AQR Momentum Fund (A) Case Harvard Case Solution & Analysis

AQR Momentum Fund (A) Case Case Study Solution

Purpose of AQR’s momentum indexes

The core reason for the indexes is to demonstrate that the investment would be an attractive option for the investors due to the fact that they would be able for increasing the sales. Though, the publishing indexes has some drawbacks since the investor has insufficient knowledge as compared to the traditional momentum funds investors.

In addition to this, AQR should publish indexes before launching funds which would result in more sales for those retailers who show their willingness in investing in the funds and seek to increase their understanding and knowledge before making investment in funds.

Differences between 1-factor alpha and 4-factor alpha

Referring to the exhibit 3 provided in the case, the difference between the 1-factor alpha and 4-factor alphas has been witnessed with the significant consideration that under the 1-factor alpha (CAPM Model), the momentum returns under the one-factor model explains that the investors should be compensated for two things including risk and time value. But, the one-factor alpha does not take into consideration the momentum. Whereas, the momentum returns under the four-factor alpha model show better about or about equal results related to the total accruals, financial distress, net stock issues, and asset growth.

Analyzing the momentum returns shows that one-factor alpha has performed better as compared to the four factor-alpha for long and long/short position, whereas the four-factor alpha has performed better as compared to one factor-alpha for the short position only.

UMD will continue to have positive 1-factor (CAPM) alpha in the future

Referring to Exhibit 4 provided in the case study, it can be seen that the UMD of momentum strategy has been generated positive returns with the period from 1927 to 2008 which can be used as a basis of predicting that it would have returns greater than 0. The positive returns over the period of time indicate that the momentum strategy would successfully generate higher profit returns in the forthcoming years.

Ways of managing momentum funds

AQR could better manage the momentum funds by analyzing the performance of the stock on a regular basis. In doing so, the company would allow the fund manager to evaluate the stock that would mots likely generate higher returns. It would allow helping the manager to critically identifying the stock in the portfolio which moves towards loser stock. This, in turn, would help the company to invest in those stock which would generate higher returns and move up in ranks in the near future and disinvest from those stock which would be losing their ranking in the market. This strategy is appropriate and suitable to bring the desirable returns to the mutual fund investor. Managing momentum funds requires the fund manager to pay close attention to risk and cost for the purpose of capitalizing on the opportunities.


If I would be a place of Cliff Asnessm, I would introduce only one fund in the market then introduce others after evaluation of performance and return generated from the first fund. With AQR launching momentum effect, the effect would be presented in a successful manner to the wider community of the investors. Since the wider community of investors has not been aware of and using it because of the unavailability, so presenting the momentum effect to the wider investor community would be emerging as a widely accepted investment strategy. This would gather greater benefits for both AQR and investors in a way that investors would be able to enhance and improve the diversification of their portfolio & improving their expected risk-adjusted return.

In consideration of strengthening the trust of investors and to attract potential investors in the future, the company should develop efficient strategies to maximizing the return on portfolio while lowering the tracking error. This can be done by finding the right balance between tracking errors and returns in the mutual funds. Reducing tracking error would help the company in meeting its benchmark index in the future ahead…………


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