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  1. Financial theory has taken a lot of abuse recently, specifically some of the basic tenets of modern portfolio theory. A fair chunk of the abuse comes from our industry’s collective tendency to judge ideas over relatively short periods. Thus, it’s important to occasionally step back and note that when examined properly, the very basics hold up better than many think or sometimes casually assert.

  2. I have long been appreciative of those pioneers who have been instrumental in advancing our understanding of investing by conducting, and most importantly sharing, their research and insights. By taking the time to make their research and ideas accessible to a wider audience, they have given us all the opportunity to become better investors. Today, with the launch of “Words From the Wise” interview series, we continue to learn from industry leaders and benefit from their experiential wisdom.

  3. Modestly levering a better, more diversified portfolio may improve upon an unlevered, much less diversified one; it is a rather sensible approach that is consistent with finance theory.

  4. The role of leverage in risk parity is often misunderstood. The willingness to use modest leverage allows a risk parity investor to build a more diversified, more balanced, higher-return-for-the-risk-taken portfolio. In our view, this more than compensates risk parity investors for the necessity of employing some leverage.

  5. The risk parity-versus-60/40 argument has always been about strategic long term — not tactical short term — asset allocation. Here I argue that, when viewed strategically, the empirical work on risk parity, including some of our own, understates its potential advantages. Moreover, all you need is basic finance theory to see it.

  6. Critics seeking to attack risk parity don't have to go all tin-foil-hat crazy — blaming the strategy for the exceptional market volatility last summer. Instead, they could just do what people usually do, attack recent performance, because risk parity has undeniably been through a tough relative performance period of late. But we still believe in it as an alternative long-term strategic asset allocation that’s typically used to diversify a more traditional equity-dominated allocation.


  7. It seems that now everyone wants to time factors. Indeed, we’d love to as well if we thought it was a very useful endeavor. But, although tempting, in an editorial piece for a special upcoming Journal of Portfolio Management issue focused on quantitative investing — written at the kind request of long-time editor, Frank Fabozzi — I argue that this tempting siren song should be resisted, even if I know some will be disappointed with this view.

  8. CalPERS made big news today announcing it will end its investments in hedge funds. AQR has long researched and commented on the hedge fund industry and here we reference that body of work to put CalPERS's decision into context.