Cliff Asness expects to see lasting outperformance for value strategies.
At the Morningstar Investment Conference on Tuesday, the AQR co-founder said he is “really confident” about value stocks “at a 3-year horizon,” although he didn’t expect the upward trend to be perfectly linear. The panel was hosted by Ben Johnson, director of global ETF and passive strategies research at Morningstar.
AQR Capital Management, a quantitative investment firm, has posted gains since the start of 2022, with its value strategy among the leaders. In April, more than 11 AQR strategies recorded positive returns while the stock market plunged into a bear market territory. The strong month followed a solid first quarter, when strategies like managed futures, absolute return, commodities, and macro all delivered gains for AQR investors, Institutional Investor previously reported.
The firm’s equity market value global strategy gained 11.2 percent last month and is up 35 percent year-to-date.
To Asness, that is just the start of value’s comeback. The AQR co-founder said he remains confident about value stocks because they are still significantly cheaper than growth equities even after value’s outperformance in the past few months. The value spread, which measures the pricing gap between value and growth stocks, is as big as it was during the late 1990s, according to Asness. That means the fundamentals are “less bad for value against growth than they normally are,” he said.
However, Asness added that he doesn’t think value stocks will have a smooth way up. “[I am] clutching my chair on a 3-month horizon, because nothing is linear,” he said in the conference. “The world…[doesn’t] move towards what we think is rational a little bit every day.”
The best way to manage market volatility, Asness said, is to “have a strategy that you can stick with.” But, as Morningstar’s Johnson pointed out, investors “have had a hard time sticking with” AQR strategies: In late 2020, the quantitative firm shut down some of its liquid alternative mutual funds after persistent outflows.
While Asness acknowledged the difficulty of sticking to an underperforming strategy, he said he would always stand by value. “If you believed in something, it wouldn’t matter how poorly it did for a while, especially if you think you understood why,” he said.