NEW YORK (Reuters) - AQR Capital Management, LLC, led by widely regarded hedge fund manager Clifford Asness, announced the launch on Thursday of its first quantitative bond fund, with the aim of capturing different sources of returns.
AQR, which oversees $224 billion in assets, said its Core Plus Bond Fund “systematically implements fundamental drivers of returns such as value, momentum, carry and defensive themes.”
The fund seeks to consistently outperform its benchmark, the Bloomberg Barclays U.S. Aggregate Index, and generate excess returns that are uncorrelated to fixed-income markets, other fixed-income managers or equity markets.
“The problem is that any perceived alpha (generated by traditional fixed-income managers) has been, at least to a great degree, due to a passive long-term overweight of (corporate) credit,” wrote Asness in a research report.
“If we found equity managers outperformed largely because they were strategically, not tactically, higher beta than their benchmarks, would you get excited and pay a lot for that? I hope not.”
The AQR fund is invested in a portfolio of liquid instruments, balanced across the fixed-income universe. The fund aims to generate returns through security selection within sectors, curve positioning, and currency selection, with minimal active duration or credit bets. It strives to maintain a risk level consistent with its benchmark.
“We do find, again much like in equities, expensive traditional active fixed income management is a bust; however, the same factors we find effective elsewhere (value, momentum, carry, defensive/quality) show up in bonds,” Asness wrote.
“So, not surprisingly, we think there is hope, but it’s not because ‘active management works in bonds,’ but because ‘the same basic things that work everywhere also work in bonds.’ Basically, don’t go traditional ‘active’ in fixed income, go factor (and make sure the fees fit that!).”
AQR relies mostly on a roomful of powerful computers running proprietary models to evaluate reams of publicly available data. Asness and his partners were among the first to build a stock portfolio by using computer models to combine two simple concepts: buying undervalued stocks (a strategy known as value investing) and betting against overvalued ones (which are called “momentum” stocks.
Momentum refers to the tendency of securities that are rising in price to keep going up for a time, even when they are overvalued.
While AQR has invested in fixed income for over 19 years in its multi-strategy products, this is the first time its expertise has been made available through a standalone fixed income mutual fund.
Reporting by Jennifer Ablan; Editing by Tom Brown