AQR's investment approach is described as 'applied academia,' systematically implementing well-researched factors like value, momentum, quality, and low beta. This quant approach is contrasted with traditional management, noting that while the goals are similar (finding good companies at reasonable prices), the method relies on breadth and statistical phenomena rather than deep, single-company analysis.
Asness emphasizes the extreme difficulty of sticking with strategies during prolonged drawdowns, citing the recent underperformance of value investing. He notes that many clients capitulated at the worst possible time, and argues this behavioral pain is precisely why factor premiums persist over the long term; if it were easy, the opportunities would be arbitraged away.
Asness explains AQR's decision to differentiate its pricing, arguing that systematic exposure to well-known factors should not command traditional 'two and 20' hedge fund fees. He believes this move was both ethical and 'long-term greedy,' as it aligns fees with the nature of the strategy and builds a more sustainable business model in a competitive market.
Despite a recent market downturn, Asness believes equity valuations remain high by historical standards. However, he is optimistic about the value factor specifically, noting that valuation spreads between cheap and expensive stocks remain wide, which has historically preceded periods of strong outperformance. He predicts the value factor will likely generate above-normal returns for the next two to three years.
Keep pulling the thread on Cliff Asness.