Hedge Fund AQR Asset Management Report Talks “Risk On”
AQR Asset Management researchers have put out a new paper that looks at fixed income investing.
As rates have declined over the past 20 years, active fixed income managers have outperformed their benchmark index. This outperformance tends to create the appearance that beating the fixed income markets is easier than beating the equity markets.
The assumption does not hold true when held up to the light of vigorous examination. Jordan Brooks, Tony Gould, and Scott Richardson of AQR found that there is very little skill, either individually or collectively, in fixed-income asset management over the past two decades.
AQR Asset Management on Risk Factors
The higher returns are the result of classic risk factors such as credit quality, emerging versus developed markets, and maturity. The more risks the manager took on, the more they appeared to beat the fixed-income indexes.
Taking on more credit risk by investing in lower-rated bonds was the most pervasive “risk-on” strategy that beat the index. The excess returns are merely a function of high risk equaling higher reward rather than any actual alpha generation on the part of the fund managers.
The trio also found that managers taking increased risks with their client portfolio often undermined the client’s attempts to diversify among asset classes. This lack of diversification can be masked when markets are behaving. However, it will become quite apparent when fixed income markets move lower. The active portfolios will have lower returns than the index as the increased risk leads to increased volatility and lower returns than the US Aggregate Bond Index.
You can download the complete paper here.
Latest Alternative Investment News
AeroPay and Jane Technologies announced Thursday a partnership to enable online payments via AeroPay across 36 U.S. state markets where cannabis is legal. More than 2,100 dispensaries and 300 companies…
In a speech on Wednesday, Jon Cunliffe of the Bank of England called for tough regulations on cryptocurrencies, drawing a parallel between the $1.2 trillion subprime mortgage market in 2008…
Tata Motors (NSE: TATAMOTORS), the automobile company of the Tatas, the Indian salt-to-airlines business conglomerate, will receive an investment of approximately $1 billion from TPG’s Rise Climate Fund and Abu…
Bitcoin, the leading cryptocurrency, is within handshaking distance of its April all-time high of $64,895 after spiking over the last 24 hours on rising market expectations of an imminent SEC…