QLENX
Applied Quantitative Research (AQR) is a firm specializing in alternative investment strategies. They offer private investment services and mutual funds.
One of their mutual funds is the QLENX (AQR Long-Short Equity N). It invests in stocks using value, momentum, quality and other factors. QLENX buys some stocks while it shorts others. “Shorting” means it profits when the price of a stock falls. QLENX also uses futures to manage its positions and risk.
Although it’s a long-short fund, QLENX has a long “bias.” This means it should do better when the stock market is rising.
The short positions have helped during downturns, however. When the S&P 500 fell 6.04% in August 2015, QLENX only fell 2.79%. In January 2016, the S&P 500 fell 4.98% but QLENX only dropped 0.33%.
QLENX started trading in July 2013. Since 2014, its compound annual return is 13.92% compared to 10.13% for the S&P 500. Its maximum drawdown (biggest drop on a monthly basis) is only 3.04% compared to 8.38% for the S&P 500. Other risk-return metrics, like the Sharpe and Sortino Ratios, have also been extremely good
Things to consider
There are a few caveats. First, it’s unlikely QLENX’s current performance will continue forever. Very few funds or money managers have a long-term track record like theirs. If QLENX can match the stock market’s performance with lower drawdowns in the future, that would be impressive enough.
Also, QLENX’s expense ratio of 1.54% is much higher than an index fund. The SPY’s expense ratio is only 0.09%. So far, QLENX has performed very well in spite of expenses, though.
Finally, some other hedge-type funds have started out strong, but failed to beat the market over time. One example is HSGFX (Hussman Strategic Growth). It performed very well from 2001-2008 through two bear markets. Since 2009, its manager has been ultra-conservative. This resulted in a negative return while stocks soared.
To be fair, QLENX is very different from HSGFX. While we don’t know the exact rules, it’s driven by data and strategies–not a manager’s opinion about the market. Still, there’s no guarantee it can maintain its edge going forward.
Personally, we’ve invested a small part of our overall portfolio in QLENX. While we don’t give finanical advice, we’ll share our opinion that “betting the farm” on a single fund or investment isn’t wise.
AUENX
Another AQR fund to consider is AUENX (Large Cap Defensive Style N). According to AQR’s website, the fund:
- Invests in large-cap defensive stocks. These are stocks with high profitability, low operating and financial leverage, and other measures of quality.
- Attempts to get market-like returns with lower risk by focusing on these more stable, less volatile stocks.
Since its inception, the AUENX has a higher return than the S&P 500 with a lower maximum drawdown. Its expense ratio is 0.65%, considerably lower than QLENX’s.
DSEEX
Finally, there’s DSEEX (DoubleLine Shiller Enhanced CAPE I ). This fund selects stocks in undervalued sectors. It uses the well-known CAPE indicator.
DSEEX has an even higher return than QLENX, but its max drawdown is slightly higher than the S&P 500. Its expense ratio is 0.63%.
Performance Summary
The chart below show the performance of all three funds along with the SPY.
Where to purchase? And the deadline…
One downside to these funds is their minimum purchase amounts: $1 million for QLENX and AUENX and $100,000 for DSEEX. However, we found you can purchase QLENX and AUENX for $2,500 if you have an IRA at Fidelity.
QLENX is closing to new investors on June 30, 2017. If you want to invest in the fund, you’ll need to act quickly.
DSEEX’s minimum purchase amount is $5,000 at Fidelity. There’s an additional $49.95 commission, which isn’t charged for QLENX and AUENX.
You may want to contact your broker if you don’t have a Fidelity account. Apparently Scottrade allows you to purchase QLENX for as little as $100, but you have to use a Scottrade® Advisor Services Registered Investment Advisor.
TSPKey does not give personalized investment advice. This is for informational and educational purposes only. Past and/or hypothetical performance is not an indication of future performance. In our non-TSP accounts, we currently have positions in QLENX, AUENX and DSEEX. We have no affiliation with these funds, with Fidelity or any other broker.