As promised, for those looking for a more manageable read, here is a condensed, “medium” length version of my recent much longer post.
In the article, we discuss the recent tough times quantitative factor-based liquid alts that we favor at AQR have had. Every time any of our strategies go through tough periods, we take a step back and consider specific hypotheses as to whether the recent returns are a harbinger of the future. We have looked very hard with open minds and found no hypothesis that holds water other than a rare, but nowhere near unheard of, bad period for what we believe is a good process. We review the original case for the idea of adding liquid alts, specifically the liquid alts we favor that are based on a gigantic amount of evidence and economic common sense and that are truly “alt” (meaning very low correlation to traditional assets). We discuss the irony that tough times like these are likely the precise reason why these strategies aren’t arbitraged away and remain viable. The case for some liquid alts remains as strong as ever, especially as compared to the current, quite expensive levels of traditional stock and bond markets.
We’ve seen this movie before, and it had a happy ending.
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