For all the years that growth was king, value-focused managers such as Clifford Asness bided their time, which finally came with last year’s tech rout. AQR, which Asness cofounded in 1998, saw its funds soar. Bubbles are great for value players, Asness contends in an article in Forbes, for those who hang in there.
AQR is headquartered in Greenwich, CT and maintains six branches across the world, with $100 billion under management. The firm has built its reputation on the belief that value wins out over growth in the long term and eschews many of the flashier, more expensive stocks that growth investors fawn over. Asness and his team held fast to that belief even through the high-flying growth years following the 2008 financial crisis, though some of their clients lost faith. AQR’s Equity Market Neutral Fund dropped from $2.4 billion to $55 million, and AQR laid off hundreds of its staff in the period from 2018 to 2020. Things began to turn around slowly, and then in 2022 the market-neutral fund generated a 27% return while its Macro Opportunities fund delivered 29%. And a “carbon-aware” fund which launched in late 2021, making both long and short-sale wagers on “climate-sensitive companies” was outperforming the stock market by 35% last year, the article details.
Still, AQR’s mutual funds, whose returns are the only ones available to the public, show that the firm’s clients still have much to make up for from those growth-oriented years. The firm’s Managed Futures Strategy HV Fund, while up 50% in 2022, has only averaged 3.6% per year since it launched 10 years ago. While Asness pointed to the “value spread”—the cheapness of value stocks in relation to growth stocks—as reason to buy, it was also easy to see why clients shied away. Of course, all investment strategies are cyclical, with both good and bad stretches. The key is having a long enough stretch to draw in clients who are willing to pay the 0.4% to 1.7% fees that AQR charges on their mutual funds. Though the firm is not always transparent about its profits, in 2017 it revealed $807 million profit on revenue of $1.3 billion.
Asness highlighted the difference between Ferrari—a flashy stock—that AQR’s Market Neutral fund has a short position in, currently priced at 49 times trailing earnings. Meanwhile, the much less flashy Stellantis, which AQR has a long position in, can be bought for 3 times earnings. Asness believes that the value rebound has only just begun. Time will tell if he is right.
