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By Kathryn Young | 06-24-2010 12:55 PM

Asness on Mixing Value with Momentum

The AQR founder and manager on AQR Global Equity's process and the difficulty of momentum investing through the downturn.

Kathryn Young: Hi. I am Kathryn Young. I am a Mutual Fund Analyst with Morningstar. I am here at the Morningstar Investment Conference in Chicago, and I am joined by Cliff Asness, Co-Founder of AQR Capital Management.

Hi, Cliff. Thanks so much for being here with us today.

Clifford Asness: Hi. Thank you for having me.

Young: So, first off, I want to say, your firm is, obviously, very well known for the hedge funds it started, and you've recently brought some hedge fund strategies into the mutual fund space, but I'm curious about one of your a bit more traditional strategies, AQR Global Equity, that launched earlier this year and has garnered a good number of assets. So, I was wondering if you could tell us, what exactly about that fund makes it a good alternative to other strategies in the world stock category?

Asness: Sure. I think you are 100% right. We are probably more well known as a hedge fund firm, though the same group has been together since Goldman Sachs, and this has been true for about 16 years, that we've been almost always more than half assets in the traditional space. I think hedge funds are either sexier when they are doing well or more evil when they are doing poorly. So, you're always known as a hedge fund firm. So, we've always also run more traditional – beat the benchmark kind of assets.

What sets our approach apart, at least somewhat is, first of all, taking what has become a fairly well known quantitative approach of value and momentum investing. We would argue, like many would, we've been doing it now for a decade and a half. We think our approach is pretty good, but probably the biggest difference in what we do and maybe some others, is, we use the same philosophy, looking for cheap things that have started to improve and expensive things that have started to deteriorate, to over and underweight, not just at the stock level, but also at the country and the currency level.

We've found, and I think the last 15 years bear this out, that the method works about as well to choose where in the world to invest and whether to hedge your currency as it does to pick stocks. So, the simple idea is, if you have something that works, but nothing works all the time, do it in three places, not just one. So, if I had to pick one thing that makes our fund maybe a little more consistent and a little different is making three types of bets, using a consistent philosophy, not really one type of bet.

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