AQR Capital Management launched a new set of indices in July that capture the returns of stocks that have positive “momentum”—those that have outperformed their peers on a relative basis over the recent past.
The three indices are AQR Momentum Index, AQR Small Cap Momentum Index, and AQR International Momentum Index. AQR also introduced a set of three no-load mutual funds based on these indices: the AQR Momentum Fund, AQR Small Cap Momentum Fund, and AQR International Momentum Fund.
The new indices have drawn media attention from the Wall Street Journal and Reuters as well as Morningstar, which has posted a video interview with AQR managing partner and founder Cliff Asness, MBA ’91, PhD ’94, and Tobias Moskowitz, Fama Family Professor of Finance.
“I think one of the key attributes of momentum is not just that it works, but that it’s negatively related to value,” said Moskowitz. “It tends to work very well with value. When you combine these two things, it just makes your overall portfolio so much better. I think that’s one of the key cornerstones of momentum.”
Asness added, “By negatively related, what we mean is quite simply a bad year for value tends to be a good year for momentum. And vice-versa. You could always get there by doing the opposite of value, the problem is you get the opposite of the returns. Value wins over time, and when you do the opposite you’re going to lose over time. What momentum seems to give, and kind of the wonderful result, is it does smooth your returns very much by wiggling the opposite direction of value, but it also tends to make money over the long term.”
Read a discussion about investing between Moskowitz and Asness, who won the 2007 Distinguished Young Alumni Award, in Chicago Booth Magazine.