AQR Capital Management Expands Quant Empire Into Fixed Income

(Bloomberg) -- AQR Capital Management is entering a new front in the battle for quant dominance: fixed income.

The $224 billion money manager is starting its first fixed-income mutual fund in the U.S. today, the company announced. The Core Plus Bond Fund will apply a quantitative style most commonly associated with equities -- known as factor investing -- to a portfolio of debt securities.

Greenwich, Connecticut-based AQR already manages bonds within its multi-strategy products and via UCITS funds in Europe.

AQR Capital Management Expands Quant Empire Into Fixed Income

Pioneered by quants including AQR co-founder Cliff Asness, factor investing is predicated on research that shows owning groups of stocks with traits like cheapness and low volatility can reward investors more than holding the market as a whole. The firm has published a series of papers arguing that much of the profit harvested by credit managers reflects exposure to similar factors as those observed in stocks.

The new fund systematically exploits those patterns, which include value, momentum, carry and defensive themes, according to the company.

“Our approach is rooted in AQR’s research-based investment philosophy,” Jordan Brooks, portfolio manager at AQR, said in the statement. “We have found that systematic strategies can be as successfully applied in fixed income as in equities, offering investors access to targeted sources of returns, many of which are altogether absent from traditional fixed income portfolios.”

The market for factor strategies in fixed income is wide open. Forty-six percent of asset owners reported they had a factor-based allocation in a recent survey by FTSE Russell, but just 7 percent of those applied the strategy to bonds.

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