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AQR Capital launches Momentum Indices

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AQR Capital Management has launched the AQR Momentum Indices, which capture the returns of stocks that have outperformed their peers on a relative basis over the recent past.

AQR Capital Management has launched the AQR Momentum Indices, which capture the returns of stocks that have outperformed their peers on a relative basis over the recent past.

The three indices are: AQR Momentum Index, AQR Small Cap Momentum Index, and AQR International Momentum Index.

In conjunction, AQR has also introduced a set of three no-load mutual funds based on these indices: the AQR Momentum Fund, AQR Small Cap Momentum Fund, and AQR International Momentum Fund.

"When the world thinks about diversifying portfolios, the conventional approach has been to think in terms of two style dimensions – value versus growth, and large cap versus small cap. However, there is another dimension which is just as important in explaining returns, and has been largely under-allocated given the current two-style investment paradigm; this is momentum," says David G. Kabiller, founding principal and head of client strategies at AQR.

In contrast to the efficient market hypothesis, which maintains that past stock prices have no predictive value for the future, the research on momentum suggests that stocks with positive momentum tend to outperform market averages in the following months.

The indices, which are rebalanced quarterly, are formed by including those stocks that rank in the top third of their relevant universe based on momentum over the prior 12 months.

"What makes momentum such an attractive strategy is that it combines two desirable qualities: momentum tends to do well when value is out of favour, yet unlike growth its long-run returns have out-performed broad market averages," says Kabiller. "We believe that a combination of value and momentum is a better way to build diversified portfolios than the more traditional value and growth combination."

The funds have a minimum investment of USD5,000, and net expense ratios ranging from 0.49 per cent to 0.65 per cent. The funds have assets of USD2m each.

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