1/ Mapping Investable Return Sources to Macro Environments (AQR)
"Style premia have less macro exposure than do asset classes. Additionally, a diversified portfolio (for asset classes and style premia) may rely less on a specific macroeconomic outcome."
aqr.com/Insights/Resea…
2/ "We must stress the limitations of this type of analysis. Any empirical result is specific to the sample period (here 1972-2013) and dependent on design choices.
"Long/short returns are scaled to target 10% annual volatility. We subtract no trading costs or fees."
3/ "The weak relation between equities & growth reflects the forward-looking nature of equity returns. The correlation between annual equity returns & our contemporaneous (*next* year's) growth indicator is 0.24 (0.50).
"Styles were positive in both up and down
environments."
4/ "The distinction between simple & partial correlations is the same as that between slope coefficients in simple & multiple regressions.
"It is difficult to find an asset class or even a style that performs well in a stagflationary (growth-down, inflation-up) environment."
5/ "Again, results might be specific to this sample or our specifications of style premia and macro environments.
"Even L/S styles can be more market-directional in certain asset classes (e.g. currency carry) than in the broadly diversified style composites we analyze here."
6/ "It is difficult to populate the upper-left quadrant on the risk graphs, with rising real yields, inflation, volatility and illiquidity all posing a challenging environment – all compounded by negative growth.
"Style premia tend to be closer to the origin in all four graphs."
7/ "The relationships we document are not predictive and thus less useful for tactical decisions than strategic ones.
"As post-WWII history is characterized by broadly benign growth and inflation, investors may have grown to consider equity-friendly conditions too complacently."
8/ Related reading:
Rate of Return on Everything
Strategic Allocation to Commodity Factor Premiums
Best Strategies for Inflationary Times
Can Risk Parity Outperform If Yields Rise?
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