a quick note to point out that a portfolio containing AQRNX + QSPNX + QLENX, in equal parts, would have experienced a 24% drawdown from 2018 to 2021.

However, it would have done quite well after that, if one held on.

[fred495]

Norbert said: "Just a quick note to point out that a portfolio containing AQRNX + QSPNX + QLENX, in equal parts, would have experienced a 24% drawdown from 2018 to 2021."


Thanks for the information, but as a retired investor with a limited time horizon, I would have sold. Hence, QDSNX still looks good even with its short 3-year record.

Fred

[archer]

I see QDSNX is available through Fidelity but the funds held in it are not. When I look at the holdings of the 6 funds making up QDSNX, it's not clear to me how they work, but that's my ignorance more than lack of disclosure. They seem to have more going on than simple stock and bond holdings.

[Capital]

Apr 15, 2024 14:06:20 GMT archer said:

I see QDSNX is available through Fidelity but the funds held in it are not. When I look at the holdings of the 6 funds making up QDSNX, it's not clear to me how they work, but that's my ignorance more than lack of disclosure. They seem to have more going on than simple stock and bond holdings.

archer , the underlying funds all seem to have $5m minimums for Individual investors. That's probably why they are not listed at Fidelity.
As for what each of them do investment wise, I do not think you must be ignorant to not understand what they do.
Each of the underlying funds is a complicated maze. You either buy in to QDSNX managers being able to manage what they do or not.
I have it on the radar; however, I want to see how it works in markets other that the last 3 years. 

[Norbert]

Apr 15, 2024 12:38:27 GMT fred495 said:

Norbert said: "Just a quick note to point out that a portfolio containing AQRNX + QSPNX + QLENX, in equal parts, would have experienced a 24% drawdown from 2018 to 2021."


Thanks for the information, but as a retired investor with a limited time horizon, I would have sold. Hence, QDSNX still looks good even with its short 3-year record.

Fred

Sorry, but I'm not following you.

My point was that a combination of the QDSNX component funds would have dropped 24% 2018-2021; it's reasonable to assume that QDSNX would have also fallen hard during that period.

I conclude that it's not a very good all-weather fund given that level of volatility.

[fred495]

Capital said: "I have it on the radar; however, I want to see how it works in markets other that the last 3 years."


I also have it on my watch list for the same reason.

Fred

[fred495]

Apr 15, 2024 14:06:20 GMT archer said:

I see QDSNX is available through Fidelity but the funds held in it are not. When I look at the holdings of the 6 funds making up QDSNX, it's not clear to me how they work, but that's my ignorance more than lack of disclosure. They seem to have more going on than simple stock and bond holdings.

However, the class N shares of the underlying funds of QDSNX are available at Fidelity with a minimum investment of $2,500 and no transaction fee.

Fred

[fred495]

Norbert said: "My point was that a combination of the QDSNX component funds would have dropped 24% 2018-2021; it's reasonable to assume that QDSNX would have also fallen hard during that period.

I conclude that it's not a very good all-weather fund given that level of volatility."



I would agree with you if you had back tested all six of the underlying funds of QDSNX. But you only used three of the funds in your test. Hence, I don't follow your conclusion "that it's not a very good all-weather fund given that level of volatility".

Fred

[Birdman96]

I found the exercise to compare the components of QDSNX from 2018 - 2021 to be very interesting, so I checked it out:

All 6 Components of QDSNX 2018-21 (PV)

$100,000 initial investment /
Final balance $103,095
CAGR = .76
SD = 5.83
Sharpe = -.03

As comparison:
JQUA - 40%
USFR - 60%
Final Balance = $134,235
Sharpe = 1.00

So, “not a good all weather fund” - supports Norbert initial conclusion.

[fred495]

QDSNX is not an "all-weather fund" but, as noted by the fund company, it "is designed to complement an investor's traditional stock and bond portfolio".

On the other hand, BLNDX/REMIX advertises itself as an "all-weather investment solution", for example.

Comparing the performance of QDSNX to the S&P 500 (IVV) over the past three years, the fund has an excellent risk/reward profile with an extremely low Standard Deviation, just what many retirees and/or conservative investors may be looking for to "complement" their portfolio. Since I have followed the fund, it has shown itself to be quite a steady performer even on days when the market turns ugly.

              1 WK     3 MO      YTD      1YR       2002     3YRS       SD

QDSNX   -0.2%    10.0%   11.9%   20.1%   14.5%   12.3%    7.3%

IVV        -2.7         6.2        6.5      24.2     -18.2        8.3     17.6

The above chart indicates that the managers of QDSNX seem to have obviously done something right over the past three years. I will continue monitoring its performance and definitely keep it on my watch list. 

Good luck,

Fred

[Norbert]

I created a QDSNX proxy using the six component funds with AQR's "strategic" allocation percentages:

(Click to enlarge)



Backtest starts late 2014.

* Portfolio 1: QDSNX proxy
* Portfolio 2: VWELX Wellington
* Portfolio 3: 50% Port 1 + 50% Port 2



-----

I see the QDSNX strategy as mostly successful when used to complement VWELX in this backtest. Most of Wellington's returns were preserved, with portfolio level downside volatility considerably reduced.

Note that I kept the QDSNX proxy component allocations constant year-to-year, while AQR would in reality adjust them.

FWIW.

N.

[Capital]

Apr 15, 2024 16:58:43 GMT fred495 said:

Capital said: "I have it on the radar; however, I want to see how it works in markets other that the last 3 years."


I also have it on my watch list for the same reason.

Fred

Thanks for the info fred495

[Norbert]

QDSNX has been putting in a great performance. This chart compares its total returns (red) to SPY (blue).

(Click to enlarge.)



FWIW,

N.

[Chahta]

QDSNX has a lot of moving parts. Leverage, shorting, 40% other, derivatives. Seems like a playground for managers. I am not sure this is a "retirees" fund. A retiree should be able to buy something and not pay too much attention to go have fun doing retiree stuff.

[fred495]

Apr 27, 2024 14:00:30 GMT Chahta said:

QDSNX has a lot of moving parts. Leverage, shorting, 40% other, derivatives. Seems like a playground for managers. I am not sure this is a "retirees" fund. A retiree should be able to buy something and not pay too much attention to go have fun doing retiree stuff.

Agree, Chata.

But, do you have anything specific in mind what that "something" might be that a retiree should be able to buy and not pay too much attention to it?

Thanks,

Fred

[richardsok]

Apr 27, 2024 13:42:42 GMT Norbert said:

QDSNX has been putting in a great performance. This chart compares its total returns (red) to SPY (blue).

(Click to enlarge.)

View Attachment

FWIW,

N.

Yeah, having a good year.  It paid a boffo EOY distribution.

Might compare it to SPE.  Chart shown does not include its 8.5% monthly distrib.   I just got my re-purchase signal on Friday.


tinyurl.com/3dc62xdb

[anitya]

Apr 27, 2024 13:42:42 GMT Norbert said:

QDSNX has been putting in a great performance. This chart compares its total returns (red) to SPY (blue).

(Click to enlarge.)

View Attachment

FWIW,

N.

I am just waiting for you to say Okayyy to buy before I take a position.  Did a change of heart relative to your previous posts on the fund (e.g., first and third posts) caused you to make this post? 

[Norbert]

Apr 27, 2024 22:45:18 GMT anitya said:

Apr 27, 2024 13:42:42 GMT Norbert said:

QDSNX has been putting in a great performance. This chart compares its total returns (red) to SPY (blue).

(Click to enlarge.)

View Attachment

FWIW,

N.

I am just waiting for you to say Okayyy to buy before I take a position.  Did a change of heart relative to your previous posts on the fund (e.g., first and third posts) caused you to make this post? 

Please see my April 16 post. When backtesting a proxy QDSNX using its six component funds, it worked pretty well when paired with Wellington (for example).

Looking at QDSNX's (very) short record, it has successfully captured most of the S&P 500's upside, with minimal downside.

These are facts, for what they're worth.

QDSNX consists mainly of "black box" funds and it's probably foolish to assume anything about their future performance. We've seen other quant-type funds get off to a good start, then disappoint over time. For example, Arnott's PIMCO fund got a lot of attention for a while, as did Hussman's fund; they both crashed and burned. It's challenging to outsmart the market over the longer term.

There's definitely some appeal to including uncorrelated assets in a portfolio, but I have no idea how well QDSNX will work out going forward. The odds are that it will disappoint like many others, but maybe not.

N.

[anitya]

Norbert, Thanks for the comprehensive reply.

[mnfish]

On the AQR website they compare the fund's performance with the ICE BofA 3mo TBill index. What a fantastic job of marketing! What on earth does the fund have in common with a 3mo Tbill?

If I compared my results since July 2020(fund inception) to a 3mo Tbill I would look pretty good too!

I'll pass.

[chang]

I see one of the managers is a “John Huss” … coincidence?

funds.aqr.com/funds/alternatives/aqr-diversifying-strategies-fund/qdsnx#managers

Seriously, all alternative/quant funds like this:
1) are expensive
2) are black boxes
3) work until they don’t, and they often fail badly.

Norbert mentioned some examples, but does anyone remember TEAMX or WAGFX?

I question whether or not the characteristics 1), 2), 3) listed above would suit a retiree. Perhaps one who is a savvy reader of T/A signs, but it wouldn’t suit a B&Her like me.

Good luck!