Investing With Style

Volume 13, Number 1, First Quarter 2015

Clifford S. Asness, Antti Ilmanen, Ronen Israel and Tobias J. Moskowitz

Investors are bombarded by a variety of investment strategies from a growing and increasingly complex financial industry, each claiming to improve returns and reduce risk. Amid the clamor, academic research has sifted through the vast landscape and found four intuitive investment strategies that, when applied effectively, have delivered positive long-term returns with low correlation to each other and traditional markets. The four “styles”— value, momentum, carry, and defensive—have uniquely held up across a multitude of asset classes, markets, and time periods using very liquid securities and form the core foundation for explaining the cross-section of returns in most asset classes. We discuss the intuition and evidence for these four pervasive styles and detail how to implement a strategy that can access these style premia to improve the risk and returns of traditional portfolios.