Justice: Do we live in a world where there’s no room for growth funds?
Asness: If you define growth the way a lot of the world does as simply the opposite of value, then no, there’s not a lot of room for growth funds. There will be probably occasions where value is offering you so little, you want to look at growth, and that could happen, but it’s pretty rare, because the average value premium is fairly large, so you have to be in a pretty extreme situation where you’d want to tactically allocate toward the opposite of value, or growth.
Frankly, we believe that momentum is correlated to growth, but that it’s a better style. Growth being the opposite of value means it has a negative passive premium, a negative long-term premium. Momentum, like growth, is negatively correlated to value but has a positive premium over time.
The name of the game in this business is to find sources of return that, at the least, do not perfectly correlate with each other; it’s even better if they are uncorrelated with each other, and in a wonderful world, are negatively correlated with each other.
Momentum and value are two positive sources of return that are negatively correlated with each other.
Read more on this topic in The Case for Momentum Investing by Adam Berger, Ronen Israel, and Tobias Moskowitz.