AQR Capital Management is a $226 billion global investment management firm launched back in 1998, by a guru in the financial world, billionaire Cliff Asness. Among other accomplishments, he became well regarded in the investing universe, thanks to his doctoral dissertation for which he closely studied the use of technical analysis to determine undervalued stocks. During his research, he discovered that it was possible to beat the market by exploiting price momentum, which was not a new concept, but Cliff Asness was first to create econometric evidence to that fact. His academic research on this topic brought him many accolades and awards.
In the name of its firm AQR stands for Applied Quantitative Research, and the fund employs quantitative investment strategies. Its investments are based on factors-behaviors that securities usually present over time. Cliff Asness has been with AQR for 20 years now, but it has 6 more years of experience in investing. He graduated from the University of Pennsylvania with dual B.S. degrees in Economics and Engineering, earned his M.B.A. and Ph.D. in Finance from the University of Chicago. He also had the honor to work as a research assistant to Eugene Fama, a theorist in efficient markets and a 2013 Nobel laureate in economic sciences, especially renowned for his ‘Efficient Market Hypothesis’. Prior to starting his own firm, Cliff Asness was a managing director at Goldman Sachs.
Cliff Asness’ AQR Capital Management has been employing a very impressive investment philosophy, as the fund grew from 1 billion to north of $200 billion and from 13 employees to around a thousand. For many years it had a steady, strong performance, but the current year has proposed to it some difficulties. In the recent interview on Bloomberg, Cliff Asness explains the ongoing situation and his investment strategy in more details. He defends quantitative investment strategy and still believes in the power of factors, explaining that the crisis didn’t hit the quants, instead it struck the confidence in some people. Cliff Asness pointed out that these periods already happened a couple of times before, and that there is nothing strange about it. He blames systematic value investing, but he is not losing faith in it.
According to his words, the trademarks of the quant and hence, of his fund’s investment strategy, are a precise following of a model and a big diversification. His investment team has been working on its strategy since the inception of AQR Capital Management, and they still constantly work on creating what they could call alpha. This strategy is challenging because of frequent changes as the new factors come into play, and the old ones can be commoditized, broken down, etc. It is not a flawless strategy, but as Cliff Asness says “There’s no strategy in the world that isn’t somewhat susceptible to what other people do. You have to size your strategy at the survivable level.” Let’s see what is a survivable level, based on some of its funds’ performances.
In 2014 its AQR Equity Market Neutral Fund I fund had a solid performance, bringing back 5.93%, followed by an exquisite 17.59% return in 2015. Afterward, it came two more solid years with the fund returning 5.85% in 2016, and 5.83% in 2017. As we already revealed, the fund is currently facing a challenging year, and its AQR Equity Market Neutral Fund I fund is down by 10.12% on a YTD basis (through October 31st). Its total return was 25.43%, a compound annual return was 5.83%, and its worst drawdown amounts to 12.14.
Let’s take a look at another AQR Capital Management’s fund – AQR Long-Short Equity Fund I, and its performance. In 2013 it has generated a return of a notable 11.17%, and even better 16.15% in 2014. The next year it continued in the same manner, bringing back a fantastic 17.03%. 2016 and 2017 also worked well for the fund with the returns of 11.08% and 15.71%, respectively. The current year presented some difficulties for its AQR Long-Short Equity Fund I fund as well, as it lost 8.14% through October 31st. Its total return was 78.40% for a compound annual return of 11.66%, whereas its worst drawdown was 12.60%.
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After adding 100 new positions, and dumping around 155 companies, AQR Capital Management’s portfolio was valued around $104.52 billion at the end of the third quarter. The biggest position it held was in Microsoft Corporation (NASDAQ:MSFT), which is the number one stock among the 30 Most Popular Stocks Among Hedge Funds in Q3 of 2018. During the third quarter, the fund raised its stake in the company by 22% to 20.42 million shares, worth $2.34 billion. Microsoft Corporation is also one of the 30 stocks billionaires are crazy about. You can find more details about these changes on the next page.
AQR Capital Management’s top new holdings included Bausch Health Companies Inc (NYSE:BHC), in which the fund made a stake worth $84.49 million, buying 3.29 million shares and Tandem Diabetes Care Inc (NASDAQ:TNDM) whose 378,510 shares the fund acquired, and they were valued $16.22 million on September 30. Tandem Diabetes Care Inc (NASDAQ:TNDM) is a San Diego-based company that manufactures medical devices for helping people with diabetes. In its recent third quarter financial report the company disclosed an increase by 118% in pump shipments to 8,434 pumps, and an increase in sales by 71% to $46.3 million from $27 million in the same period in 2017. Its operating margin also got better, from -49% to -34%. Since the beginning of the year, the company’s stock price increased by a huge 1218%. The number of smart money investors bullish on the stock from Insider Monkey’s database grew to 22 from 13 in the previous quarter.
Its stake in Fossil Group Inc (NASDAQ: FOSL) AQR Capital Management boosted during the third quarter by a big 6215% to 799,847 shares worth $18.62 million. It also raised its position in AmerisourceBergen Corp. (NYSE:ABC) by 3890% to 220,406 shares, valued $20.33 million. The fund seemed to have lost enthusiasm for some of the stocks during the third quarter, as it has decided to significantly lower its stakes in them. Those included QUALCOMM, Inc. (NASDAQ:QCOM) and Graphic Packaging Holding Company (NYSE:GPK), in which the fund slashed its stakes by -99% to 7,462 shares and 13,711 shares, respectively.
The biggest positions AQR Capital Management decided to completely sell during the third quarter were in Cooper Tire & Rubber Co (NYSE:CTB), whose 260,928 shares the fund previously held and Century Aluminum Co (NASDAQ:CENX), to whose 352,528 shares the fund said goodbye to. It is interesting to note that smart money investors from Insider Monkey’s system are also losing interest in these two stocks as the number of hedge funds with long positions in Cooper Tire & Rubber Co (NYSE:CTB) dropped to 10 from 12, and in Century Aluminum Co (NASDAQ:CENX) decreased to 11 from 16.
Disclosure: None. This article was originally published at Insider Monkey.