Information of the macroeconomic kind driving investment strategy

Financial markets might be efficient but that doesn't necessarily mean they are always prompt. The tendency of markets to lag behind macroeconomic news and developments is the gap that AQR Capital Management seeks to exploit with its new macro-momentum strategy fund, AQR Macro Fund (QGMIX). “Macroeconomic news tends to have a persistent impact on asset prices and that's why we think information is a good driver for an investment strategy,” said David Kupersmith, portfolio manager and senior member of the global asset allocation team at AQR Capital Management. When challenged about what seems like an obvious approach to investing based on macroeconomic data, Mr. Kupersmith admitted that the financial services industry isn't always keen on grasping the obvious. “The markets are slow to react to economic news,” he said. “Downturns for stock and bonds, for example, usually tend to come after a downturn in the economy.” The start of the 2008 financial crisis, for example, which saw the S&P 500 slump by more than 38%, was preceded by a major housing market collapse that started nearly a year earlier. The fund, which was launched April 8, uses quantitative and discretionary indicators across a variety of dimensions, from economic growth and inflation to monetary policy and international trade, to direct portfolio exposures. Categorized by Morningstar Inc. as a multialternative strategy, the fund uses equity index futures, bond futures, commodity futures and currency forwards to add long or short specific country exposure. The four broad dimensions across which AQR forms macro-momentum views include economic growth, monetary policy, international trade and macro sentiment. “We take a very broad approach to changes in forecasts,” Mr. Kupersmith said. “We're not giving too much weight to any one economic number, and when everything lines up, that's when we'll take action.” He described the strategy as a portfolio diversifier, and said the overall allocation would likely include about 40% in bonds, up to 35% in equities, and the rest spread between commodities and currencies exposure.