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AQR Posts Record Performance in January
The asset manager stuck with value amid painful losses. Now, it believes its steadfastness is paying off.
After a long period of underperformance, $124 billion AQR Capital Management had a strong 2021 and a record-breaking start to 2022.
AQR’s absolute return strategy, the asset manager’s broadest and longest-running multi-strategy, just passed its best month of performance ever. The strategy kicked off 2022 with a net return of 10.4 percent in the first five days of January and ended the month with a year-to-date return of 15.4 percent, according to a person familiar with the firm.
Absolute return’s gains in January come on top of a 16.8 percent net-of-fees return in 2021. In fact, performance for the month of December 2021 ranks as one of the fund’s top four months ever. The firm attributes its strong 2021 to the success of all factors up until November 2021. In December and January, the price of value stocks started rising, which carried the high returns into the new year. The positive performance story at AQR went well beyond Absolute Return.
“We are encouraged by the exceptional performance across our strategies to start 2022, especially following a strong year for many of them in 2021. While value spreads have started to come in, they are still near the all-time highs only ever hit in the preceding months. While timing is always uncertain, and it won’ t be a straight line, we believe this positions AQR for one of the most robust recoveries for factor investing since the tech bubble of 1999,” said Cliff Asness, founding and managing principal.
The value factor’s long underperformance has hit the firm hard. In late 2019, Asness recommended investors overweight value, Institutional Investor previously reported. By February 2020, value stocks suffered even more losses and Asness acknowledged that the firm’s portfolios were punished “quickly and violently.” Referring to the Russell 1000 growth and value indexes, AQR said at the time that the cumulative daily return difference between the two benchmarks was -6.4 percent — putting value’s underperformance below the third percentile for all periods since 1991.
Still, AQR remained undeterred in its approach: It stuck with value. Now, it believes its steadfastness is paying off.
AQR’s dedicated value strategy, Equity Market Neutral Global Value, returned 22.3 percent net of fees year-to-date through January 31. This came on top of returns last year of 22.2 percent net of fees. According to the firm, value contributed modestly to last year’s returns through November, spiking in December and January.
“The macro environment certainly has shifted, where risk premia, and equity quant and other strategies generally had a difficult time leading up to 2021,” said Jon Caplis, CEO of hedge fund research and data firm PivotalPath. Caplis declined to comment on AQR specifically. “The last 13 months have proven the benefit of diversification and not just ruling out strategies because they underperformed for a while. If you understand what drives them and you want exposure to value or other factors, then those types of strategies can be a good ft for your portfolio. You just have to be able to withstand the pain for periods of time that often comes with these strategies.”
The firm’s other strategies also were strong performers in 2021. Its multi-strategy mutual funds held the first, second, and third spots in the Morningstar multi-strategy category for strongest year-to-date returns as of January 31 with its Style Premia Alternative Fund generating a 24.8 percent return in 2021; The firm’s Alternative risk Premia Fund saw a 14.2 percent return, and its Diversifying Strategies Fund generated a 10.7 percent return in 2021.
AQR’s alternative equity strategies returned 33.2 percent (Delphi long short equity strategy), 17.6 percent (equity market neutral fund), 31.1 percent (long short equity fund), and 10.2 percent (sustainable long-short equity fund).