Cliff Asness Says Factor Investing Has Not Performed Well

(Bloomberg) -- Cliff Asness, the chief investment officer of AQR Capital Management LLC, says his trademark factor investing strategies have been disappointing.

Asness, who spoke Thursday at Morningstar Inc.’s investment conference in Chicago, is coming off a tough year in 2018 when most of its funds declined. His firm also recently reduced its headcount and has been bleeding assets.

“Quant stock selection has been terrible,” said Asness, whose strategies use factors like value and momentum when selecting equities.

Investors pulled more than $1 billion from AQR funds in the first three months of 2019, following withdrawals of $8.1 billion in 2018, according to estimates by Morningstar.

Asness, 52, co-founded AQR, based in Greenwich, Connecticut, in 1998 and its first product was a hedge fund. He helped popularize risk-parity strategies, which aim to spread risk equally across different asset classes based on historical and expected volatilities to produce smoother returns.

Stock valuations are stretched to levels not seen since the 1990s tech bubble, he warned, a signal that his strategies may be ready to pay off.

“We’re not in the same situation as we were in 1999, but it does rhyme,” he said.

Volatility returned to global markets this week amid renewed concern over U.S.-China trade tensions. The VIX, an index used to measure expected stock market volatility, rose 34 percent in three sessions through Wednesday.

The risk-parity strategy suffered during the cross-asset weakness in the final three months of 2018, when stocks and bonds slumped in unison. AQR’s flagship risk-parity mutual fund, rebranded as the AQR Multi-Asset Fund, gained 1.7 percent in the 12 months through May 7. The $6 billion AQR Managed Futures Strategy Fund has lost an annualized 5.3 percent over the last three years.

Asness said he intends “to stick like grim death” to his beliefs and work on improving his explanations to help investors better understand what he offers.

“We don’t have a strategy problem,” he said. “But we do have an intuition problem.”

AQR manages about $203 billion in assets, down from $226 billion in September.

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