AQR

Investment Style: Core (global)

AQR is a predominantly employee-owned firm wholly-focused on quantitative investment management. Approximately 80.0 percent of the business is owned by staff, and 20.0 percent by US listed company AMG. Cliff Asness, John Liew, Bob Krail, and David Kabiller (all ex-Goldman Sachs) co-founded AQR in 1998 as a hedge fund business. The long-only business was an extension of the hedge fund business when many of the initial products were closed due to capacity constraints.

AQR's professionals consider themselves fundamental investors who use quantitative models to maintain a diversified portfolio overweight cheap securities, countries, and currencies, which exhibit good growth prospects. AQR believes that applying its valuation and momentum philosophy across a wide variety of strategies and markets, minimising transaction costs, and incorporating disciplined risk controls, will lead to attractive long-term risk-adjusted returns.

AQR's equitised and market-neutral long/short strategies typically only use AQR's stock selection models, while the long-only more actively-managed products typically also include AQR's country and currency selection models.

AQR's investment process has five main steps: research, stock selection, country selection, currency selection, and portfolio construction. The stock selection models use a variety of momentum, valuation, and operating efficiency signals. There is also a style selection model. There are eight regional stock selection models – the United States, Canada, Europe, the United Kingdom, Japan, Australia, Asia ex-Japan, and Emerging Markets. In addition, AQR's stock selection model incorporates bottom-up stock selection within industries and 'intra-industry' or top-down industry/sector selection.

The currency and country selection models use a mix of both momentum and valuation signals. The currency selection model is based on factors such as interest rates, Purchasing Power Parity (PPP), and indicators of both price and fundamental momentum. The measures of fundamental momentum including measures of current account balances, term of trade, and economic growth. The country selection model makes relative country assessments and uses factors such as value, price, and fundamental momentum. Measures of fundamental momentum are similar to those used in currencies such as terms of trade, economic growth, and other measures such as interest rates.

AQR's portfolio construction model picks the stocks and their portfolio weights for each regional portfolio. Regional portfolios are then combined to form the final portfolio. Country and currency exposures are adjusted using a derivatives overlay to reflect the desired exposures. Portfolio construction also considers the level of opportunity from each model and dynamically shifts the portfolio to the favoured models.

AQR employs around 200 individuals, including 64 investment professionals in the stock selection, asset allocation, and trading teams. Cliff Asness manages the investment group and there are three research teams – stock selection led by Jacques Friedman, asset allocation (currency and country) led by John Liew, and Trading, led by Mike Mendelson.