Asness Says Longed-For Value Rebound Is a ‘Gut Punch’ for Quants

(Bloomberg) -- A rebound in the performance of long-suffering value shares in the past few weeks has done little to help quantitative investors who utilize a variety of factors, according to Cliff Asness.

The co-founder of systematic investment company AQR Capital Management LLC said the market’s rotation into value shares since the end of October has been a “gut punch.” That’s because losses for growth stocks, the momentum factor, and low beta names -- shares that are less sensitive to movements in equity benchmarks -- more than offset the rebound for inexpensive counterparts.

“After ‘sinning a little’ towards value, talking about it constantly, and yes, rooting for it with all our hearts, it is very tough to see its initial comeback not only fail to change our fortunes but hurt them a little more,” he wrote in a blog post on Tuesday.

Quantitative investors group stocks into style factors based on characteristics, such as their growth prospects or cheapness relative to other companies, in the hope of generating above-market returns.

This year’s virus outbreak initially boosted the premium investors were willing to pay for companies -- such as technology firms -- able to increase profits even as lockdowns shuttered most of the global economy. The arrival of vaccines for Covid-19 more recently helped spur market interest in sectors which had been laggards, like energy stocks and banks.

AQR’s performance has been buffeted as traditional relationships between factors misfired. Asness expects value to continue to perform well during the next six months and the drag from other factors to “greatly lessen” and then “turn sharply positive.”

“We expect a continued value comeback to be much better for us, as turning points if they’re very quick are the hard part,” he said.

©2020 Bloomberg L.P.