AQR still singing the same song

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Elysium
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Re: AQR still singing the same song

Post by Elysium »

tarheel wrote: Sun Sep 20, 2020 8:03 am It blows my mind how people breathlessly badmouth AQR on here. I mean, what's the point? If you think you can better deploy your money elsewhere, fair enough. If you are making a data-driven argument regarding one of their funds, I'm all ears and love to learn, but posting just to insinuate that Cliff is ripping us all off and getting rich is ridiculous.

I can assure you that those of us who allocate heavily to AQR are not idiots. We understand what we are investing in, all the way to (dare I mention!) QSPIX or QMHIX. We are paying what we think is a fair fee for what we think will be worth it in the long run. We used to post a lot more. I for one have a young family and my free time isn't what it used to be. I am right on track for a comfortable early retirement with my AQR-centric portfolio.
Have a look at the AQR fund family's performance relative to its benchmarks to see why they get such a bad rap. I am an equal opportunity offender when it comes to calling out poor strategies that costs investors money, as I have called out Vanguard QEG group having not added value with their Quantitiative strategies over the years, or even with their recent factor funds. While we can wait for time to prove otherwise, there is a significant opportunity cost. The market returns minus a small cost is there for the taking, it has been enough for most investors to meet their retirement goals. The pursuit of the perfect plan is the enemy of the good plan.
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Re: AQR still singing the same song

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Elysium wrote: Sun Sep 20, 2020 8:55 am
tarheel wrote: Sun Sep 20, 2020 8:03 am It blows my mind how people breathlessly badmouth AQR on here. I mean, what's the point? If you think you can better deploy your money elsewhere, fair enough. If you are making a data-driven argument regarding one of their funds, I'm all ears and love to learn, but posting just to insinuate that Cliff is ripping us all off and getting rich is ridiculous.

I can assure you that those of us who allocate heavily to AQR are not idiots. We understand what we are investing in, all the way to (dare I mention!) QSPIX or QMHIX. We are paying what we think is a fair fee for what we think will be worth it in the long run. We used to post a lot more. I for one have a young family and my free time isn't what it used to be. I am right on track for a comfortable early retirement with my AQR-centric portfolio.
Have a look at the AQR fund family's performance relative to its benchmarks to see why they get such a bad rap. I am an equal opportunity offender when it comes to calling out poor strategies that costs investors money, as I have called out Vanguard QEG group having not added value with their Quantitiative strategies over the years, or even with their recent factor funds. While we can wait for time to prove otherwise, there is a significant opportunity cost. The market returns minus a small cost is there for the taking, it has been enough for most investors to meet their retirement goals. The pursuit of the perfect plan is the enemy of the good plan.
Fair enough, but two things:

1. My largest AQR allocation is to QSMLX, which has barely underperformed it's "benchmark" in that table. QSMLX inception was also in 2013, so I would consider any under- (or over) performance from 2013-2018 as essentially noise.

2. Wrt factor-bashing, those of us who factor tilt are well aware of factor underperformance over the past decade. Most Bogleheads would tell us we invested in "poor strategies that are costing us money." Should we have invested in those benchmarks instead? Maybe so. We'll see over the long term. We obviously don't think so.
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Re: AQR still singing the same song

Post by Elysium »

tarheel wrote: Sun Sep 20, 2020 9:18 am Wrt factor-bashing, those of us who factor tilt are well aware of factor underperformance over the past decade. Most Bogleheads would tell us we invested in "poor strategies that are costing us money." Should we have invested in those benchmarks instead? Maybe so. We'll see over the long term. We obviously don't think so.
The factor bashing mostly is not intended to bring down the true believers of factor strategies. But for those on the fence who will get suckered into performance chasing thinking factor strategies are a sure bet to get an extra premium over the market beta, and then after a period of underperformance they will start questioning it and abandon at the worst possible time. Taking the other side is only intended to convey the risks involved and after knowing all that if someone still wish to invest in it, then by all means they can do so.
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Re: AQR still singing the same song

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tarheel wrote: Sun Sep 20, 2020 8:03 am Thanks Robert T. This is actually close to how I allocate. Like Ketawa, my entire allocation is in AQR funds apart from 401k restrictions (the rest is with Vanguard).

It blows my mind how people breathlessly badmouth AQR on here. I mean, what's the point? If you think you can better deploy your money elsewhere, fair enough. If you are making a data-driven argument regarding one of their funds, I'm all ears and love to learn, but posting just to insinuate that Cliff is ripping us all off and getting rich is ridiculous.

I can assure you that those of us who allocate heavily to AQR are not idiots. We understand what we are investing in, all the way to (dare I mention!) QSPIX or QMHIX. We are paying what we think is a fair fee for what we think will be worth it in the long run. We used to post a lot more. I for one have a young family and my free time isn't what it used to be. I am right on track for a comfortable early retirement with my AQR-centric portfolio.
Good for you.

In volatile times there should be encouragement to stay the course.

The opposite seems to have happened lately on bogleheads.

For example, some seem to take no small pleasure in the current “tracking-error pain” of small value investors, finding ways to present the underperformance in the widest possible ways as if to try to beat value investors further into the ground and see how long they take to capitulate i.e. implicitly encouraging "not staying the course" (at the worst possible time) - even if unintended. Seems similar to repeatedly showing the performance of stocks vs. bonds in late 2008/early 2009, telling stock holders they are all losers (opportunity costs) and have been for a long time. This wouldn't exactly encourage them to stay the course.
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tarheel
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Re: AQR still singing the same song

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Robert T wrote: Sun Sep 20, 2020 10:02 am
tarheel wrote: Sun Sep 20, 2020 8:03 am Thanks Robert T. This is actually close to how I allocate. Like Ketawa, my entire allocation is in AQR funds apart from 401k restrictions (the rest is with Vanguard).

It blows my mind how people breathlessly badmouth AQR on here. I mean, what's the point? If you think you can better deploy your money elsewhere, fair enough. If you are making a data-driven argument regarding one of their funds, I'm all ears and love to learn, but posting just to insinuate that Cliff is ripping us all off and getting rich is ridiculous.

I can assure you that those of us who allocate heavily to AQR are not idiots. We understand what we are investing in, all the way to (dare I mention!) QSPIX or QMHIX. We are paying what we think is a fair fee for what we think will be worth it in the long run. We used to post a lot more. I for one have a young family and my free time isn't what it used to be. I am right on track for a comfortable early retirement with my AQR-centric portfolio.
Good for you.

In volatile times there should be encouragement to stay the course.

The opposite seems to have happened lately on bogleheads.

For example, some seem to take no small pleasure in the current “tracking-error pain” of small value investors, finding ways to present the underperformance in the widest possible ways as if to try to beat value investors further into the ground and see how long they take to capitulate i.e. implicitly encouraging "not staying the course" (at the worst possible time) - even if unintended. Seems similar to repeatedly showing the performance of stocks vs. bonds in late 2008/early 2009, telling stock holders they are all losers (opportunity costs) and have been for a long time. This wouldn't exactly encourage them to stay the course.
.
x1000. Very nicely put. Couldn't agree more.
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Re: AQR still singing the same song

Post by nisiprius »

tarheel wrote:
elysium wrote:...Have a look at the AQR fund family's performance relative to its benchmarks to see why they get such a bad rap...
Fair enough, but two things:

1. My largest AQR allocation is to QSMLX, which has barely underperformed it's "benchmark" in that table. QSMLX inception was also in 2013, so I would consider any under- (or over) performance from 2013-2018 as essentially noise...
Note that I recently posted updated data: AQR and Vanguard funds performance vs. stated benchmarks, updated 8/31/2020 It's not hugely different, except for the liquidation of one of the six small-cap funds, the AQR Small Cap Relaxed Constraint Equity Fund, QSRIX, in December of 2019. Summary, just for the small-cap funds which AQR benchmarks to the Russell 2000 index:

Image

In general, if you look at the whole chart, the small-cap funds look like the least problematical of the whole fund lineup. However, the actual results of AQR's funds so far are not compelling evidence to me, that, lliterally, "there is no size factor" in all of the competitors' single-factor small-cap funds (VTWO, IWM, VSMAX, DFSCX, SWSSX, FSSNX)--but that by financial engineering and proper combination with other factors in AQR's funds, it becomes "real and spectacular."
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Re: AQR still singing the same song

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Elysium wrote: Sat Sep 19, 2020 2:55 pm
Rick Ferri wrote: Fri Sep 18, 2020 7:25 pm Cliff Asness agreed to be my November guest on the Bogleheads on Investing podcast. Bogleheads will be able to ask him intelligent questions that would benefit the community. I will post more next month.

Rick Ferri
Rick, This is a great idea. I think Mr.Asness should begin with an apology to all investors in his funds who have lost so much of asset value over the years after they placed trust in his abilities to provide a decent risk adjusted return. Since I don't think that will be happening, I will have no questions.
That isn't going to happen because that's not the way I interview guests. I bring them on to hear their views, which are always interesting. I may push back some, but I don't argue. Not all Bogleheads may agree with a guest's view (just ask Wade Pfau), but that's fine. We all learn something.


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Re: AQR still singing the same song

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Rick Ferri wrote: Sun Sep 20, 2020 10:51 am
Elysium wrote: Sat Sep 19, 2020 2:55 pm
Rick Ferri wrote: Fri Sep 18, 2020 7:25 pm Cliff Asness agreed to be my November guest on the Bogleheads on Investing podcast. Bogleheads will be able to ask him intelligent questions that would benefit the community. I will post more next month.

Rick Ferri
Rick, This is a great idea. I think Mr.Asness should begin with an apology to all investors in his funds who have lost so much of asset value over the years after they placed trust in his abilities to provide a decent risk adjusted return. Since I don't think that will be happening, I will have no questions.
That isn't going to happen because that's not the way I interview guests. I bring them on to hear their views, which are always interesting. I may push back some, but I don't argue. Not all Bogleheads may agree with a guest's view (just ask Wade Pfau), but that's fine. We all learn something.

Rick Ferri
Rick,
Thank you for being such a professional when many in this forum are anything but. I very much look forward to the interview. I appreciate you setting it up!
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Re: AQR still singing the same song

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Rick Ferri wrote: Sun Sep 20, 2020 10:51 am
Elysium wrote: Sat Sep 19, 2020 2:55 pm
Rick Ferri wrote: Fri Sep 18, 2020 7:25 pm Cliff Asness agreed to be my November guest on the Bogleheads on Investing podcast. Bogleheads will be able to ask him intelligent questions that would benefit the community. I will post more next month.

Rick Ferri
Rick, This is a great idea. I think Mr.Asness should begin with an apology to all investors in his funds who have lost so much of asset value over the years after they placed trust in his abilities to provide a decent risk adjusted return. Since I don't think that will be happening, I will have no questions.
That isn't going to happen because that's not the way I interview guests. I bring them on to hear their views, which are always interesting. I may push back some, but I don't argue. Not all Bogleheads may agree with a guest's view (just ask Wade Pfau), but that's fine. We all learn something.

Also, people buy factor funds because they want to outperform the market. There is a risk in doing that, and there shouldn't be after-the-fact complaints about the active fund they select to take that risk.

Rick Ferri
Rick, I know how you interview. You have the ability to push back without offending your guests. I do know you will get to that in your own unique way. Thanks for your response.
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Re: AQR still singing the same song

Post by nisiprius »

[Possible question for Cliff Asness removed, since Rick Ferri doesn't want them posted here]
Last edited by nisiprius on Sun Sep 20, 2020 8:44 pm, edited 3 times in total.
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Re: AQR still singing the same song

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nedsaid wrote: Sun Sep 20, 2020 8:43 am
langlands wrote: Sun Sep 20, 2020 12:21 am ...
A few things here. First, you can learn an awful lot from people that you disagree with. Some folks have never learned that and seem to have devoted themselves to running such folks off. Such a shame as this limits discussion and the sheer joy of reasoned debate. Second, not everybody with a contrary opinion is out to rip you off or to deceive you. One such person made controversial recommendations but put substantial amounts of their own money into them. The spirited disagreements were fun until they started getting personal. Again, if you keep your eyes and ears open, one might learn something. I have no money at AQR but I will be delighted to hear what Cliff Asness has to say when Rick Ferri interviews him. I will be all ears but that doesn't mean that I will rush to put all my money in AQR afterwards. I want to hear what a very intelligent market participant has to say about investing and the markets.
Did you mean to reply to marcopolo or someone else? I agree that open-mindedness is a virtue, but I'm not sure how your response relates to my post.
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Re: AQR still singing the same song

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langlands wrote: Sun Sep 20, 2020 11:07 am
nedsaid wrote: Sun Sep 20, 2020 8:43 am
langlands wrote: Sun Sep 20, 2020 12:21 am ...
A few things here. First, you can learn an awful lot from people that you disagree with. Some folks have never learned that and seem to have devoted themselves to running such folks off. Such a shame as this limits discussion and the sheer joy of reasoned debate. Second, not everybody with a contrary opinion is out to rip you off or to deceive you. One such person made controversial recommendations but put substantial amounts of their own money into them. The spirited disagreements were fun until they started getting personal. Again, if you keep your eyes and ears open, one might learn something. I have no money at AQR but I will be delighted to hear what Cliff Asness has to say when Rick Ferri interviews him. I will be all ears but that doesn't mean that I will rush to put all my money in AQR afterwards. I want to hear what a very intelligent market participant has to say about investing and the markets.
Did you mean to reply to marcopolo or someone else? I agree that open-mindedness is a virtue, but I'm not sure how your response relates to my post.
I was not replying to marcopolo, my comments covered a broader context. I was just expanding upon your comments and commenting on others who seek to straighten the rest of us out over certain things. My advice has always been to Small/Value tilt if you believe the academic research and go with the simpler 3-4 fund portfolios if you do not. I am fine with disagreements, I have a problem when folks assign bad motives to people with whom they disagree. If you see something that I post and disagree, that is fine. If someone disagrees with me or anyone else and says they are a crook, I have a problem with that. As far as factors, I have discussed myself the problems with the data, nothing is perfect. We all have to take in the information and make our own decisions.

Pretty much, my comments take into account what I have read elsewhere on the thread. marcopolo has been fine in my view, he is free to express concerns about factor tilting, AQR, fees, and the data. I have tackled these issues myself. I can see why you made your comments.

Just trying to say that we shouldn't be too quick to dismiss those with whom we disagree. If we keep ears and eyes open, we can learn a lot.
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Re: AQR still singing the same song

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Rick Ferri wrote: Fri Sep 18, 2020 7:25 pm Cliff Asness agreed to be my November guest on the Bogleheads on Investing podcast. Bogleheads will be able to ask him intelligent questions that would benefit the community. I will post more next month.

Rick Ferri
Thanks Rick.

While they are in my head - here are a few questions that would be interesting to hear Asness's views on (at least from my perspective):

Early years:
  • What investment strategies did he work on at Goldman Sachs? Was it different or the same as he is doing now?
Factors:
  • AQR uses a number of factors in its funds: Value, momentum, quality, and more recently carry and trend. How do they determine which are robust enough to use, and which are not?

    What explains the recent underperformance of US value? Many possible explanations have been floated – macro-economic (low inflation, low interest rates), new economy (digital revolution and the associated rise of natural monopolies – Facebook, Google, Alibaba etc), risks showed up (COVID lockdowns), and overcrowding (arbed away).

    What is his expectation for the size of the value premium going forward? [is this time different?]

    What does he mean when he say there is no size effect?
International:
  • In 2011 he wrote a paper that International Investing Works eventually. How long is eventually? (in the context of the recent underperformance of non-US developed market stocks).

    Are the risks/expected return in emerging markets worth investing in these markets? Or do non-market risks (SOEs, political risk) add too much uncertainty about the possible distribution of returns (vs. just volatility around a known distribution).

    Does AQR do any additional screens in EM to try to reduce these 'non-market' risks?
Implementation:
  • When does capacity become a problem (and how far is AQR from capacity limits on some of its long-only strategies)? Usually adding more factors to a strategy reduces capacity fairly dramatically, particularly momentum.

    Why doesn’t AQR offer ETFs?
Miscellaneous:
  • How does Chris Asness invest his own money (asset allocation, AQR funds)

    If he went back to the beginning (at the start of AQR) – what would he do differently based on lessons learned.
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Re: AQR still singing the same song

Post by Rick Ferri »

I will create a thread next month where you can ask questions to Cliff Asness. Please do not ask your questions here. If you do, you will need to re-post them on the thread next month.

Thank you.
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Re: AQR still singing the same song

Post by Ketawa »

HippoSir wrote: Thu Sep 17, 2020 2:43 pm Isn't QSMLX multifactor rather than small-value?

EDIT: Per morningstar it actually has a growth tilt, not a value tilt:

https://www.morningstar.com/funds/xnas/qsmlx/portfolio
It is multifactor, adding momentum and quality to small cap and value. The fund has had a significant load on value factors, whether one uses Fama-French or AQR factors. A 2-dimensional style box means little for a fund that is investing in factors that would require a 4-dimensional graph to plot its investment strategy compared to other funds.
HomerJ wrote: Thu Sep 17, 2020 2:51 pm Too bad you haven't held it since inception.

You didn't say when in 2014, so I plugged in January 1, 2014

VBR - $10,000 has grown to $13,587
QSMLX - $10,000 has grown to $13,090

Still respectable, but you've gotten no advantage holding an "alt" fund (and paying higher fees).

It is possible to pick dates where QSMLX has done slightly better than VBR... but "out-performed" is a stretch (I guess, technically, one more dollar is out-performed, but usually that term connotates winning by a sizable margin).

They've done about the same. So far, I'm not seeing any special sauce coming from the extra fees you are paying. (Or, there IS special sauce, since AQR is matching the index even with higher fees, but the extra returns just matches the fees, so THEY get the benefit of the secret sauce, not their investors).
I've held it since 3/16/15; it is on top since then. :moneybag

I switched to QICLX and QEELX in 2014, and waited until 2015 for QSMLX because my domestic SCV ETFs were at a different brokerage from chasing a new account bonus. My asset allocation is basically unchanged since 2015, except I use Vanguard ETFs in taxable, where I hold VT and VWO, for simplicity and to balance out my TSP holdings, where emerging markets are unavailable.
nisiprius wrote: Thu Sep 17, 2020 4:09 pmAQR benchmarks it to the Russell 2000 index. Morningstar classifies it as a small-cap blend fund and also benchmarks it to the Russell 2000. For real-world comparisons, it seems to me that the most obvious choices would be the Vanguard Russell 2000 ETF, VTWO and iShares Russell 2000 ETF, IWM.
I don't care what AQR chooses as its benchmark; I am investing for factor loadings, and QSMLX has succeeded at maintaining exposure to small, value, momentum, and quality.
Robert T wrote: Sun Sep 20, 2020 2:43 am .
If I was to invest in AQR funds it would be along the lines of the following (for the equity portion):

25% = AQR Large Cap Multi-Style [QCELX]
25% = AQR Small Cap Multi-Style [QSMLX]
37% = AQR International Multi-Style [QICLX]
13% = AQR Emerging Multi-Style [QEELX]

Approximate factor loads:
1.00 = Mkt
0.18 = Size
0.36 = Value
0.15 = Momentum

Expense ratio = 0.39

IMO, fairly good in that it gets fairly close to my long-term factor load targets. A bit lower for size and value, but higher for momentum. Don’t know what the quality load would be.
.
This is what I do in my IRA, except my domestic holdings are all QSMLX instead of split between QCELX and QSMLX. I also have a 10% overall allocation to QSPIX.
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Re: AQR still singing the same song

Post by Robert T »

.
FWIW

AQR's US mutual funds seem to account for a small share of AQR's total AUM - about 12% if my calculations are correct

Two funds: AQR (US) Large Cap Defensive and AQR Managed Futures Strategy account for over half (53%) of their US mutual fund AUM.
Four funds - the above two plus AQR (US) Large Cap Multi-style and Style Premia Alternative Funds account for 65% of their US mutual fund AUM.

Interesting to see where investors are putting most of their money.
.
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Re: AQR still singing the same song

Post by Angst »

Robert T wrote: Tue Oct 06, 2020 7:56 am .
FWIW

AQR's US mutual funds seem to account for a small share of AQR's total AUM - about 12% if my calculations are correct

Two funds: AQR (US) Large Cap Defensive and AQR Managed Futures Strategy account for over half (53%) of their US mutual fund AUM.
Four funds - the above two plus AQR (US) Large Cap Multi-style and Style Premia Alternative Funds account for 65% of their US mutual fund AUM.

Interesting to see where investors are putting most of their money.
.
Yes, that is interesting but what of the remaining 88% of AUM? Of course it's not all Int'l mutual funds, is it mostly direct (non mutual fund) asset management? There's not a third mutual fund category here, ex US and Int'l, is there?
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Re: AQR still singing the same song

Post by wickywack »

Robert T wrote: Sun Sep 20, 2020 2:43 am .
If I was to invest in AQR funds it would be along the lines of the following (for the equity portion):

25% = AQR Large Cap Multi-Style [QCELX]
25% = AQR Small Cap Multi-Style [QSMLX]
37% = AQR International Multi-Style [QICLX]
13% = AQR Emerging Multi-Style [QEELX]

Approximate factor loads:
1.00 = Mkt
0.18 = Size
0.36 = Value
0.15 = Momentum

Expense ratio = 0.39

IMO, fairly good in that it gets fairly close to my long-term factor load targets. A bit lower for size and value, but higher for momentum. Don’t know what the quality load would be.
.
Thanks for sharing. What is your framework for determining factor loads / load targets? Swedroe's Black Swans book appears to suggest an even load is good:
the authors cited two studies that found a simple, 1/N diversification strategy (equal-weighting the factors it diversified across) was as good as any of the other methods they tested.
Is overweighting market less diversified?
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Re: AQR still singing the same song

Post by nisiprius »

wickywack wrote: Tue Oct 06, 2020 8:54 am...Is overweighting market less diversified?...
How is it possible to "overweight the market?"
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Re: AQR still singing the same song

Post by rkhusky »

nisiprius wrote: Tue Oct 06, 2020 6:14 pm
wickywack wrote: Tue Oct 06, 2020 8:54 am...Is overweighting market less diversified?...
How is it possible to "overweight the market?"
Perhaps in a factor sense?

I think trying to get the market factor the same size as the other factors would be a really bad idea since the market provides most of the return in a factor model.

You could do it with shorting.
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Re: AQR still singing the same song

Post by wickywack »

rkhusky wrote: Tue Oct 06, 2020 7:20 pm
nisiprius wrote: Tue Oct 06, 2020 6:14 pm
wickywack wrote: Tue Oct 06, 2020 8:54 am...Is overweighting market less diversified?...
How is it possible to "overweight the market?"
Perhaps in a factor sense?

I think trying to get the market factor the same size as the other factors would be a really bad idea since the market provides most of the return in a factor model.

You could do it with shorting.
Sorry, I should qualify.

If you're trying to diversify *by risk factors*, is overweighting market less diversified? Larry Swedroe's examples all seem to suggest an even 1/N weighting between risk factors, and he cites a couple studies to this. I've sometimes heard market beta described as "just another factor". If risk factor diversification is the goal, why not 1/N? Why would you target something else?
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Re: AQR still singing the same song

Post by rkhusky »

wickywack wrote: Tue Oct 06, 2020 7:46 pm
rkhusky wrote: Tue Oct 06, 2020 7:20 pm
nisiprius wrote: Tue Oct 06, 2020 6:14 pm
wickywack wrote: Tue Oct 06, 2020 8:54 am...Is overweighting market less diversified?...
How is it possible to "overweight the market?"
Perhaps in a factor sense?

I think trying to get the market factor the same size as the other factors would be a really bad idea since the market provides most of the return in a factor model.

You could do it with shorting.
Sorry, I should qualify.

If you're trying to diversify *by risk factors*, is overweighting market less diversified? Larry Swedroe's examples all seem to suggest an even 1/N weighting between risk factors, and he cites a couple studies to this. I've sometimes heard market beta described as "just another factor". If risk factor diversification is the goal, why not 1/N? Why would you target something else?
Because the ultimate goal is to make money, not have a diversified portfolio (whatever that means).

The market factor has provided the bulk of stock returns in the past (>80%) and there is no reason that should change in the future. The other factors have been more nebulous and have had a smaller contribution - sort of a fine-tuning.
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