In his recent interview with Bloomberg Open Interest, Cliff Asness discussed his current strategy. “We are quants, which means we spread our bets out fairly wide,” he says. “We probably have about 2000 longs and about 2000 shorts balanced by country and mostly but not entirely balanced by industry.” It’s a systematic, disciplined approach. “Basically, every aspect of what we do is working, with the exception of famous value investing.”
But don’t call AQR a value shop. “I actually kind of love that because sometimes people think of us too much as a value shop.” What’s working for them? “Things like are the fundamentals getting better or is it a profitable company? Are they buying back shares or issuing shares? Is it high beta or low beta? We prefer low.” He even points to “newer techniques, EML based natural language processing, alternative data.”
Asness also discussed trend following. “It’s not been a good year for trend following in general… April was very painful whipsaw. But… we’ve diversified our trend following process… and importantly… give a very significant weight not just to price trend but to a fundamental and economic trend. And that’s been great this year.”
When asked what individual investors can learn, he reflects: “We believe in profitable companies at a reasonable multiple where the fundamentals are getting better… all else equal… we prefer lower market risk.” But he warns: “Active management… is inherently an arrogant act.”
He quotes Bogle and reminds us, “Jack Bogle was right… the average after fees and costs underperforms… We need active management in the world. We can’t have a world of 100% indexing… good active managers… can do well. But to believe you’re one of the good ones is an inherently arrogant act.”
On market neutral strategies, Asness is upbeat: “There’s been a tremendous return ex value to what we would call basic rational investing… the market has rewarded good companies that are getting better, that aren’t too risky. We’re not in a bubble period… and basically a bubble period is the only period I fear.”
And on the private market boom? “Privates are simply long only equities, usually with some leverage applied… They look uncorrelated because they just don’t tell you the prices very often… It does feel like a crowded place.” He adds, “I think people think they’re way too low risk… what was once a bug is a feature that you pay for in terms of return.”
You can watch the entire interview here:
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