Style Investing: The Long and the Long/Short of It

January 02, 2014

Investments and Pensions Europe

Many investors agree that applying systematic tilts away from a passive, capitalization-weighted portfolio is a good idea; fewer agree on how best to capture these style-based returns.

Long-only, or “smart beta,” strategies apply tilts (typically within equities) to give exposure to styles such as value, momentum, size or low risk — that is, they overweight stocks that are relatively cheap, have recently outperformed peers, have a small market cap, or are classified as low risk or high quality. These tilts aren’t always explicit, as some smart beta strategies emphasize a portfolio goal — maximum diversification, for example, or minimum volatility — rather than a rule for picking securities. However, all these approaches result in deviations from market capitalization weights that in practice imply certain systematic style tilts.

The same principles can be applied in a long/short context — that is, going long cheap assets and short expensive ones; long outperformers and short underperformers, etc. These strategies are variously called “alternative betas” or “alternative risk premia” (and even other names); in this piece, we refer to them as “style premia.” Unlike smart beta, we find that style premia can be applied in multiple asset classes, with little or no traditional beta exposure.

We believe that style premia, whether applied in long-only or long/short portfolios, may provide investors much of the excess uncorrelated returns they hope to find from manager alpha, only in a more transparent and systematic framework, and at a fair cost. Because of this, we believe styles deserve meaningful consideration as strategic allocations in institutional portfolios.



  • AQR Capital Management, LLC, (“AQR”) provide links to third-party websites only as a convenience, and the inclusion of such links does not imply any endorsement, approval, investigation, verification or monitoring by us of any content or information contained within or accessible from the linked sites. If you choose to visit the linked sites, you do so at your own risk, and you will be subject to such sites' terms of use and privacy policies, over which AQR.com has no control. In no event will AQR be responsible for any information or content within the linked sites or your use of the linked sites.

  • The information contained herein is only as current as of the date indicated, and may be superseded by subsequent market events or for other reasons.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.