Seeks total return. Total return consists of capital appreciation and income. Risk-Diversified Global Market Exposure The Fund invests across a wide variety of global markets, including: developed and emerging market equities, fixed income and commodities. Investment Approach The Fund uses a risk budgeting approach to combine a large number of liquid, global risk premia into a diversified portfolio, which aims to provide positive total returns.
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Past performance is not a guarantee of future results. Hypothetical performance results have many inherent limitations, some of which, but not all, are described herein. The hypothetical performance shown was derived from the retroactive application of a model developed with the benefit of hindsight.
Hypothetical performance results are presented for illustrative purposes only. Diversification does not eliminate the risk of experiencing investment loss. Certain publications may have been written prior to the author being an employee of AQR. This material is intended for informational purposes only and should not be construed as legal or tax advice, nor is it intended to replace the advice of a qualified attorney or tax advisor.
AQR Capital Management is a global investment management firm, which may or may not apply similar investment techniques or methods of analysis as described herein. The views expressed here are those of the authors and not necessarily those of AQR.
AQR Risk Parity II HV Fund
Furthermore, if in the coming days or weeks, risk parity funds were to trade more than they have so far, perhaps because of persistently high volatility, their trading volumes would have little impact on stock market prices. We think it is very unlikely that more than a small fraction of that would be sold, even if very high volatility continues for a while. The combination of these three errors, all in the same direction, led to an exaggerated prediction of likely trading volume in a big downturn. Over time, the equity holdings of a trend-following strategy can vary a lot, potentially going from meaningfully long to meaningfully short, with positioning changes driven by changing risk estimates and changing market trends. Given reasonable estimates of total equity exposure in these strategies and with some good understanding of the signal speed and trading approach of participants in this market, our expectation is that these trades also will be small in the context of equity markets. In fact, during the infamous mass sale of these portfolios in early August of , when their leverage was much higher than it is today, quantitative equity strategies were broadly unwound but the stock market was flat over the period. The media and the analysts generally get the idea right, that risk parity and trend-following strategies tend to sell when volatility rises.
Prudent Investing in Turbulent Times
Risk parity funds allocate their portfolio according to risk, assuming that stocks and bonds will move in opposite directions. It then levers up the less risky assets, which are typically bonds. Critics of the strategy have questioned how well it would do in a broad market meltdown. AQR had big redemptions in one of its biggest risk parity funds after it lost money at the end of , when stocks and bonds tanked in tandem. A similar market phenomenon happened last week, when Treasury bonds proved less of a safe haven than a source of cash for traders. That fund is down The broader stock market meanwhile, has fallen 16 percent this year, following a market runup on Friday that took it out of bear market territory.