Wed, 10/14/2020 – 14:30
And nowhere has the pain been more acute than for pureplay quant funds who had the misfortune of overallocating to the value factor, which however as shown above, has generated virtually any alpha for the past four years. In retrospect, it is surprising that more funds didn’t shutter amid an exodus of disgusted investors who failed to grasp that in a centrally-planned world, value strategies – which rely on properly functioning markets and arbitrage neither of which exists in manipulated, planned markets – no longer work.
As such it is certainly not surprising that one prominent quant fund, the $10.6 billion Philadelphia-based AJO Partners (which bizarrely even names all of its 51 clients), will shutter after suffering “steep losses from its value strategy” according to Bloomberg. In a letter from founder Ted Aronson, the firm announced it would stop trading on Nov 30, putting the 36-year-old firm out to pasture.
“We still believe there is a future for value investing; sadly, the future is unlikely to arrive fast enough — for us,” wrote Aronson who plans to retire.
“The better part of valor is to return the assets and call it a day,” Aronson added, “Our clients are exclusively large sophisticated institutional clients, so they have superior alternatives. C’est la vie.”
The culprit behind the shutdown was the fund’s $5.1 billion AJO Large Cap Absolute Value strategy, which tumbled 15% this year through September (the fund’s biggest holding as of June 30 was Intel which has had a terrible year), which in isolation is not disastrous: the Russell 1000 Value is down 12% – but when compared to the massive outperformance of growth, well… one has to be impressed with the patience of the fund’s LPs.
AJO, which was established in 1984, offered a range of systematic strategies built from factors including value, which however has proved to be a dismal strategy in a deflationary world where over $10 trillion bonds trade with a negative yield.
A summary of the top 25 publicly disclosed holdings of AJO as of June 30 is shown below. We expect many if not all of these, are currently being aggressively sold off.
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Author: Tyler Durden