AQR Capital Management is a global investment management firm, founded by Cliff Asness in 1998, dedicated to delivering positive outcomes for its clients. AQR Capital Management has spent over two decades exploring market forces and applying insights to manage client portfolios effectively and has placed itself at the core of economics, behavioral finance, data, and technology.
Cliff Asness, a renowned figure in finance, is the Founder, Managing Principal, and Chief Investment Officer at AQR Capital Management. He is recognized for his extensive research and contributions to financial literature with many awards to his name including multiple Bernstein Fabozzi/Jacobs Levy Awards, Graham and Dodd Awards, and the prestigious 2020 Fama/DFA Prize for Capital Markets and Asset Pricing. Asness’ career began at Goldman, Sachs & Co., where he served as Managing Director and Director of Quantitative Research before founding AQR. He actively participates in professional organizations and serves on boards such as The Journal of Portfolio Management, Courant Institute of Mathematical Finance at NYU, Q-Group, and The National WWII Museum.
Asness started with a $10 million investment from a small group of investors in 1995 and rapidly expanded the Goldman Sachs Global Alpha Fund using quantitative strategies thereby increasing its assets to over $100 million within months. After Asness left Goldman Sachs in 1998 to establish his own hedge fund, the Alpha Fund continued to grow, reaching assets totaling $12 billion by 2007. Asness, a former doctoral student under Nobel laureate Eugene Fama, saw shifts in market efficiency over his career, through meme stocks and valuation disparities post-pandemic. He believes there’s ongoing potential in value investing, as opposed to less than three years ago when opportunities were more noticeable.
AQR, short for Applied Quantitative Research, operates as a hedge fund managing discretionary assets valued at $119.9 billion as of August 2023, according to their Form ADV filing. Their latest 13F filing for Q2 2023 disclosed a portfolio value $48.4 billion in 13F securities, with a top 10 holdings concentration of 14.42%. AQR manages around $8 billion of its total $99 billion assets under management in an emerging-market equities portfolio, employing a collaborative approach similar to its other funds. This strategy, which diversifies away from the dominance of US stocks, positions AQR alongside industry leaders like Morgan Stanley Investment Management. AQR’s multi-strategy offerings achieved a 13.5% gain year-to-date through April 2024, following a 16% return in 2023. As global interest rates remain elevated, creating opportunities for hedge funds, AQR’s futures-trading strategies have thrived amidst market volatility.
AQR Capital Management is gradually integrating machine-driven strategies aiming to enhance performance and adapt to market dynamics. Despite initial skepticism towards machine learning in investing, AQR has expanded into trend-following strategies, including tracking fundamental signals and venturing into niche markets such as Malaysian palm oil and milk. Speaking at the Bloomberg Invest conference in New York, Asness emphasised that recent improvements in the firm’s performance reflect not only market cycles but also strategic adjustments.
“We let the machine decide more,”
Asness emphasized, noting his confidence in machine-based decision-making over human intuition.
Cliff Asness of AQR Capital Management
Our Methodology:
Stocks mentioned in this article were picked from the investment portfolio of AQR Capital Management at the end of the third quarter of 2024. In order to provide readers with a more comprehensive overview of the companies, the analyst ratings for each firm are mentioned alongside other details. A database of around 900 elite hedge funds tracked by Insider Monkey in the third quarter of 2024 was used to quantify the popularity of each stock in the hedge fund universe.
10. Johnson & Johnson (JNJ)
Position size: $510 million
Activity: -6%
Johnson & Johnson is the 10th largest position in Cliff Asness’ 13F portfolio at the end of September. Even though the billionaire quant investor reduced his fund’s position by 6%, AQR still owns around 0.13% of JNJ’s outstanding shares. Relatively this is the second most concentrated position among AQR’s top 10 holdings. This implies that AQR believes JNJ is deeply undervalued despite the fact that JNJ stock has underperformed the market by a large margin over the last 5 years. According to Yahoo Finance JNJ is trading at a forward P/E of 14. One reason for JNJ’s poor performance is the legal issues it has been facing. You can read our article about JNJ’s legal issues and the stock’s upside potential here.
9. Broadcom Inc. (NASDAQ:AVGO)
Position size: $559 million
Activity: 986%
Six months ago Broadcom Inc was among AQR’s top 10 positions. We wrote the following about the stock at that time:
“JPMorgan in its latest report has highlighted that Broadcom Inc. (NASDAQ:AVGO) is expected to “dominate” the high-end of the custom chips market as the market is expected to reach anywhere between $20 billion and $30 billion, up from its previous estimate of $20 billion to $25 billion. In the first quarter, Broadcom reported a surprising 34% revenue growth while its adjusted earnings growth lagged behind, indicating tighter margins. Revenue growth for the next year is projected to be at 13% and 15.10% annually over the next five years, trailing industry leaders like NVDA. The stock’s one-year average analyst price target is $1533, suggesting an upside potential of only 9%.“
AQR sold most of its AVGO holdings during the second quarter most likely in June when AVGO stock jumped from $140 to $170. Well, Cliff Asness’ computers decided during the third quarter that the stock offered decent upside as AVGO shares dipped below the $140 level at one point. Currently AVGO shares trade at $179, so Asness might be trimming his AVGO position one more time. We will find out in the middle of February. You can read why bullish investors think AVGO stock is still undervalued at $180 here.
8. Alphabet Inc. (NASDAQ:GOOGL)
Position size: $583 million
Activity: -23%
At the end of the first quarter AQR had more than $750 million invested in GOOGL stock when the stock was trading at $150. We wrote the following at the time:
“Google’s parent company, Alphabet Inc. (NASDAQ: GOOGL), is highly rated by analysts as a “Strong Buy” with an average price target of $191.83. This bullish stance is supported by expected growth in the advertising sector and accelerated U.S. eCommerce expansion, justifying a 26x multiple on Alphabet’s next twelve months (NTM) earnings per share (EPS). In Q1 2024, 222 hedge funds held stakes in Alphabet, with Fisher Asset Management holding the largest at $6.9 billion. Alphabet’s forward P/E ratio is 22.94, close to the S&P 500’s 21, and its shares have gained 158% over four years, with revenue growing by 68%.”
GOOGL stock returned around 16% since then and AQR decided to trim its position by more than 20%. Overall AQR owns only 0.03% of GOOGL’s outstanding shares. AQR also had $465 million invested in GOOG stock at the end of the third quarter, so overall AQR’s Alphabet exposure is more than a billion dollars. GOOGL stock is exposed to two main risks. First, the regulators are trying to break up the company. Second, start-up AI companies like OpenAI, Perplexity are trying to change how consumers search for information.
7. Eli Lilly and Company (LLY)
Position size: $592 million
Activity: 43%
We usually don’t see any insider buying in large-cap companies. That wasn’t the case with LLY stock back in 2021 and 2022 when two of its directors purchased modest amounts of LLY stock at prices ranging from $182 to $304. LLY shares currently trade at $800, so those were pretty profitable insider purchases. Who knew?
At the time Eli Lilly and Company was in the early stages of profiting from the GLP-1 revolution. Today, investors like AQR Capital are piling into the stock because they believe that LLY’s new generation of GLP-1 drugs will generate more revenue and profits for LLY shareholders and the stock has a lot of upside ahead. Here is how Madison Sustainable Equity Fund explained why Eli Lilly and Company (NYSE:LLY) shares underperformed in Q3 (and why AQR decided to increase its LLY position by 43%):
“After first half strength, Eli Lilly has traded in a range this quarter, despite dramatically raising revenues and earnings following their second quarter report. There is a lot of noise in the Diabetes-Obesity space as many companies are looking for opportunities to get into the market, which is expected to exceed $100 billion in revenues in 2030. We have not seen any competitor data that would dethrone Novo Nordisk or Lilly but are watching carefully. Manufacturing capacity is a key barrier to entry and Lilly and Novo have locked up capacity for the next several years.”
6. GE Aerospace (NYSE:GE)
Position size: $606 million
Activity: 11%
General Electric Company, is a prominent American industrial products firm with a longstanding presence in the nanotechnology industry, including work with carbon nanotubes. Headquartered in Boston, Massachusetts, GE designs and manufactures commercial and defense aircraft engines, integrated engine components, electric power systems, and mechanical aircraft systems. It has transitioned to GE Aerospace (NYSE:GE), after reforming its other dominant business segments, energy and healthcare, into GE Vernova (NYSE:GEV) and GE Healthcare (NASDAQ:GEHC) respectively. GE Aerospace has an installed base of approximately 44,000 commercial and 26,000 military aircraft engines.
AQR Capital thinks GE Aerospace stock is deeply undervalued because it is the most concentrated bet among its top 10 holdings. AQR owns 0.3% of GE stock’s outstanding shares. In October our writer published this article explaining why GE stock might be overvalued. GE shares lost more than 5% since then.
5. Meta Platforms, Inc. (NASDAQ:META)
Position size: $855 million
Activity: -6%
The last time we covered AQR’s META position was 6 months ago when AQR had $862 million invested in the stock. Here is what we said then:
“The first quarter of 2024 witnessed Meta Platforms Inc. (NASDAQ: META) launch Generative AI image expansion tools for Facebook and Instagram reels, which have been widely adopted by small businesses. Meta also introduced its next generation of custom chips to handle AI workloads, that enhances compute, memory bandwidth, and efficiency for ranking and recommendation models.
Meta Platforms is further expanding on AI to optimize ad targeting and recommendation systems, driving engagement and advertising revenue. In Q1, Meta’s revenue surged 27% to $36.5 billion, with 97% of this revenue sourced from ads. Ads revenue is projected to grow by 17% in 2024. Reels, a platform showing strong engagement, increased its ad load to 20% in Q1, up from 16.2% the previous year. Despite Meta’s impressive Q1 results, the stock faced a decline after announcing a CapEx forecast of $35 billion to $40 billion, higher than the previous estimate of $30 billion to $37 billion. Analysts view the increased spending positively, especially for AI projects, anticipating long-term benefits for the stock.”
AQR Capital hasn’t materially changed its stance towards META stock over the last 6 months. It still has $855 million invested in the stock despite the 25% gain in META shares. Basically AQR has been trimming its position in META to keep the invested amount around $850 million level.
4. Amazon.com, Inc. (NASDAQ:AMZN)
Position size: $928 million
Activity: -5%
Previously known for its e-commerce dominance, Amazon.com, Inc. (NASDAQ:AMZN) has expanded far beyond online retail. It is now a multinational technology company that has diversified into cloud computing, online advertising, artificial intelligence, and streaming services.
Six months ago we talked about AQR’s AMZN position. At the time AQR had $937 million invested in the stock. AMZN shares returned 25% since then, yet AQR position in AMZN stock slightly dipped below the $930 million level. Here is what we said about AMZN at the time:
“In Q1 2024, Amazon’s financial results exceeded analyst expectations with net sales climbing 13% year-over-year to $143.3 billion with Amazon Web Services (AWS) as the major contributor, which saw revenue grow 17% to $25 billion, contributing significantly to an operating income of $9.4 billion for AWS alone. Company-wide operating income surged to $15.3 billion, up from $4.8 billion a year earlier, while net income doubled to $10.4 billion ($0.98 per diluted share). Analyst sentiment remains bullish, with a consensus “Strong Buy” rating and an average price target of $221.55, implying a potential upside of over 11% from current levels.”
Analysts were right about AMZN as the stock is currently trading at $226. AQR isn’t too bullish on the stock as it has been selling its AMZN holdings to keep the position size constant as the stock price increased.
3. Microsoft Corporation Inc. (NASDAQ:MSFT)
Position size: $1.73 billion
Activity: 5%
Microsoft (MSFT) was the #1 position in AQR’s portfolio at the end of the first quarter. Here is what we said six months ago:
Analysts from Wolfe Research and Barclays believe that Microsoft Corporation Inc. (NASDAQ: MSFT) is well-positioned amid expected market volatility, emphasizing its resilience and investor appeal. MSFT has seen significant share price gains by 30% over the past one year. Following which multiple Wall Street analysts support bullish sentiments in addition to New Street Research that gave the Company a new Buy rating with a $570 price target. The company’s strategic integration of AI in its Cloud division has driven impressive growth in its Intelligent Cloud segment. Microsoft’s investments in its Search business, Bing, have also generated market share gains. Looking ahead, analysts anticipate continued earnings growth for MSFT, making its current valuation, with a forward P/E ratio of 31, attractive.”
At the time AQR had $1.67 billion invested in the stock and MSFT shares were trading at $421. MSFT stock only returned 5% since then and it isn’t the top position in AQR’s portfolio anymore. Overall, AQR owns only 0.05% of MSFT’s outstanding shares. This may be a top 3 position for AQR but relatively AQR isn’t too bullish on the stock.
2. Apple Inc. (NASDAQ:AAPL)
Position size: $1.87 billion
Activity: -1%
Apple Inc (AAPL)
AAPL stock was the third largest position in AQR’s portfolio at the end of the first quarter when we last talked about AQR’s AAPL investment. AAPL shares were trading at $171 at the time. Here is what we wrote:
“Though Apple Inc. (NASDAQ: AAPL) has been viewed as an underdog in the AI race, but recent advancements, including the introduction of the M4-powered iPad Pro with a powerful Neural Engine, indicate a resurgence. Following AI-focused announcements at WWDC, Apple’s market cap soared by over $215 billion, reaching a record high. Analyst Ming-Chi Kuo emphasizes Apple’s competitive edge in on-device AI capabilities whereas Gene Munster suggests Apple is a better long-term investment than Nvidia due to its AI potential. Apple’s current valuation at 26 times its 2025 EPS estimate aligns reasonably with its projected sales growth, indicating its alignment with its growth prospects.”
AAPL stock returned more than 40% since the end of first quarter. AQR took some money off the table, but its AAPL position still increased from $1.44 billion to $1.87 billion. Overall, AQR owns 0.05% of AAPL’s outstanding shares.
1. NVIDIA Corporation (NASDAQ:NVDA)
Position size: $1.96 billion
Activity: 5%
The last time we covered AQR’s NVDA investment was 6 months ago when AQR had $1.53 billion invested in NVDA stock. Here is what we said:
“NVIDIA Corporation (NASDAQ: NVDA) continues its dominance in AI technology as NVIDIA delivered impressive performance driven by its AI capabilities that led to a 206% surge in its stock price over the past year. O’Malley sees a $25 billion opportunity in global AI expansion and forecasts NVIDIA’s earnings to rise to $3.62 per share by fiscal 2026. NVIDIA’s recent product innovations, including new AI architectures and advanced chips namely Rubin (R100), and its advanced H100 and Blackwell chips, are expected to fuel further growth. Despite a high current P/E ratio of 71, analysts view NVIDIA’s forward P/E of 35.74, based on 2026 earnings estimates, as attractive given its strong growth prospects and technological leadership in the market.”
Nothing really changed about NVDA. NVDA shares jumped from $90 at the end of the first quarter to $140 today. AQR’s NVDA position increased by 30% since then. This means as NVDA shares were skyrocketing AQR took some of the profits off the table, but still let its position size grow unlike what it did with some of the other megacap stocks. This means NVDA is really AQR’s #1 megacap stock pick as the quant hedge fund owns 0.07% of NVDA’s outstanding shares.
While we acknowledge the potential of NVDA as an AI investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns, and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than NVDA but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
READ NEXT: 8 Best Wide Moat Stocks to Buy Now and 30 Most Important AI Stocks According to BlackRock.
Disclosure: None. This article was originally published at Insider Monkey.
