Morningstar Magazine - February/March 2018 - 13

QLEIX finished first in its category. AQR Equity
Market Neutral QMNIX was first in its category.
AQR Style Premia Alternative QSPIX was
first in its category. Of the four, only AQR Managed
Futures Strategy HV QMHRX had a mediocre
showing. Outgaining other funds succeeds
in the mutual fund industry. That was true when
grandpa drove the Oldsmobile, true when
your father did so, and it remains true today.
AQR's expenses haven't been bad, either; with
the share classes shown here all somewhat
cheaper than the norm. Clearly, though, the funds'
performance has been their main attraction.
Also, this illustration favors AQR, because three
of those fund share classes are institutional,
and the fourth is an R6 share class, which is priced
even below the institutional classes. (R6 is
a "clean" share class, meaning that it does not
share any revenue with the companies that
distribute AQR funds.) If retail funds are removed
from the comparison group, AQR's relative cost
advantage declines.

EXHIBIT 2

AQR Best Sellers The firm's most popular funds are mostly performance leaders.
Percentile Rank

Expenses

Performance
1

1

1

35

1
25

30

35

41

50
68

75
100
QLEIX

QMNIX

QSPIX

QMHRX

Performance calculated for trailing three years and ranked within Morningstar Category. Expenses ranked within Morningstar Fee Level Group - Broad.
Source: Morningstar. Data as of 10/31/2017.

EXHIBIT 3

Vanguard Best Sellers The sales leaders are also among the lowest-cost in their class.
Percentile Rank

Expenses

Performance
1

2
14

22

3

1

3

16

25

Low-Cost Leaders

Now, let's look at Vanguard's chart in E X HIB IT 3 .
As with AQR's figures, Vanguard's are generated
for its four top-selling mutual funds for the
year through October: Vanguard Total Stock Market
Index VITSX, Vanguard 500 Index VFIAX,
Vanguard Total International Bond Market Index
VTABX, and Vanguard Total International Stock
Index VTIAX.
Again, the first bar in each set represents
relative total returns and the second shows
relative expenses. (The particular share
classes shown here were the most popular ones
with records of at least three years.)
It's almost certainly what you expected: Cost
triumphs. All of the Vanguard funds are among the
cheapest 3% in their group-and these share
classes aren't necessarily the cheapest available
for each fund.
The performance bars also follow the customary
Vanguard formula. None of them reach the
top, because index funds don't generally place
first in their categories, but three of the four funds
place in their category's top quartile. That

45

50
75
100

VITSX

VFIAX

VTABX

VTIAX

Performance calculated for trailing three years and ranked within Morningstar Category. Expenses ranked within Morningstar Fee Level Group - Broad.
Source: Morningstar. Data as of 10/31/2017.

is a typical achievement for a bargain-priced
index fund: Land somewhere near the first
quartile for three years, then gradually move up
the rankings over time, because the expense
advantage is ongoing, while relative performance
comes and goes.
Half True

It relies on performance, not costs. That means
that AQR faces the greater challenge of
the two firms in maintaining its supremacy. Staying
cheap is not hard. Staying number one most
certainly is. K
John Rekenthaler is vice president of research
with Morningstar Research Services.

Which, rather neatly, brings us to the conclusion.
Is AQR the Vanguard for alternative investing?
Yes and no. Yes, in that AQR rules its (much smaller,
albeit highly profitable) roost. The nonconformity of alternatives has enabled somebody
besides Vanguard to prevail within that
portion of the industry, and AQR has become that
somebody. No, in that AQR's formula is different.

global.morningstar.com/Morningstarmagazine

13


http://global.morningstar.com/Morningstarmagazine

Table of Contents for the Digital Edition of Morningstar Magazine - February/March 2018

Contents
Morningstar Magazine - February/March 2018 - Cover1
Morningstar Magazine - February/March 2018 - Cover2
Morningstar Magazine - February/March 2018 - 1
Morningstar Magazine - February/March 2018 - 2
Morningstar Magazine - February/March 2018 - Contents
Morningstar Magazine - February/March 2018 - 4
Morningstar Magazine - February/March 2018 - 5
Morningstar Magazine - February/March 2018 - 6
Morningstar Magazine - February/March 2018 - 7
Morningstar Magazine - February/March 2018 - 8
Morningstar Magazine - February/March 2018 - 9
Morningstar Magazine - February/March 2018 - 10
Morningstar Magazine - February/March 2018 - 11
Morningstar Magazine - February/March 2018 - 12
Morningstar Magazine - February/March 2018 - 13
Morningstar Magazine - February/March 2018 - 14
Morningstar Magazine - February/March 2018 - 15
Morningstar Magazine - February/March 2018 - 16
Morningstar Magazine - February/March 2018 - 17
Morningstar Magazine - February/March 2018 - 18
Morningstar Magazine - February/March 2018 - 19
Morningstar Magazine - February/March 2018 - 20
Morningstar Magazine - February/March 2018 - 21
Morningstar Magazine - February/March 2018 - 22
Morningstar Magazine - February/March 2018 - 23
Morningstar Magazine - February/March 2018 - 24
Morningstar Magazine - February/March 2018 - 25
Morningstar Magazine - February/March 2018 - 26
Morningstar Magazine - February/March 2018 - 27
Morningstar Magazine - February/March 2018 - 28
Morningstar Magazine - February/March 2018 - 29
Morningstar Magazine - February/March 2018 - 30
Morningstar Magazine - February/March 2018 - 31
Morningstar Magazine - February/March 2018 - 32
Morningstar Magazine - February/March 2018 - 33
Morningstar Magazine - February/March 2018 - 34
Morningstar Magazine - February/March 2018 - 35
Morningstar Magazine - February/March 2018 - 36
Morningstar Magazine - February/March 2018 - 37
Morningstar Magazine - February/March 2018 - 38
Morningstar Magazine - February/March 2018 - 39
Morningstar Magazine - February/March 2018 - 40
Morningstar Magazine - February/March 2018 - 41
Morningstar Magazine - February/March 2018 - 42
Morningstar Magazine - February/March 2018 - 43
Morningstar Magazine - February/March 2018 - 44
Morningstar Magazine - February/March 2018 - 45
Morningstar Magazine - February/March 2018 - 46
Morningstar Magazine - February/March 2018 - 47
Morningstar Magazine - February/March 2018 - 48
Morningstar Magazine - February/March 2018 - 49
Morningstar Magazine - February/March 2018 - 50
Morningstar Magazine - February/March 2018 - 51
Morningstar Magazine - February/March 2018 - 52
Morningstar Magazine - February/March 2018 - 53
Morningstar Magazine - February/March 2018 - 54
Morningstar Magazine - February/March 2018 - 55
Morningstar Magazine - February/March 2018 - 56
Morningstar Magazine - February/March 2018 - 57
Morningstar Magazine - February/March 2018 - 58
Morningstar Magazine - February/March 2018 - 59
Morningstar Magazine - February/March 2018 - 60
Morningstar Magazine - February/March 2018 - 61
Morningstar Magazine - February/March 2018 - 62
Morningstar Magazine - February/March 2018 - 63
Morningstar Magazine - February/March 2018 - 64
Morningstar Magazine - February/March 2018 - 65
Morningstar Magazine - February/March 2018 - 66
Morningstar Magazine - February/March 2018 - 67
Morningstar Magazine - February/March 2018 - 68
Morningstar Magazine - February/March 2018 - 69
Morningstar Magazine - February/March 2018 - 70
Morningstar Magazine - February/March 2018 - 71
Morningstar Magazine - February/March 2018 - 72
Morningstar Magazine - February/March 2018 - 73
Morningstar Magazine - February/March 2018 - 74
Morningstar Magazine - February/March 2018 - 75
Morningstar Magazine - February/March 2018 - 76
Morningstar Magazine - February/March 2018 - 77
Morningstar Magazine - February/March 2018 - 78
Morningstar Magazine - February/March 2018 - 79
Morningstar Magazine - February/March 2018 - 80
Morningstar Magazine - February/March 2018 - Cover3
Morningstar Magazine - February/March 2018 - Cover4
http://www.nxtbook.com/nxtbooks/morningstar/magazine_2019spring
http://www.nxtbook.com/nxtbooks/morningstar/magazine_20191201
http://www.nxtbook.com/nxtbooks/morningstar/magazine_20181011
http://www.nxtbook.com/nxtbooks/morningstar/magazine_20180809
http://www.nxtbook.com/nxtbooks/morningstar/magazine_20180607
http://www.nxtbook.com/nxtbooks/morningstar/magazine_20180405
http://www.nxtbook.com/nxtbooks/morningstar/magazine_20180203
http://www.nxtbook.com/nxtbooks/morningstar/magazine_20181201
http://www.nxtbook.com/nxtbooks/morningstar/magazine_20171011
http://www.nxtbook.com/nxtbooks/morningstar/magazine_20170809
http://www.nxtbook.com/nxtbooks/morningstar/magazine_20170607
http://www.nxtbook.com/nxtbooks/morningstar/magazine_20170405
http://www.nxtbook.com/nxtbooks/morningstar/magazine_20170203
http://www.nxtbook.com/nxtbooks/morningstar/magazine_20171201
http://www.nxtbook.com/nxtbooks/morningstar/magazine_20161011
http://www.nxtbook.com/nxtbooks/morningstar/magazine_20160809
http://www.nxtbook.com/nxtbooks/morningstar/magazine_20160607
http://www.nxtbook.com/nxtbooks/morningstar/magazine_20160405
http://www.nxtbook.com/nxtbooks/morningstar/magazine_20160203
http://www.nxtbook.com/nxtbooks/morningstar/magazine_20161201
http://www.nxtbook.com/nxtbooks/morningstar/magazine_20151011
http://www.nxtbook.com/nxtbooks/morningstar/magazine_20150809
http://www.nxtbook.com/nxtbooks/morningstar/magazine_20150607
http://www.nxtbook.com/nxtbooks/morningstar/magazine_20150405
http://www.nxtbook.com/nxtbooks/morningstar/magazine_20150203
http://www.nxtbook.com/nxtbooks/morningstar/magazine_20151201
http://www.nxtbook.com/nxtbooks/morningstar/magazine_20141011
http://www.nxtbook.com/nxtbooks/morningstar/magazine_20140809
http://www.nxtbook.com/nxtbooks/morningstar/magazine_20140607
http://www.nxtbook.com/nxtbooks/morningstar/magazine_20140405
http://www.nxtbook.com/nxtbooks/morningstar/magazine_20140203
http://www.nxtbook.com/nxtbooks/morningstar/advisor_20141201
http://www.nxtbook.com/nxtbooks/morningstar/advisor_20131011
http://www.nxtbook.com/nxtbooks/morningstar/advisor_20130809
http://www.nxtbook.com/nxtbooks/morningstar/advisor_20130607
http://www.nxtbook.com/nxtbooks/morningstar/advisor_20130405
http://www.nxtbook.com/nxtbooks/morningstar/advisor_20130203
http://www.nxtbook.com/nxtbooks/morningstar/advisor_20131201
http://www.nxtbook.com/nxtbooks/morningstar/advisor_20121011
http://www.nxtbook.com/nxtbooks/morningstar/advisor_20120809
http://www.nxtbook.com/nxtbooks/morningstar/advisor_20120607
http://www.nxtbook.com/nxtbooks/morningstar/advisor_20120405
http://www.nxtbook.com/nxtbooks/morningstar/investorconference2012
http://www.nxtbook.com/nxtbooks/morningstar/advisor_20120203
http://www.nxtbook.com/nxtbooks/morningstar/advisor_20121201
http://www.nxtbook.com/nxtbooks/morningstar/advisor_20111011
http://www.nxtbook.com/nxtbooks/morningstar/advisor_20110809
http://www.nxtbook.com/nxtbooks/morningstar/advisor_20110607
http://www.nxtbook.com/nxtbooks/morningstar/advisor_20110405
http://www.nxtbook.com/nxtbooks/morningstar/advisor_20110203
http://www.nxtbook.com/nxtbooks/morningstar/advisor_20111201
http://www.nxtbook.com/nxtbooks/morningstar/advisor_20101011
http://www.nxtbook.com/nxtbooks/morningstar/advisor_20100809_lincoln
http://www.nxtbook.com/nxtbooks/morningstar/advisor_20100809
http://www.nxtbook.com/nxtbooks/morningstar/advisor_20100607_lincoln
http://www.nxtbook.com/nxtbooks/morningstar/advisor_20100607
http://www.nxtbook.com/nxtbooks/morningstar/advisor_20100405_lincoln
http://www.nxtbook.com/nxtbooks/morningstar/advisor_20100405
http://www.nxtbook.com/nxtbooks/morningstar/advisor_20100203
http://www.nxtbook.com/nxtbooks/morningstar/advisor_20101201
http://www.nxtbook.com/nxtbooks/morningstar/advisor_20091011
http://www.nxtbook.com/nxtbooks/morningstar/advisor_20090809
http://www.nxtbook.com/nxtbooks/morningstar/advisor_20090607
http://www.nxtbook.com/nxtbooks/morningstar/advisor_20090405
http://www.nxtbook.com/nxtbooks/morningstar/advisor_20090203
http://www.nxtbook.com/nxtbooks/morningstar/advisor_2008fall
http://www.nxtbook.com/nxtbooks/morningstar/advisor_2008summer
http://www.nxtbook.com/nxtbooks/morningstar/advisor_2007spring
http://www.nxtbook.com/nxtbooks/morningstar/advisor_2007fall
http://www.nxtbook.com/nxtbooks/morningstar/advisor_2007summer
http://www.nxtbook.com/nxtbooks/morningstar/advisor_2008spring
http://www.nxtbook.com/nxtbooks/morningstar/advisor_2008catalog
http://www.nxtbook.com/nxtbooks/morningstar/advisor_2008winter
http://www.nxtbookMEDIA.com