AQR’s Quieter Comeback
Despite recent good returns, institutional investors “still have a fairly low allocation to the strategy,” says Yao Hua Ooi, co-head of the macro strategies group.
AQR’s managed futures strategies are enjoying a big comeback.
Both of the firm’s managed futures funds – the AQR Managed Futures Strategy HV I and the AQR Managed Futures Strategy N – delivered positive returns in June and for the year, according to information Morningstar Direct provided to II. The former earned 49.3 percent in the first half of the year, ranking it first in Morningstar’s Systematic Trend category, which includes 30 funds. The latter ranked sixth in the same category with a year-to-date performance of 31.8 percent. That doesn’t erase a string of bad years for the funds, where they ranked near the bottom of their category. HV I, for example, ranked in the 96th percentile in 2021 and the 78th percentile in 2020, according to Morningstar’s website.
The success of the managed futures strategy is one sign of a rebound beyond just value at the firm. AQR’s value strategies have gotten a lot of attention for delivering sizable returns in the past few months. But co-founder Cliff Asness has been vocal on Twitter and in other forums, including a recent Morningstar podcast, that the firm’s strategies are “not pure value.” Asness has emphasized that factors like quality and momentum also help drive AQR’s returns.
Apart from managed futures, AQR also delivered exceptional returns in the multi-strategy category. AQR’s multi-strategy funds – the AQR Style Premia Alternative I, the AQR Alternative Risk Premia R6, and the AQR Diversifying Strategies R6 – are the top three products in the category for the first six months of the year. The returns for the three funds were 25 percent, 17.8 percent, and 10.6 percent. The category includes 53 funds, according to the data from Morningstar Direct. (According to Morningstar’s website, both the style premia fund and the alternative risk premia fund ranked in the bottom decile from 2018 to 2020.) But AQR has been delivering good returns across strategies since the first quarter. Its risk-balanced commodities fund returned 28 percent in the first quarter, ranking first in Morningstar’s commodities category. Its macro opportunities fund returned 10.7 percent and ranked second in Morningstar’s macro trading category at the end of March.
Equity market neutral — with performance of 21.4 percent for the first six months of the year — and managed futures both contributed to the multi-strategy funds’ strong gains, according to Yao Hua Ooi, principal at AQR and co-head of the macro strategies group.
Commenting on why managed futures generated outsized returns in the current market, Ooi said the strategy has historically had close to zero correlation to traditional asset classes. “More importantly, it historically has tended to do quite well and [delivered] quite significant positive returns during periods when equity markets are going through a large drawdown,” he told II in an interview.
Indeed, managed futures strategies in general have had a good run in 2022. According to Morningstar Direct, the average return of all systematic trend strategies is 16 percent in the first half of the year. Meanwhile, equity market neutral strategies returned an average of 3.4 percent. Multi-strategy funds lost 4.2 percent, compared to double-digit returns for AQR.
AQR’s managed futures strategy is unique in incorporating economic trends in its model. According to Ooi, most managed futures strategies are based on historical pricing trends, but AQR has also studied how macroeconomic factors like GDP and inflation have been affecting the markets. “We are starting to see economic trends of higher inflation, tighter monetary policy around the world, and lowering growth expectations,” he said. “The market as a whole is getting more risk averse. All of these things influence our positioning and essentially lead us to be quite bearish on things like stocks and bonds.”
But despite what managed futures have delivered to investors this year, the strategy has received limited attention compared to traditional long-short or event-driven. “We are still in a situation where a lot of public pensions, endowments, or other institutional investors still have a fairly low allocation to the [managed futures] strategy,” Ooi said.