In this interview with Bloomberg, Cliff Asness discusses the challenges of investing in a market dominated by a few highly concentrated stocks, like the “Mag Seven.”
As a quant, he emphasizes the advantages of running diversified long-short portfolios, typically balancing around 750 long and 750 short positions across industries. This approach avoids overexposure to concentrated stocks and mitigates risks tied to benchmark constraints.
Asness highlights the diminishing relevance of active management in such markets, where key insights often lie in identifying what not to own. By focusing on preferences and avoiding concentration issues, his strategy sidesteps the pitfalls of traditional long-only active management.
Here’s an excerpt from the interview:
Asness: Well, first, it’s a lot easier to be a quant at these times. We do run some traditional portfolios, but a lot of what we do are long and short. It’s very common for us to be long about 750 stocks around the world and short about 750, balanced by industry. So we do the courageous thing and run away from this problem.
We’ve had very good years with the Mag seven soaring, even though value strategies are part of what we’re doing. The opposite hadn’t happened in a while. The opposite could happen.
Concentration is a problem for a typical active manager and for us in some places when you’re only allowed to go long against the benchmark. A lot of your information, if you’re a good active manager, is about what not to own. When some things are so concentrated and big, it shrinks the size of everything else and makes that information less relevant.
When you’re long, short, or even in a traditional portfolio that allows you to do a little bit of shorting, if that really goes away, you don’t have to think a lot about the Mag seven. You just have to think about what you like and don’t like.
So, I mainly run away from this problem.
You can watch the entire interview here:
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