We recently compiled a list of the 10 Stocks Dominating a Billionaire Quant’s Investment Strategy. In this article, we are going to take a look at where Alphabet Inc. (NASDAQ:GOOGL) stands against the other stocks that are dominating a billionaire quant’s investment strategy.
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.
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.
A user’s hands typing a search query into a Google Search box, emphasizing the company’s search capabilities.
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.
Overall GOOGL ranks 8th on our list of the stocks that are dominating a billionaire quant’s investment strategy. While we acknowledge the potential of GOOGL as an 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 GOOGL 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.
