A cross-asset selloff for the ages is shaking the conviction of money managers the world over. Yet Cliff Asness remains steadfast in his belief that value investing can keep winning as the quant strategy notches heroic gains in a year to forget on Wall Street.
After years of underperformance, value shares remain near a historic discount to their growth counterparts, according to the co-founder of AQR Capital Management -- meaning there should be more gains to come.
Betting on cheap-looking stocks helped power AQR’s longest-running strategy to a more than 35% surge in the five months through May, according to a person familiar with the matter who asked not to be identified because the details are private.
But in order to close the still-gaping spread to the growth factor, the strategy will need a lengthy period of outperformance -- exactly the type of trend that Asness has observed in his nearly three-decade career.
In an interview with Bloomberg, he waxed lyrical about everything from bubbles to trend following. The comments below have been edited for clarity.
Is value still attractive now growth is cheaper?
The spreads between cheap and expensive, of course, have come in. But they’re still within hailing distance of the tech-bubble peak. They were well above it, so right now it’s a little bit different of a value proposition. It is merely near the widest ever prior to Covid, with momentum at its back instead of in its face. So we are still maximally excited at value. We still have prices I didn’t think I’d see again in my career going on now.
Were investors wrong to equate tech with growth?
They’re not wrong, but it’s a very incomplete picture. Tech itself is nowhere near as expensive as it was in the tech bubble. Maybe people weren’t crazy to call that one “the tech bubble” because it seemed to be more about technology.
Technology was certainly the poster child for this one also, but if you look at the actual numbers, this one was much closer to an “everything bubble.”
So is growth still in a bubble?
I feel guilty every time I say the word “bubble.” I’m Gene Fama’s ex-student, and frankly, after doing this for near 30 years now, I do think bubbles exist. Maybe when I was a grad student for Gene, I might have disagreed with that. But the real world has demonstrated several things to me I think are a bubble. So I’m comfortable using ‘bubble’. If you look at the spreads -- about tech-bubble level. And if you look at the fundamentals, they’ve been coming in better for value, not worse.
How long can the value rebound run?
If you think of the value of value, how big these spreads are, you’re still getting a massive number. And the wind is at your back... Now how long this can go for? The last time we saw this, the tech bubble, it took about three, four years, to come in. About three years to come all the way in, and then it kept going to where value actually got, in our view, more expensive than normal.