Stone Ridge All Asset Variance Risk Premium Fund

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Stone Ridge All Asset Variance Risk Premium Fund

Post by nedsaid »

What happened to the Stone Ridge All Asset Variance Risk Premium Fund (AVRPX)? I no longer see this fund on the Stone Ridge web site. What happened to it? Was it dissolved? Was it sold?

This was one of the 4 Alternative funds recommended by Larry Swedroe.
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Re: Stone Ridge All Asset Variance Risk Premium Fund

Post by JoMoney »

No idea, but I find the name of that fund amusing. I'm sure it's appealing to some, but I got a laugh out of it. The name looks like a satirical joke of all the buzz-words a finance sales guy would say that would signal "avoid" to me.
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Re: Stone Ridge All Asset Variance Risk Premium Fund

Post by nedsaid »

JoMoney wrote: Sun Apr 04, 2021 11:05 am No idea, but I find the name of that fund amusing. I'm sure it's appealing to some, but I got a laugh out of it. The name looks like a satirical joke of all the buzz-words a finance sales guy would say that would signal "avoid" to me.
Well perhaps a Buckingham Client can weigh in.
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Re: Stone Ridge All Asset Variance Risk Premium Fund

Post by UberGrub »

nedsaid wrote: Sun Apr 04, 2021 11:10 am
JoMoney wrote: Sun Apr 04, 2021 11:05 am No idea, but I find the name of that fund amusing. I'm sure it's appealing to some, but I got a laugh out of it. The name looks like a satirical joke of all the buzz-words a finance sales guy would say that would signal "avoid" to me.
Well perhaps a Buckingham Client can weigh in.
I remember an exchange in the Small Cap Value Heads Rejoice with the answer:
viewtopic.php?p=5866359#p5866359
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Re: Stone Ridge All Asset Variance Risk Premium Fund

Post by nedsaid »

by Steve Reading » Sun Mar 07, 2021 5:33 pm
Random Walker wrote: ↑Sun Mar 07, 2021 5:05 pm
As you know AVRPX was basically selling volatility insurance. So as expected, when volatility spiked early 2020 it took a hit just like the equity markets did. I think a lot of weak hands sold and the fund folded into some sort of multi alternative fund called SRDAX.

Dave
It probably didn’t help that on top of selling volatility, AVRPX was leveraged too. I never liked that about AVRPX.
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Re: Stone Ridge All Asset Variance Risk Premium Fund

Post by retiredjg »

Apparently it ceased to exist on 2/5/21.

I found this https://www.sec.gov/Archives/edgar/data ... 77d425.htm which talks about re-organizing into an open end fund. However, there seems to be no date on the notice.
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Re: Stone Ridge All Asset Variance Risk Premium Fund

Post by DaufuskieNate »

The VRP strategy is still included in the multi-alternative fund SRDAX.
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Re: Stone Ridge All Asset Variance Risk Premium Fund

Post by nedsaid »

It reminds me of the old joke about the Yugo car that it was so dangerous that 10% of its owners died from embarrassment.

It appears to me that the March 2020 volatility blew up this fund and that it was folded into another. I was hopeful and yet skeptical about Alternative investments at the same time. My own tiny bit of experience with these was disappointing but they were a tiny sliver of my overall portfolio, maybe 1%. In this case, the skeptical part of me was correct and the hopeful part of me was wrong.

Another thing is that the semi-liquid interval structure of this fund did not save it.

I suppose I could e-mail Larry Swedroe and ask him about this but I won't.
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Re: Stone Ridge All Asset Variance Risk Premium Fund

Post by Random Walker »

nedsaid wrote: Sun Apr 04, 2021 11:24 am by Steve Reading » Sun Mar 07, 2021 5:33 pm
Random Walker wrote: ↑Sun Mar 07, 2021 5:05 pm
As you know AVRPX was basically selling volatility insurance. So as expected, when volatility spiked early 2020 it took a hit just like the equity markets did. I think a lot of weak hands sold and the fund folded into some sort of multi alternative fund called SRDAX.

Dave
It probably didn’t help that on top of selling volatility, AVRPX was leveraged too. I never liked that about AVRPX.
As far as I know this is still true. I really think it’s a shame. The concept of realized volatility generally being lower than implied volatility because investors are willing to pay a premium for the insurance makes perfect intuitive sense to me. Anyone who invested in it should have expected the correlation to equities to go right to 1 when equity markets tanked. I like the concept of volatility scaling with leverage as well. If it did close for the reason I believe, fascinating that supposedly sophisticated investors/advisors showed some pretty bad investor behavior.

Dave
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Re: Stone Ridge All Asset Variance Risk Premium Fund

Post by garlandwhizzer »

Things like alternates that seek an investing risk/reward tradeoff opportunity overlooked by the market. They can produce an appealing narrative. Years ago it was asserted by some who promoted alternates that they could deliver equity-like returns and bond-like risk. Reality since then has largely cast aside those illusions and we don't hear such claims any more.

I think one key to successful investing is to keep it as simple as possible and to avoid adding expensive complexity for its narrative appeals. It is exceptionally unlikely that in today's markets anything will offer you equity like returns with bond like safety after costs. You can safely skip listening to the cleverly constructed and appealing narrative even it it appears to be confirmed by backtesting. Backtesting results are highly dependent on its start and stop dates which can produce almost any desired result if you cherry pick dates appropriately. When these alternates were first widely promoted years ago, they backtested quite well. That ended right about the time names like Stone Ridge became popular.

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Re: Stone Ridge All Asset Variance Risk Premium Fund

Post by nedsaid »

Random Walker wrote: Sun Apr 04, 2021 12:44 pm
nedsaid wrote: Sun Apr 04, 2021 11:24 am by Steve Reading » Sun Mar 07, 2021 5:33 pm
Random Walker wrote: ↑Sun Mar 07, 2021 5:05 pm
As you know AVRPX was basically selling volatility insurance. So as expected, when volatility spiked early 2020 it took a hit just like the equity markets did. I think a lot of weak hands sold and the fund folded into some sort of multi alternative fund called SRDAX.

Dave
It probably didn’t help that on top of selling volatility, AVRPX was leveraged too. I never liked that about AVRPX.
As far as I know this is still true. I really think it’s a shame. The concept of realized volatility generally being lower than implied volatility because investors are willing to pay a premium for the insurance makes perfect intuitive sense to me. Anyone who invested in it should have expected the correlation to equities to go right to 1 when equity markets tanked. I like the concept of volatility scaling with leverage as well. If it did close for the reason I believe, fascinating that supposedly sophisticated investors/advisors showed some pretty bad investor behavior.

Dave
I agree, this was and is a great concept. I think this was a case of good old fashioned panic, which I thought the interval fund structure was supposed to solve. Probably some big investors demanded their money back at precisely the wrong time and Stone Ridge had no choice. This shows that you can't know in advance what people will do and no matter what you do to prepare, investor emotion can blow up the best laid plans. In fairness, volatility during March 2020 was pretty extreme and I saw some really odd things happen in the markets. In this environment, someone always pays the price, and in this case it was the shareholders in this fund who stayed behind.

If I had to venture a guess, it was some big institutional players that panicked and blew up the fund but I don't really know. So much for the "smart money" which can be as irrational as the "dumb" money. I would be interested to hear what really happened. An alternate explanation is that leverage blew up the fund. Or it more likely is a combination of leverage and investor panic.

What did your Advisor at Buckingham tell you? Where you liquidated out or did you receive shares in the new fund?
Last edited by nedsaid on Sun Apr 04, 2021 1:13 pm, edited 1 time in total.
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Re: Stone Ridge All Asset Variance Risk Premium Fund

Post by retiredjg »

nedsaid wrote: Sun Apr 04, 2021 12:15 pm It appears to me that the March 2020 volatility blew up this fund...
:oops: It was gone before the March volatility. Last day seems to have been 2/5.
Last edited by retiredjg on Sun Apr 04, 2021 1:23 pm, edited 1 time in total.
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Re: Stone Ridge All Asset Variance Risk Premium Fund

Post by nedsaid »

retiredjg wrote: Sun Apr 04, 2021 1:13 pm
nedsaid wrote: Sun Apr 04, 2021 12:15 pm It appears to me that the March 2020 volatility blew up this fund...
It was gone before the March volatility. Last day seems to have been 2/5.
The fund ceased existence in 2021. I was able to get performance information on this fund until just recently. I liked to update the performance records of Larry's 4 recommended Alts in my "Latest Thoughts from Larry Swedroe" thread. I posted performance results on those 4 funds on February 2, 2021, just before the fund closed.
by nedsaid » Tue Feb 02, 2021 1:36 pm

I thought I would post the latest results of the four Alternative funds that Larry Swedroe recommended some time back.

LENDX - Stone Ridge Alternative Lending Fund

3 Month Return 15.48%
YTD Return 6.92%
1 Year Return 17.42%
3 Year Return 8.91%

SRRIX - Stone Ridge Reinsurance Risk Premium Interval Fund

YTD Return -0.47%
1 Year Return 5.88%
3 Year Return -1.55%
5 Year Return -2.15%

AVRPX - Stone Ridge All Asset Variance Risk Premium Fund

3 Month Return 1.71%
YTD Return 0.70%
1 Year Return -21.17%
3 Year Return -10.78%
5 Year Return -3.02%

QSPIX - AQR Style Premia Alternative Fund

3 Month Return 7.51%
YTD Return 5.82%
1 Year Return -16.29%
3 Year Return -13.47%
5 Year Return -6.27%

Things are looking better for Larry's four picks, Year To Date performance is looking better. LENDX, the Stone Ridge Alternative Lending fund is looking much better and actually is going gangbusters. Longer term, the overall 3 and 5 year performance is disappointing but good to see signs of life. Larry might eventually be vindicated here. Let's see.
Wow. Was my timing good or what? Anywho, I am concerned that like the hapless 10% of Yugo owners that Larry died of embarrassment. Larry hasn't posted here in over a year, the Alts were a big reason for this.
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Re: Stone Ridge All Asset Variance Risk Premium Fund

Post by retiredjg »

nedsaid wrote: Sun Apr 04, 2021 1:18 pm The fund ceased existence in 2021.
Sorry. Brain fluff. :oops:
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Re: Stone Ridge All Asset Variance Risk Premium Fund

Post by nedsaid »

garlandwhizzer wrote: Sun Apr 04, 2021 1:07 pm Things like alternates that seek an investing risk/reward tradeoff opportunity overlooked by the market. They can produce an appealing narrative. Years ago it was asserted by some who promoted alternates that they could deliver equity-like returns and bond-like risk. Reality since then has largely cast aside those illusions and we don't hear such claims any more.

I think one key to successful investing is to keep it as simple as possible and to avoid adding expensive complexity for its narrative appeals. It is exceptionally unlikely that in today's markets anything will offer you equity like returns with bond like safety after costs. You can safely skip listening to the cleverly constructed and appealing narrative even it it appears to be confirmed by backtesting. Backtesting results are highly dependent on its start and stop dates which can produce almost any desired result if you cherry pick dates appropriately. When these alternates were first widely promoted years ago, they backtested quite well. That ended right about the time names like Stone Ridge became popular.

Garland Whizzer
In the age where much trading is done by computer algorithms, I have wondered if a few hedge fund guys are deliberately doing irrational things in the markets to attempt to get the computers to go crazy and to blow up competitor funds. Sort of like the episode of Star Trek where Kirk, Spock, McCoy, Scotty, and crew acted irrationally before their android captors, it turned out the android programming couldn't handle deliberate human irrationality and utter silliness and the androids went "tilt, tilt. tilt." In a similar manner, I wonder if smart traders are trying to blow up the algorithms. After all, Cramer admitted on live TV that as a hedge fund manager that he would spread false rumors to move the prices on certain stocks. If traders would resort to rumors, it seems to me they would try blowing up the computers. It would seem to me that smart traders could trick the algorithms particularly during times of high volatility by doing crazy things that the algorithms can't interpret.

I do remember the October 1987 stock market crash when the Dow went down 22% in a day. So called program trading, or portfolio insurance was supposed to reduce market volatility and the exact opposite happened. For some reason, the computers went crazy and we had a one day crash. I also recall that Jim Baker's comments about the U.S. Dollar might have been a factor here as well.

A fund that uses leverage is even more vulnerable to such scenarios as painted above. It would be interesting if someone who works the trading floors could comment on this. Am I watching too much Star Trek or is what I am wondering about plausible?
Last edited by nedsaid on Sun Apr 04, 2021 1:37 pm, edited 1 time in total.
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Re: Stone Ridge All Asset Variance Risk Premium Fund

Post by nedsaid »

retiredjg wrote: Sun Apr 04, 2021 1:22 pm
nedsaid wrote: Sun Apr 04, 2021 1:18 pm The fund ceased existence in 2021.
Sorry. Brain fluff. :oops:
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Re: Stone Ridge All Asset Variance Risk Premium Fund

Post by marcopolo »

It is a genius move.
Now, due to survivorship bias, pretty soon they will be able to show a chart about how x% of their funds have performed well, leaving this failed fund out of their marketing material.
Once in a while you get shown the light, in the strangest of places if you look at it right.
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Re: Stone Ridge All Asset Variance Risk Premium Fund

Post by nedsaid »

marcopolo wrote: Sun Apr 04, 2021 1:34 pm It is a genius move.
Now, due to survivorship bias, pretty soon they will be able to show a chart about how x% of their funds have performed well, leaving this failed fund out of their marketing material.
Alas, this is a common industry practice. A very good lesson for small investors.
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Re: Stone Ridge All Asset Variance Risk Premium Fund

Post by ChinchillaWhiplash »

According to TDA SRDAX has a $500,000 minimum initial investment and > 2% ER. Ya gotta be loaded to get in this fund :moneybag
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Re: Stone Ridge All Asset Variance Risk Premium Fund

Post by Forester »

However good an idea is, charging more than 0.5% is likely deleterious to long-term financial health (Cost Matters Hypothesis).
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Re: Stone Ridge All Asset Variance Risk Premium Fund

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Re: Stone Ridge All Asset Variance Risk Premium Fund

Post by Northern Flicker »

JoMoney wrote: Sun Apr 04, 2021 11:05 am No idea, but I find the name of that fund amusing. I'm sure it's appealing to some, but I got a laugh out of it. The name looks like a satirical joke of all the buzz-words a finance sales guy would say that would signal "avoid" to me.
Here is some more info on variance risk premium:

https://en.m.wikipedia.org/wiki/Variance_risk_premium

Variance swaps are derivatives that theoretically can be used to hedge against high variance. I don't know what happened to the fund in question, but if it were a case of a theoretical hedging protocol failing to deliver when put into practice, it would not be the first time that happened.
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Re: Stone Ridge All Asset Variance Risk Premium Fund

Post by nisiprius »

It's a pity, because I've been hoping to track the accuracy of Larry Swedroe's statement, made in several places--for example, here about QSPIX+AVRPX+LENDX+SRRIX:
We believe an equal-weighted portfolio of these four funds has forward-looking return expectations similar to those of a global equity portfolio, but with only about one-quarter of the volatility of equities (5% versus 20%).
(He made it clear that he meant the historic return of equities, not the much higher return equities have had during the lifetime of the Stone Ridge funds.) It's hard to track the claim because, being interval funds, you don't really have true market-based data any oftener than quarterly.

I wonder what fund Larry Swedroe's firm shifted their AVRPX-holding client into?

Another one of their funds, the Stone Ridge Longevity Risk Premium Fixed Income Fund has come and gone in the blink of an eye. Their funds so far don't seen to have lasted very long.

As I write this, the five tabs at the top of their web page are for reinsurance, alternative lending, hedged equity, multi-strategy, and bitcoin futures.

And about the time Larry Swedroe started writing about them, in 2016, they had reinsurance, variance, and alternative lending.

And before that, in 2014, they were showing reinsurance, and separate funds for US variance, and international variance.

Counting on my fingers, then, in about seven years, they have introduced a total of nine funds (reinsurance, US variance, international variance, (global?) variance, alternative lending, longevity, hedged equity, multi-strategy, and bitcoin) of which only five have survived. Although it might not be fair to count "US variance," "International variance," and "Variance" as three.
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Re: Stone Ridge All Asset Variance Risk Premium Fund

Post by Random Walker »

nedsaid wrote: Sun Apr 04, 2021 1:12 pm
Random Walker wrote: Sun Apr 04, 2021 12:44 pm
nedsaid wrote: Sun Apr 04, 2021 11:24 am by Steve Reading » Sun Mar 07, 2021 5:33 pm
Random Walker wrote: ↑Sun Mar 07, 2021 5:05 pm
As you know AVRPX was basically selling volatility insurance. So as expected, when volatility spiked early 2020 it took a hit just like the equity markets did. I think a lot of weak hands sold and the fund folded into some sort of multi alternative fund called SRDAX.

Dave
It probably didn’t help that on top of selling volatility, AVRPX was leveraged too. I never liked that about AVRPX.
As far as I know this is still true. I really think it’s a shame. The concept of realized volatility generally being lower than implied volatility because investors are willing to pay a premium for the insurance makes perfect intuitive sense to me. Anyone who invested in it should have expected the correlation to equities to go right to 1 when equity markets tanked. I like the concept of volatility scaling with leverage as well. If it did close for the reason I believe, fascinating that supposedly sophisticated investors/advisors showed some pretty bad investor behavior.

Dave
I agree, this was and is a great concept. I think this was a case of good old fashioned panic, which I thought the interval fund structure was supposed to solve. Probably some big investors demanded their money back at precisely the wrong time and Stone Ridge had no choice. This shows that you can't know in advance what people will do and no matter what you do to prepare, investor emotion can blow up the best laid plans. In fairness, volatility during March 2020 was pretty extreme and I saw some really odd things happen in the markets. In this environment, someone always pays the price, and in this case it was the shareholders in this fund who stayed behind.

If I had to venture a guess, it was some big institutional players that panicked and blew up the fund but I don't really know. So much for the "smart money" which can be as irrational as the "dumb" money. I would be interested to hear what really happened. An alternate explanation is that leverage blew up the fund. Or it more likely is a combination of leverage and investor panic.

What did your Advisor at Buckingham tell you? Where you liquidated out or did you receive shares in the new fund?
Advisor is the one who told me it was weak hands, and I believe he said it was weak advisor hands (as you mentioned). I believe we were rolled into a new fund called SRDAX: Stone Ridge Diversified Alternative Fund. Supposedly it is some sort of multi alternative fund that incorporates the variance risk premium of AVRPX as one of its strategies. I do not believe though that BAM is recommending SRDAX. I believe BAM is recommending that client prior allocations to AVRPX be placed in a combination of US and Int REITs. I wasn’t really thrilled about this. I think they formally categorize REITs as an alternative asset class, but I feel that they are way more like stocks. In fact it is a BAM member that wrote a paper showing that REIT behavior can be attributed to a combination of market, size, value, and term. So now my previous 4.5% allocation to AVRPX is about 2.5% US REIT and 1.5% Int REIT. So the REITs as alternative is sort of rubbing me the wrong way. I’m keep pondering applying the REIT allocation to QSPRX, bonds, or SV equity by that small %. The hybrid nature of REITs and their tax inefficiency just sort of doesn’t sit right with me. But I’m running with it for now. I suppose any correlation less than 1 can marginally improve a portfolio. Putting my trust in the advisor and BAM. I think they feel some other alternatives may be coming up in the future and REITs may be sort of a placeholder for them.

Dave
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Re: Stone Ridge All Asset Variance Risk Premium Fund

Post by Random Walker »

garlandwhizzer wrote: Sun Apr 04, 2021 1:07 pm Things like alternates that seek an investing risk/reward tradeoff opportunity overlooked by the market. They can produce an appealing narrative. Years ago it was asserted by some who promoted alternates that they could deliver equity-like returns and bond-like risk. Reality since then has largely cast aside those illusions and we don't hear such claims any more.


Garland Whizzer
I have to disagree with you somewhat. You and I agree that markets are highly efficient and there are no free lunches. Risk and reward must be related. But not all risks show up in standard deviation. So i think it is possible to have an investment with equity like returns, say 5% over the risk free rate, and standard deviation of about 10%. And a combination of uncorrelated alternatives together can have an even lower volatility. It’s not about searching for risk/return relationships overlooked by the market: these are all long and widely known strategies. It’s about diversifying across as many different, well known, uncorrelated types of risk as possible. These include volatility, but also include liquidity, skew, kurtosis. And each of these risks can show up at different times.

So important to look at the portfolio as a whole. And I admit overall portfolio cost is a huge component of doing that! That being said, when considering a new portfolio addition, one needs to look at how the new potential addition is expected to mix in the portfolio. That depends on expected returns, volatility, correlations, when correlations tend to change, and costs.

Dave

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Re: Stone Ridge All Asset Variance Risk Premium Fund

Post by Northern Flicker »

Random Walker wrote: I believe we were rolled into a new fund called SRDAX: Stone Ridge Diversified Alternative Fund. Supposedly it is some sort of multi alternative fund that incorporates the variance risk premium of AVRPX as one of its strategies. I do not believe though that BAM is recommending SRDAX. I believe BAM is recommending that client prior allocations to AVRPX be placed in a combination of US and Int REITs. I wasn’t really thrilled about this. I think they formally categorize REITs as an alternative asset class, but I feel that they are way more like stocks. In fact it is a BAM member that wrote a paper showing that REIT behavior can be attributed to a combination of market, size, value, and term.
Yes, Larry Swedroe has posted in the past about REITs with respect to no longer considering them to be an alternative asset class:

viewtopic.php?p=4053488#p4053488

That posting also references the paper you mentioned.
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Re: Stone Ridge All Asset Variance Risk Premium Fund

Post by Northern Flicker »

Random Walker wrote: The concept of realized volatility generally being lower than implied volatility because investors are willing to pay a premium for the insurance makes perfect intuitive sense to me. Anyone who invested in it should have expected the correlation to equities to go right to 1 when equity markets tanked.
What is the motivation for investing in an interval fund with a minimal fundamental driver of return, a 2% expense ratio, a lack of daily liquidity, and the likely prospect of its sample correlation with equities being near 1 when equities are crashing?

The fund perhaps was leveraged because the spread between implied and realized volatility is not enough to cover a 2% expense ratio and advisor AUM fee while still leaving something for the investor. But the variance swaps used for the investment likely are leveraged inherently.
Last edited by Northern Flicker on Sun Apr 04, 2021 3:52 pm, edited 3 times in total.
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Re: Stone Ridge All Asset Variance Risk Premium Fund

Post by Random Walker »

Northern Flicker wrote: Sun Apr 04, 2021 3:09 pm
Random Walker wrote: The concept of realized volatility generally being lower than implied volatility because investors are willing to pay a premium for the insurance makes perfect intuitive sense to me. Anyone who invested in it should have expected the correlation to equities to go right to 1 when equity markets tanked.
What is the motivation for investing in an interval fund with a minimal fundamental driver of return, a 2% expense ratio, a lack of daily liquidity, and the likely prospect of its sample correlation with equities being near 1 when equities are crashing?

The fund perhaps was leveraged because the spread between implied and realized volatility is not enough to cover a 2% expense ratio and advisor AUM fee while still leaving something for the investor.
I would say lack of correlation under more normal / less extreme circumstances. Every portfolio decision is a trade off; an increased allocation to one portfolio component necessitates a decreased allocation to something else. So it’s important when deciding to make a new allocation for the investor to ask himself where is the new allocation coming from and what is the purpose of the change. For me, I was taking from a municipal bond allocation in a taxable account. I was looking for diversification benefit and an after tax return greater than my bonds.

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Re: Stone Ridge All Asset Variance Risk Premium Fund

Post by Northern Flicker »

I think it is uncommon for an investment with a 2% expense ratio to be a good bond substitute.

What I've seen with alts, and for that matter most investments other than treasuries and t-bills is that when liquidity is in short supply, liquidity risk materializing dominates the short-term return so that the risk premia driving returns may not be independent drivers of return at that time. This is an achilles heel of modern portfolio theory.
Last edited by Northern Flicker on Sun Apr 04, 2021 3:38 pm, edited 1 time in total.
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Re: Stone Ridge All Asset Variance Risk Premium Fund

Post by nedsaid »

Random Walker wrote: Sun Apr 04, 2021 2:30 pm
nedsaid wrote: Sun Apr 04, 2021 1:12 pm
I agree, this was and is a great concept. I think this was a case of good old fashioned panic, which I thought the interval fund structure was supposed to solve. Probably some big investors demanded their money back at precisely the wrong time and Stone Ridge had no choice. This shows that you can't know in advance what people will do and no matter what you do to prepare, investor emotion can blow up the best laid plans. In fairness, volatility during March 2020 was pretty extreme and I saw some really odd things happen in the markets. In this environment, someone always pays the price, and in this case it was the shareholders in this fund who stayed behind.

If I had to venture a guess, it was some big institutional players that panicked and blew up the fund but I don't really know. So much for the "smart money" which can be as irrational as the "dumb" money. I would be interested to hear what really happened. An alternate explanation is that leverage blew up the fund. Or it more likely is a combination of leverage and investor panic.

What did your Advisor at Buckingham tell you? Where you liquidated out or did you receive shares in the new fund?
Advisor is the one who told me it was weak hands, and I believe he said it was weak advisor hands (as you mentioned). I believe we were rolled into a new fund called SRDAX: Stone Ridge Diversified Alternative Fund. Supposedly it is some sort of multi alternative fund that incorporates the variance risk premium of AVRPX as one of its strategies. I do not believe though that BAM is recommending SRDAX. I believe BAM is recommending that client prior allocations to AVRPX be placed in a combination of US and Int REITs. I wasn’t really thrilled about this. I think they formally categorize REITs as an alternative asset class, but I feel that they are way more like stocks. In fact it is a BAM member that wrote a paper showing that REIT behavior can be attributed to a combination of market, size, value, and term. So now my previous 4.5% allocation to AVRPX is about 2.5% US REIT and 1.5% Int REIT. So the REITs as alternative is sort of rubbing me the wrong way. I’m keep pondering applying the REIT allocation to QSPRX, bonds, or SV equity by that small %. The hybrid nature of REITs and their tax inefficiency just sort of doesn’t sit right with me. But I’m running with it for now. I suppose any correlation less than 1 can marginally improve a portfolio. Putting my trust in the advisor and BAM. I think they feel some other alternatives may be coming up in the future and REITs may be sort of a placeholder for them.

Dave
Dave, thanks for responding. I agree with your suspicions that U.S. REITs and International REITs are a placeholder until they can find another investment.

The thing is, no matter how good you are as an investor, you will have your clunkers and that goes for Advisory firms as well. Of your three remaining alternatives, LENDX has been brilliant, QSPIX is showing signs of life in 2021, and SSRIX continues to be a mild disappointment. The Alts haven't hurt you much but the overall performance of the 4 has been disappointing.

I have a managed account at American Century Investments, they had two Liquid Alts in my portfolio and have sold me down to one. Like you, I noticed the use of hybrid securities recently, a Preferred Stock ETF and a Convertible Bond ETF. I think I would rather have the hybrids instead of the Liquid Alts.

American Century made quite a commitment to the Liquid Alts as a firm, they once had 5 Liquid Alt funds and a 130/30 long/short fund but have since closed down all but two. My suspicion is that the other two will be closed as well. Lots of hedge funds don't perform all that well, this is a tough space to compete in, you wonder why the retail funds even try. For one, I am suspicious that the retail firms cannot draw the very best talent.

I am actually rooting for Larry, rooting for Buckingham, and rooting for your personally. The concepts were great but markets are cruel, very cruel indeed.
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Re: Stone Ridge All Asset Variance Risk Premium Fund

Post by Random Walker »

Northern Flicker wrote: Sun Apr 04, 2021 3:28 pm I think it is uncommon for an investment with a 2% expense ratio to be a good bond substitute.
I wasn’t completely replacing my bonds. As I was decreasing my overall equity exposure, I decided to place a portion in the alternative instead of bonds in an effort to increase portfolio expected return, increase portfolio risk, increase portfolio efficiency. In my case, roughly, instead of a 40/60 stock/bond split, I’ve opted for a 40/25/35 stock/alt/bond split. The Alts are divided between 4 different alternative funds. Admittedly, a bit of dice rolling, but given where bond yields are, I thought worthwhile.

Dave
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Re: Stone Ridge All Asset Variance Risk Premium Fund

Post by Random Walker »

Northern Flicker wrote: Sun Apr 04, 2021 3:28 pm I think it is uncommon for an investment with a 2% expense ratio to be a good bond substitute.

What I've seen with alts, and for that matter most investments other than treasuries and t-bills is that when liquidity is in short supply, liquidity risk materializing dominates the short-term return so that the risk premia driving returns may not be independent drivers of return at that time. This is an achilles heel of modern portfolio theory.
Don’t think it’s as much an Achilles heel of MPT as it is demonstration of the importance of strong hands - investor behavior. If there’s a liquidity premium to be had, then I suppose the investor really earns it during periods of flight to liquidity.

Dave
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Re: Stone Ridge All Asset Variance Risk Premium Fund

Post by nedsaid »

In the days of very low interest rates and perhaps lower future expected returns for equities, one can see why investors are looking beyond the traditional asset classes of stocks, bonds, and cash. So far, champagne wishes and caviar dreams have turned into the Boulevard of Broken Dreams. Even the ultra smart Cliff Asness had to issue a mea culpa regarding his AQR funds. I suppose the moral to the Alts story is that the early bird gets the worm, early birds like David Swenson. Once these great concepts filter down to retail investors, the story behind those concepts is over. The retail investor arrived at the Alternative Investment party only to find that the punchbowl had already been taken away. It seems like you need to get in early.
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Re: Stone Ridge All Asset Variance Risk Premium Fund

Post by Random Walker »

nedsaid wrote: Sun Apr 04, 2021 3:33 pm The concepts were great but markets are cruel, very cruel indeed.
Cruel is effectively a synonym for highly efficient. That’s why I think it’s important to access this stuff, whether it be reinsurance, momentum, variance risk premium, or some other alt, in what I consider an effectively passive fashion: diversified, formulaic, relatively low cost, no market timing, no individual security selection. I imagine it’s not that black and white, after all Asness refers to his formulaic strategies as active, but you get the idea.

Dave
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Re: Stone Ridge All Asset Variance Risk Premium Fund

Post by Northern Flicker »

Random Walker wrote: Sun Apr 04, 2021 3:45 pm
Northern Flicker wrote: Sun Apr 04, 2021 3:28 pm I think it is uncommon for an investment with a 2% expense ratio to be a good bond substitute.

What I've seen with alts, and for that matter most investments other than treasuries and t-bills is that when liquidity is in short supply, liquidity risk materializing dominates the short-term return so that the risk premia driving returns may not be independent drivers of return at that time. This is an achilles heel of modern portfolio theory.
Don’t think it’s as much an Achilles heel of MPT as it is demonstration of the importance of strong hands - investor behavior. If there’s a liquidity premium to be had, then I suppose the investor really earns it during periods of flight to liquidity.

Dave
You earn the liquidity premium when liquidity risk is not materializing. If I'm just going to grin and bear it and stay the course when portfolio values are plummeting, I would just as soon do that with an equity/bond mix with an upside more grounded in precedent.

Edited to fix typos and poorly worded phrases.
Last edited by Northern Flicker on Sun Apr 04, 2021 4:05 pm, edited 5 times in total.
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Re: Stone Ridge All Asset Variance Risk Premium Fund

Post by nedsaid »

Random Walker wrote: Sun Apr 04, 2021 3:45 pm
Northern Flicker wrote: Sun Apr 04, 2021 3:28 pm I think it is uncommon for an investment with a 2% expense ratio to be a good bond substitute.

What I've seen with alts, and for that matter most investments other than treasuries and t-bills is that when liquidity is in short supply, liquidity risk materializing dominates the short-term return so that the risk premia driving returns may not be independent drivers of return at that time. This is an achilles heel of modern portfolio theory.
Don’t think it’s as much an Achilles heel of MPT as it is demonstration of the importance of strong hands - investor behavior. If there’s a liquidity premium to be had, then I suppose the investor really earns it during periods of flight to liquidity.

Dave
Dave, this is a bit of a sad story. The concepts were good, the problem is that your fellow investors couldn't stay put. So you were penalized for staying invested, those who panic sold probably got better prices than those who stayed in the fund. It seems that no matter how the investment vehicle is designed, panic can blow it up. I really thought that the Interval Fund structure would avoid this problem.
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Re: Stone Ridge All Asset Variance Risk Premium Fund

Post by UberGrub »

You gotta commend Swedroe as the guy makes all sorts of recommendations, takes credit for the good ones and claims bad luck for the bad ones.

High ER commodities he recommended did poorly for two decades? Ah that's just low inflation, not his fault.
Selling volatility leveraged blew up? Ah that's just other advisors who folded, not his fault.
Trend following/managed futures has been a big drag? Ah just don't even touch the subject at all. Last article was more than 2 years ago.
SCV starts to do very well? Why of course let me remind everyone of that right away!

You can't make this stuff up :mrgreen:
nedsaid wrote: Sun Apr 04, 2021 3:33 pm I am actually rooting for Larry
The dude is brilliant. Push a bunch of unconventional, high fee, actively-managed leveraged interval funds that are extremely opaque (you have to open a thread to even find out what happened to one of them!). If they do great, awesome! Remind everyone of it. If they do poorly, just blame it on bad luck (like a "cruel" market as you put it) or don't breach the subject at all.
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Re: Stone Ridge All Asset Variance Risk Premium Fund

Post by Random Walker »

nedsaid wrote: Sun Apr 04, 2021 3:51 pm In the days of very low interest rates and perhaps lower future expected returns for equities, one can see why investors are looking beyond the traditional asset classes of stocks, bonds, and cash. So far, champagne wishes and caviar dreams have turned into the Boulevard of Broken Dreams. Even the ultra smart Cliff Asness had to issue a mea culpa regarding his AQR funds. I suppose the moral to the Alts story is that the early bird gets the worm, early birds like David Swenson. Once these great concepts filter down to retail investors, the story behind those concepts is over. The retail investor arrived at the Alternative Investment party only to find that the punchbowl had already been taken away. It seems like you need to get in early.
I don’t necessarily agree. Take something like AQR Style Premia, 4 well known strategies, multiple asset classes. There is sound risk based and behavioral based rationale behind the strategies. As the strategies become increasingly known, competition enters the space, expected returns may decrease, but so will costs. The story behind the concept doesn’t end. As you know, Larry has written about a couple of studies that show publication of a given premia may result in a haircut of about 1/3 to the premium. Obviously, getting in early is great. There is a one time big return to be made. But then competition enters, both expected return and costs go down. But it would not be rational for the risk based premia to disappear completely, and there are plenty of limits to arbitrage for behavioral based premia.

Dave
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Re: Stone Ridge All Asset Variance Risk Premium Fund

Post by nedsaid »

Random Walker wrote: Sun Apr 04, 2021 3:53 pm
nedsaid wrote: Sun Apr 04, 2021 3:33 pm The concepts were great but markets are cruel, very cruel indeed.
Cruel is effectively a synonym for highly efficient. That’s why I think it’s important to access this stuff, whether it be reinsurance, momentum, variance risk premium, or some other alt, in what I consider an effectively passive fashion: diversified, formulaic, relatively low cost, no market timing, no individual security selection. I imagine it’s not that black and white, after all Asness refers to his formulaic strategies as active, but you get the idea.

Dave
Nothing wrong with the concepts or the structure, it was investor behavior that was the problem. Investors are their own worst enemy, quite often if you just hang in there disappointing performance will take care of itself as the markets do turn. Hard to predict in advance how investors will act. There are times when insanity hits the markets and you have to learn to sit tight until sanity returns. Easy to say but hard to do.

This is why I have been suspicions of the Quants, the math is merely a numerical description of past human behavior. Trying to project the past into the future doesn't always work. While the math is a vital part of investing, you also have to look at the psychological and behavioral aspects, putting the markets on the couch so to speak. I keep saying that you have to understand that humans are not always rational and that markets are an extension of humans. Crazy things sometimes happen for reasons that aren't always clear.
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Re: Stone Ridge All Asset Variance Risk Premium Fund

Post by Random Walker »

nedsaid wrote: Sun Apr 04, 2021 4:07 pm
Random Walker wrote: Sun Apr 04, 2021 3:53 pm
nedsaid wrote: Sun Apr 04, 2021 3:33 pm The concepts were great but markets are cruel, very cruel indeed.
Cruel is effectively a synonym for highly efficient. That’s why I think it’s important to access this stuff, whether it be reinsurance, momentum, variance risk premium, or some other alt, in what I consider an effectively passive fashion: diversified, formulaic, relatively low cost, no market timing, no individual security selection. I imagine it’s not that black and white, after all Asness refers to his formulaic strategies as active, but you get the idea.

Dave
Nothing wrong with the concepts or the structure, it was investor behavior that was the problem. Investors are their own worst enemy, quite often if you just hang in there disappointing performance will take care of itself as the markets do turn. Hard to predict in advance how investors will act. There are times when insanity hits the markets and you have to learn to sit tight until sanity returns. Easy to say but hard to do.

This is why I have been suspicions of the Quants, the math is merely a numerical description of past human behavior. Trying to project the past into the future doesn't always work. While the math is a vital part of investing, you also have to look at the psychological and behavioral aspects, putting the markets on the couch so to speak. I keep saying that you have to understand that humans are not always rational and that markets are an extension of humans. Crazy things sometimes happen for reasons that aren't always clear.
This brings up a fascinating question. Do you believe that human behavior is tenaciously persistent? Or do you believe that investor behavior is overall improving over time? Have investors learned from past bubbles and bursts, or will we just keep repeating the same past behaviors? As I’ve progressed through my own personal investing experience from about mid 1990’s to present, I’ve become more and more convinced that investor behavior is tenaciously persistent; especially since new investors are always entering the markets and older ones are passing on.

Dave
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Re: Stone Ridge All Asset Variance Risk Premium Fund

Post by nedsaid »

UberGrub wrote: Sun Apr 04, 2021 4:00 pm You gotta commend Swedroe as the guy makes all sorts of recommendations, takes credit for the good ones and claims bad luck for the bad ones.

High ER commodities he recommended did poorly for two decades? Ah that's just low inflation, not his fault.
Selling volatility leveraged blew up? Ah that's just other advisors who folded, not his fault.
Trend following/managed futures has been a big drag? Ah just don't even touch the subject at all. Last article was more than 2 years ago.
SCV starts to do very well? Why of course let me remind everyone of that right away!

You can't make this stuff up :mrgreen:
nedsaid wrote: Sun Apr 04, 2021 3:33 pm I am actually rooting for Larry
The dude is brilliant. Push a bunch of unconventional, high fee, actively-managed leveraged interval funds that are extremely opaque (you have to open a thread to even find out what happened to one of them!). If they do great, awesome! Remind everyone of it. If they do poorly, just blame it on bad luck (like a "cruel" market as you put it) or don't breach the subject at all.
I don't know Larry's views on the causes of the failure of AVRPX, what we know is what one Buckingham Advisor told one Buckingham Client. Not sure we know who the "weak hands" are, possibly other Advisors and possibly some big clients. There could have been big institutional investors in this fund as well who wanted out. So lots of conjecture here. In any case, things didn't work out very well for the investors in this fund.

All this suggests that markets are pretty darned efficient. We also know that the markets are dynamic and sometimes good strategies just stop working. There are huge pools of money looking to exploit market inefficiencies, not hard to understand why certain Commodity Futures Strategies quit working, just too much money flooded in. There is also a tremendous amount of talent in the investing world, very tough competition. In earlier threads, I wondered if firms like AQR and Stone Ridge were just outmanned and outgunned. We have even seen brilliant people fail at this. And yes, luck is an element involved here.

We also underestimate the power of human emotion. We all have a rational self and an emotional self. One must respect the emotional self or one will get surprised at the worst possible time. Human emotion is the wild card in all of this, it upsets the best laid plans. Bad things can happen to good investment concepts.
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Re: Stone Ridge All Asset Variance Risk Premium Fund

Post by nedsaid »

Random Walker wrote: Sun Apr 04, 2021 4:15 pm
nedsaid wrote: Sun Apr 04, 2021 4:07 pm
Nothing wrong with the concepts or the structure, it was investor behavior that was the problem. Investors are their own worst enemy, quite often if you just hang in there disappointing performance will take care of itself as the markets do turn. Hard to predict in advance how investors will act. There are times when insanity hits the markets and you have to learn to sit tight until sanity returns. Easy to say but hard to do.

This is why I have been suspicions of the Quants, the math is merely a numerical description of past human behavior. Trying to project the past into the future doesn't always work. While the math is a vital part of investing, you also have to look at the psychological and behavioral aspects, putting the markets on the couch so to speak. I keep saying that you have to understand that humans are not always rational and that markets are an extension of humans. Crazy things sometimes happen for reasons that aren't always clear.
This brings up a fascinating question. Do you believe that human behavior is tenaciously persistent? Or do you believe that investor behavior is overall improving over time? Have investors learned from past bubbles and bursts, or will we just keep repeating the same past behaviors? As I’ve progressed through my own personal investing experience from about mid 1990’s to present, I’ve become more and more convinced that investor behavior is tenaciously persistent; especially since new investors are always entering the markets and older ones are passing on.

Dave
Humans are also intelligent. We try to learn the lessons from the past and try hard not to repeat them. Problem is lessons eventually get forgotten or we draw wrong conclusions from history. So yes, we can overcome the negative effects of human emotion but it seems like for only a while. One culprit is good old fashioned hubris, even I, who ought to know better, believe myself to be utterly brilliant when my investments are doing well. You also raise a great point that new investors are always coming into the markets, or new suckers if you are a cynic.

So in answer to your question, yes humans learn from the past but the effect seems to be temporary. Longer term, humans repeat the same errors over and over again. I suppose I would have eaten the forbidden fruit in the garden even if I knew the story of the fall. Knowing that Adam did it probably won't keep me from eventually repeating the same mistake probably because I believe myself to be smarter and better able to get away with it.
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Re: Stone Ridge All Asset Variance Risk Premium Fund

Post by afan »

In defense of quants:
There is a difference between trying to determine the forces that drive market returns as an intellectual exercise and trying to create a way to earn excess risk adjusted returns. The quant approach has made major contributions to the former. Not so much for the latter.

I can understand reading their efforts out of curiosity.

I cannot understand chasing after every new gimmick someone designs, at enormous cost, to pursue nominal returns. Those are not even the goal, why in the world pay these prices to seek them?

3 fund and spend your time and energy on more productive financial issues.
We don't know how to beat the market on a risk-adjusted basis, and we don't know anyone that does know either | --Swedroe | We assume that markets are efficient, that prices are right | --Fama
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Re: Stone Ridge All Asset Variance Risk Premium Fund

Post by Northern Flicker »

nedsaid wrote: Nothing wrong with the concepts or the structure, it was investor behavior that was the problem.
The investments lacked the liquidity to support investor withdrawal demand adequately.
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Re: Stone Ridge All Asset Variance Risk Premium Fund

Post by Northern Flicker »

Random Walker wrote: Sun Apr 04, 2021 3:42 pm
Northern Flicker wrote: Sun Apr 04, 2021 3:28 pm I think it is uncommon for an investment with a 2% expense ratio to be a good bond substitute.
I wasn’t completely replacing my bonds. As I was decreasing my overall equity exposure, I decided to place a portion in the alternative instead of bonds in an effort to increase portfolio expected return, increase portfolio risk, increase portfolio efficiency. In my case, roughly, instead of a 40/60 stock/bond split, I’ve opted for a 40/25/35 stock/alt/bond split. The Alts are divided between 4 different alternative funds. Admittedly, a bit of dice rolling, but given where bond yields are, I thought worthwhile.

Dave
It might be worthwhile at reasonable cost. I'm skeptical that an alt with 2% or higher ER plus AUM fee (which is getting into hedge fund fee territory) has an attractive expected return. I am currently invested in two alts-- one is a stable value fund, which is fairly vanilla. The other is a more newfangled one that I dipped my toe in. It is 4% of the portfolio and has a 1.1% ER. It has been little more than a drag on overall return, but fortunately a small drag on portfolio return since only 4% of the portfolio. The biggest issue I have with alts is not so much a bad return of the alt as the potential opportunity cost of not being in more productive assets with the sliver of the portfolio they occupy.
Last edited by Northern Flicker on Mon Apr 05, 2021 12:07 am, edited 2 times in total.
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Re: Stone Ridge All Asset Variance Risk Premium Fund

Post by nedsaid »

Northern Flicker wrote: Sun Apr 04, 2021 5:27 pm
nedsaid wrote: Nothing wrong with the concepts or the structure, it was investor behavior that was the problem.
The investments lacked the liquidity to support investor withdrawal demand adequately.
The whole idea was that investor liquidity would be limited to save investors from their own panic.
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Re: Stone Ridge All Asset Variance Risk Premium Fund

Post by Northern Flicker »

Limiting withdrawals to specific intervals can just make things worse-- it concentrates withdrawal demand accrued over an extended illiquidity period into a narrow period.

For my own purposes, an investment product that requires other investors who invest in the product to stay the course for me to be successful just doesn't pass the smell test.
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Re: Stone Ridge All Asset Variance Risk Premium Fund

Post by 000 »

nedsaid wrote: Sun Apr 04, 2021 4:07 pm Nothing wrong with the concepts or the structure,
it was investor behavior that was the problem.
I would say if other investors' behavior harms my performance there is a problem with the structure.
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Re: Stone Ridge All Asset Variance Risk Premium Fund

Post by Northern Flicker »

Random Walker wrote: As you know AVRPX was basically selling volatility insurance. So as expected, when volatility spiked early 2020 it took a hit just like the equity markets did.
I've been trying to understand this. Shouldn't a product properly designed to insure a portfolio against volatility be hitting its sweet spot when volatility spikes? The above seems like it is analogous to saying that your home insurer was expected to fold when your house burned to the ground.
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Re: Stone Ridge All Asset Variance Risk Premium Fund

Post by UberGrub »

Northern Flicker wrote: Mon Apr 05, 2021 1:06 pm
Random Walker wrote: As you know AVRPX was basically selling volatility insurance. So as expected, when volatility spiked early 2020 it took a hit just like the equity markets did.
I've been trying to understand this. Shouldn't a product properly designed to insure a portfolio against volatility be hitting its sweet spot when volatility spikes? The above seems like it is analogous to saying that your home insurer was expected to fold when your house burned to the ground.
AVRPX sold insurance to protect others from volatility. Investing in AVRPX does not mean you're buying the insurance, it is the opposite: you are selling it. So a portfolio that invested in AVRPX obviously hates it when volatility spikes.
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