When Growth Beats Value: Removing Tail Risk From Global Equity Momentum Strategies

AQR

Andrew Clare

Research

30 Pages

AQR examines how value, growth, relative momentum, and trend following interact across global equity markets using MSCI smart beta indices. The paper suggests trend following may reduce severe drawdowns while improving growth strategy risk adjusted returns, challenging the idea that value consistently dominates across market environments.

Key Takeaways

Trend Following Benefits: Applying 10 month moving averages reduced maximum drawdowns from nearly 60% to about 20% while improving Sharpe ratios from 0.47 to 0.75.
Growth Momentum Strength: Developed market growth portfolios returned 17.23% annually under relative momentum versus 10.56% for buy and hold, with Sharpe ratios rising from 0.37 to 0.68.
Dual Momentum Outperformance: Combining relative and absolute momentum increased developed growth returns to 17.85% annually with a 0.80 Sharpe ratio, versus 11.17% using trend following alone.
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