Cliff Asness is fighting the urge to say “I told you so.”
As Wall Street prepares for a new era of tighter monetary policy, the co-founder of AQR Capital Management is riding a historic comeback in his beloved value trade.
The firm’s $1 billion Absolute Return fund just posted the best five days in its 23-year history through Jan. 7 with a 10% gain, according to a person familiar with the matter.
Yet after getting lashed by years of value underperformance, the influential quant manager knows it’s premature to declare victory.
“It’s too early to gloat,” the 55-year-old said in an interview from his office in Greenwich, Connecticut. “We haven’t made back all the money yet, so I’ll feel vindicated when our clients are well ahead.”
Despite an 8% surge to start 2022 and its best performance on record last year, AQR’s Equity Market Neutral Fund is still down 14% on a five-year basis. The quant firm overall now manages about $124 billion, compared to roughly $220 billion it oversaw in late 2018 --in large part thanks to the seemingly insatiable love for pricey tech names and a pandemic that intensified that.
Now rising yields, rampant inflation and the economic upturn are boosting the systematic strategy of buying cheap-looking stocks while dumping pricey counterparts -- a trade the firm is famous for. Among the factors used by AQR to pick equities, value’s surge has more than made up for declines in momentum as well as quality.
Value is notorious for its short-lived rebounds in the post-crisis era, and took a breather Tuesday as bond yields slipped. But Asness sees a market that is finally aligning with his long-standing view that the trade will reward the faithful.
“We think it’s firing on all cylinders now,” he said. “The fundamentals are right, the price momentum is right and the valuation spreads are still, ignoring the prior six months, at records.”
In early December -- the last time the quant pioneer banged the drum about stretched valuations -- global value stocks traded at a 55% discount to growth based on price-to-earnings multiple, the widest since the 2000 dot-com era, MSCI indexes show. Now it’s about 51%, compared with a 25% average in data going back to 1980.