Aqr's Momentum Fund

case study:AQR’s momentum fund

In early 2009,after significant research and reflection, Cliff Asness, founder andprincipal at AQR, was considering the launch of three new retail mutual funds that would offer investors exposure to 'Momentum,' a new investment style. While momentum strategies were commom place among hedge funds, the new AQR funds would become the first retail funds to focus on this strategy.

The Momentum Strategy

AQR defined stock momentum as the phenomenon that stocks which have performed well in the past relative to other stocks (winners) continued to perform well in the future, and stocks that have performed relatively poorly (losers) continue to perform poorly.

Suggest questions:

1.Should AQR launch its momentum funds?

2.What are the appropriate benchmarks for AQR’s momentum funds? Will the net performance of the funds exceed those benchmarks? Why or why not?

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

4.If AQR launches its momentum funds, how should the firm weigh maximizing returns vs. minimizing the tracking error? How should it manage the portfolio?

Case A:

1.How did AQR’s retail momentum strategy differ from the traditional appoach?

2.Would those differences make the strategy more or less appealing? Why?

3.What about costs? How would they effect the organization of AQR’s funds?

4.What was the purpose of the AQR’s indexes and what would be the perils of publishing them?

Case B:

1.Did the potential