Asness on Momentum

July 10, 2009

Clifford Asness runs AQR Capital, a very large and successful hedge fund firm. He has long been an advocate of using momentum (a similar factor to relative strength) as an investment factor. He was on CNBC this morning and gave some insightful comments about using a momentum or relative strength strategy for investing. The clip is well worth watching.

I think there are a couple of points he makes that we would totally agree with:

  • Don’t put all your eggs into an RS basket
  • Using a value strategy to “offset” an RS strategy is a good idea
  • RS works, and it has worked for years and years. It has periods of underperformance, but it works in both bull and bear markets.
  • It is difficult to time an RS strategy (just like it is difficult to time the market)

Click here for a link to the CNBC video.

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Posted by John Lewis

The Death of Strategic Asset Allocation?

July 10, 2009

It must be official—a long article appeared in the Wall Street Journal today, replete with correlation graphics, that discussed the issues the strategic asset allocation has had over the past year or so.

The base problem is that diversification did not help as much as it typically has. We feel there is some merit in strategic asset allocation—at least it is a systematic approach to building a portfolio and then rebalancing to the target weights periodically. It just may not be the optimal approach for the real world, where correlations are notoriously unstable. A well-executed tactical approach (like our Systematic RS Global Macro portfolio), with a mixed universe of high-volatility and low-volatility assets is, we think, more likely to get the job done.

This article is a must read for “recovering asset-allocationists.”

Click here for disclosures from Dorsey Wright Money Management.

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Posted by Mike Moody