A Gut Punch

AQR

Cliff Asness

Research

11 Pages

AQR looks at why a multi factor quant portfolio still struggled even as value finally bounced in late 2020. The uncomfortable point is that value’s rebound was more than offset by momentum, quality, and BAB reversing at the same time. AQR also argues today’s setup looks unusually favorable for value versus a 60/40 portfolio.

Key Takeaways

Value Crash Math: From January through October 2020, value fell 4.23 standard deviations while the portfolio lost 2.21.
Rebound Still Hurt: In November through mid December, value gained 1.78, but momentum fell 2.62 and quality dropped 2.95.
Valuation Setup Extreme: AQR shows a record low expected real return for global 60/40 alongside value spreads near 1999/2000 and GFC highs.
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