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Working Paper
The Tax Benefits of Direct Indexing
May 7, 2021
An investor holding a direct indexing portfolio can obtain tax benefits by harvesting losses on individual stock positions. We show that investors with allocations to hedge funds and derivatives are the most likely category of investors to have systematic short-term capital gains in their portfolios and, therefore, benefit the most from losses harvested by direct-indexing strategies. We show how tax benefits are affected by equalizing the tax rate applicable to long-term and short-term capital gains.
Tax Matters
“The Tax Benefits of Separating Alpha from Beta” Wins the 2020 Graham and Dodd Top Paper Award
May 5, 2021
In this paper, we tackle a different practical question: In a world dominated by tax-agnostic managers, how can investors design their tax-agnostic strategy allocations to improve the tax efficiency of their overall investment portfolios?
Quick Clips
Quick Clips: Long-Short Tax-Loss Harvesting Strategies
April 26, 2021
Hear from the AQR Specialized Investments Group on the benefits of incorporating shorting into tax-loss harvesting strategies.
Quick Clips
Quick Clips: (Car)Bon Voyage
March 30, 2021
Adoption of ESG investment principles is a global trend for investors. While different regions are in various stages of implementation, we see a consistent theme: the reduction of carbon emissions in portfolios, some with the stated goal of getting to “net zero.” But how do we get there and how long could it take?
Perspective
The Replication Crisis That Wasn’t
March 24, 2021
Factor investing has long faced criticisms of data mining, and more recently faced another criticism – some backtests might never have been right to begin with. A growing body of mostly well-done papers examine these issues, generally concluding that factors have been disappointing since their “discovery.” We’ve long addressed these concerns through robust out-of-sample evidence and a compelling theory for why a factor should work. What we’ve lacked, until now, is a formal test. My colleagues’ new paper tests brilliantly, what we have argued, largely anecdotally, for years. Their results are rather startlingly (even to me) positive for the field in general.
Quick Clips: Still Dislocated? AQR's Arbitrage Outlook
February 17, 2021
The sharp deleveraging across arbitrage markets in March 2020 was followed by very strong performance in 2H 2020. In our recent webinar and summary, we review what drove last year’s returns in SPACs, convertibles and mergers, and discuss why we are optimistic about the outlook for 2021 and beyond.
Perspective
Now There's Nothing Certain But Death
January 15, 2021
Over the last few years, we’ve built a considerable effort in tax-optimized investing. Admittedly, this was a little bit of a “if we build it, they will come” venture, given many taxable investors seem to ignore after-tax returns. Thus, it is gratifying to see my AQR colleagues win the Top Graham and Dodd Award for their research on tax optimization, a topic that I’ve long thought deserved a much more prominent place in asset management.
Cliff Asness Interviewed on Bloomberg TV
January 13, 2021
Cliff Asness was interviewed on Bloomberg TV for a wide-ranging discussion on factor investing, quantitative value, systematic fixed income and more.
Perspective
A Gut Punch
December 22, 2020
Sure, the last nearly three years have hurt, but at least the explanation was straightforward. A core part of our process, value, suffered. So when value rebounds, we will too, right? Well, not necessarily. To be clear, if value makes a prolonged major recovery, we certainly believe we will as well, but over short periods that doesn’t have to happen. Unfortunately, this is what we have experienced since the end of October. Regardless, it does not change my view one drop that going forward multi-factor investing is a darn good bet in a world that needs some darn good bets.
White Paper
(Car)Bon Voyage: The Road to Low Carbon Investment Portfolios
December 21, 2020
We discuss how an investment portfolio could dramatically reduce its carbon footprint, potentially even achieving a ‘net zero’ carbon footprint. We discuss the pros and cons of techniques to achieve carbon reduction goals, including security selection, shorting high carbon footprint companies, and trading instruments such as carbon offsets and carbon permits.