Factor/Style Investing

Style Premia / Bond Returns

Topics - Factor/Style Investing Multi-Style Fixed Income

Read Time - 20 mins

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Style Premia / Bond Returns

Style premia are an alternative source of returns, and may potentially help both to enhance portfolio returns and to reduce risk through better diversification. Empirical evidence and economic rationale support the notion that style premia have arguably as strong a claim for strategic inclusion in portfolios as major market risk premia.

Beyond this, we believe style premia are especially relevant today given that most investors face the twin challenges of 1) low expected returns in traditional asset classes and 2) portfolios that are dominated by the direction of equity markets.

The styles that have historically been most pervasive across asset classes and geographies are Value, Momentum, Carry and Defensive. The ideas underlying each are well-known and time-tested: buy cheap assets against expensive ones, buy last year’s winners against laggards, buy high-yielders against low-yielders, and buy more defensive securities against their speculative peers.

These styles can be applied in many asset class contexts and have generated attractive long-run returns in virtually every place we have studied them.

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The information contained herein is only as current as of the date indicated, and may be superseded by subsequent market events or for other reasons. The views and opinions expressed herein are those of the author and do not necessarily reflect the views of AQR Capital Management, LLC, its affiliates or its employees. This information is not intended to, and does not relate specifically to any investment strategy or product that AQR offers. It is being provided merely to provide a framework to assist in the implementation of an investor’s own analysis and an investor’s own view on the topic discussed herein. 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. Hypothetical performance results are presented for illustrative purposes only.

 

Diversification does not eliminate the risk of experiencing investment loss.

 

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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.