Investment Approach
The AQR Momentum Fund invests in stocks of large and mid-cap U.S. companies with positive momentum. A stock is considered to have positive momentum if it has performed well in the prior twelve months relative to other stocks in the investment universe, which is comprised of the 1000 largest U.S. companies by market capitalization.
The Fund generally follows a systematic approach to selecting securities:
1) The process begins by constructing the investment universe, which is screened based on market capitalization, liquidity, and other considerations.
2) The stocks in the investment universe are ranked by their total return over the prior twelve months, excluding the last month.
3) The top 33% of stocks with the highest rank are included and weighted based on their market capitalization.
4) The portfolio is rebalanced at least quarterly.
The Fund is expected to have annual turnover in excess of 100%. In light of this fairly high level of turnover, we believe that effective management of transaction costs is essential. AQR employs an optimization process and a number of sophisticated trading techniques in an effort to keep trading costs for the Fund as low as possible. The Fund will maintain flexibility to trade opportunistically in order to strike a balance between maintaining the desired exposure to positive momentum while attempting to keep transaction costs low. As a result, the Fund will not be rebalanced mechanically, and the holdings and weights of the individual stocks may deviate from those described by the above systematic approach.
Momentum Funds. Securities with positive momentum generally will be more volatile than a broad cross-section of securities. In addition, there may be periods when the momentum style is out of favor, and during which the investment performance of a Fund using a momentum strategy generally will suffer.
All AQR Funds. An investment in any of the AQR Funds involves risk, including loss of principal. The value of the Funds’ portfolio holdings may fluctuate in response to events specific to the companies in which the Fund invests, as well as economic, political or social events in the United States or abroad. Please refer to the prospectus for complete information regarding all risks associated with the Funds.
An investor considering the Funds should be able to tolerate potentially wide price fluctuations. The Funds are subject to high portfolio turnover risk as a result of frequent trading, and thus, will incur a higher level of brokerage fees and commissions, and cause a higher level of tax liability to shareholders in the Funds. The Funds may attempt to increase its income or total return through the use of securities lending, and they may be subject to the possibility of additional loss as a result of this investment technique.