Cliff Asness Says Stocks and Bonds Will Return only 2%

At the 2nd annual Evidence-Based Investing Conference earlier this month, AQR’s Cliff Asness shared his view that the expensive financial markets will offer weaker returns going forward. This according to a recent CNBC article. According to the article, Asness predicts that investors with a “balanced portfolio of stocks and bonds will only generate 2 percent real annual returns,” but warned against betting against the market. He argues that strong evidence exists indicating that high CAPE (cyclically adjusted price-earnings) ratios will translate into lower returns for the next ten years. “Don’t market time with this,” Asness said, adding, “Valuation of markets […]

Study Raises Questions About Factor Significance

A new study has found that most of the market anomalies academics have identified are not statistically significant, says a recent Wall Street Journal article. After analyzing 447 anomalies (the biggest test of its kind conducted so far), the researchers concluded that more than eight out of ten “vanish when rigorous tests are applied,” according to the article. In their report, they warn that academics may manipulate statistics to come up with compelling findings, a practice statisticians call p-hacking. The research also confirmed, according to WSJ, that the most popular factors passed muster–value momentum, investment and quality—although to a lesser […]

Asness versus Arnott: The Factor Timing Debate Continues

AQR Management founder Cliff Asness continues to argue that factor timing is “deceptively difficult,” contrary to what Rob Arnott of Research Affiliates would have you believe, says a recent article in Institutional Investor. Asness’ issue, the article says, is with Arnott’s contention that risk premia factors such as value, momentum, growth and volatility have become “overvalued as a result of the rising popularity of smart beta and factor investing strategies” and that investors should “time their exposures to buy low and sell high.” Asness, on the other hand, argues that “diversification, not timing, is the best way to achieve returns […]

Asness and Arnott Talk Market Timing, Smart Beta and Behavioral Biases

Maybe not always. At least that was the upshot of a debate between Cliff Asness of AQR and Rob Arnott of Research Affiliates, panelists at the recent Morningstar conference in Chicago. Although they debated various topics, they seemed to agree that value stocks deserve attention when they’re cheap. According to Asness, founder and managing principal at AQR, “Timing the market is hard and we call it a sin, but we recommend that investors sin a little.” The panelists discussed the pros and cons of smart beta strategies, generally agreeing on most points. “The point of our whole exercise is check […]

The Payoff and Perils of Momentum-based Stocks

Many investors follow momentum-based methods or approaches when investing in equities, but does momentum investing actually work and what are the results? This is the basis for a recent AAII article by Charles Rotblut, CFA, vice president at AAII and editor of the AAII Journal. Relative price strength, which compares the price performance of a security to another security or the overall market or an industry, is one of the most popular ways to identify stocks exhibiting momentum. A higher relative strength, with 100 being the highest, equals more momentum and better relative performance. Since the early 1990s, academics, such […]