Cliff Asness Says Value Revival Has Become Quant ‘Gut Punch’
(Bloomberg) -- A rebound in the performance of long-suffering value shares in the past few weeks has done little to help quantitative investors who utilize a variety of factors, according to Cliff Asness.
The co-founder of systematic investment giant AQR Capital Management LLC said the market’s rotation into value shares since the end of October has turned out to be a “gut punch” for firms like his. That’s because losses for quality stocks, the momentum factor, and low-beta names -- shares less sensitive to moves in the benchmark -- have effectively offset the rebound for inexpensive counterparts.
“After ‘sinning a little’ towards value, talking about it constantly, and yes, rooting for it with all our hearts, it is very tough to see its initial comeback not only fail to change our fortunes but hurt them a little more,” Asness wrote in a blog post on Tuesday.
Factor investing involves quants dividing stocks based on characteristics such as their growth prospects or cheapness relative to other companies, in the hope of generating above-market returns.
This year’s pandemic initially boosted the premium investors were willing to pay for growth companies like technology firms, which were able to eke out profits even as lockdowns shuttered most of the economy. The arrival of vaccines for Covid-19 helped spur market interest in sectors which had been laggards, like cheap shares that are more exposed to the economic cycle. Think energy companies and banks.
AQR’s performance was buffeted amid these unusual market storms. While the $1 billion AQR Large Cap Multi-Style Fund, which targets a mixture of factors, is up 13.5% year-to-date, it has lagged the total return of its benchmark, the Russell 1000 Index, by more than five percentage points.
Asness expects value to continue to perform well during the next six months and the drag from other factors to “greatly lessen” and then “turn sharply positive,” he wrote.
“We expect a continued value comeback to be much better for us,” he said. “Turning points if they’re very quick are the hard part.”
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