AQR’s Momentum funds Harvard Case Solution & Analysis

AQR's Momentum funds Case Study Solution

Risk and dangers of basing a strategy or an investment product

The dangers of basing a momentum strategy is that it is not easy to estimate the investment risk. One of the dangers of these investment that tend to accompany momentum is the mutual fund’ open ended feature. Therefore, in case the mutual fund likely focusing on the long-term strategies they would be confronting with many challenges and difficulties. Other investor might be influenced easily whenever anyone would make changes his mind in the fund, this in turn would most probably increases the risk associated with momentum strategy and it more unstable. On the other hand, when these features are there, the investors would likely change their mind in quick manner and might withdraw their investment as well.

In addition to this, the momentum investors most likely confronted with out sized average returns risk due to the fact they face diversifiable risk, this is because the high momentum stock tend to have a strong tendency for moving altogether, thus, they likely make achievements of momentum profits challenging without revealing them to the prospect of the large amount of loses.

Does momentum make an attractive product for retail mutual fund investors?

Yes, it is to notify that the momentum is one of the attractive investments for the mutual fund investors (Berger, 2009). This is due to the fact that the momentum strategy raises the portfolio profit therefore, the risk is also associated with the portfolio with higher returns. During the prior period of time, the investment in momentum has been limited to only short and leveraging positions. After the academic research that has been carried on the effect of momentum now there is a usual consideration for both under performance of losers and out performance of winners, so to make any comparison of the mutual fund any hedge fund type is not appropriate.

In addition to this, since, the strategy tend to analyze the past performance of the stock for the purpose of determining its future performance, it enables thein vestors getting affair idea of the stock that is offered by the fund manager, thus allowing them to trust the projected return that are presented by the fund manager. Hence, the momentum strategy most likely attracts the investors towards stock, also it compels them for investing in hope of gain the higher return on funds(Blitz, 2008).

Yes, I would buy the product because it is possible and easy for the investor in retreating from their investment in case the things go in wrong direction. So, the attractiveness of the momentum strategy is highly depending on the risk tolerance of individual investors. In case the investors’ risk profile is of a risk averse investor, then he would be able to withdraw from the investment in early age.

Significantly, it is important for the company to efficiently manage the portfolio by conducting the stock performance analysis on continuous basis, this in turn would allow the fund manager to evaluate that which stock would likely generate higher returns in the market. Additionally, it would allow the fund manager to critically identifying the stock in the portfolio which tend to move towards the loser stock, by doing so the company would be able to disinvest from those stocks that would be losing their ranking and they would invest in those which are moving up in ranks and would keep generating higher returns in the future ahead and brings various benefits to the fund managers on their portfolio.

The strategy is quite workable and suitable to bring the sufficient profit returns for the mutual fund investors. Also, it is possible and easy for the individual investors in retreating from their investment in case the things go in wrong direction. In a consequence, the attractiveness of the strategy is highly depends on the risk tolerance of the individual investors...............

 

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