MyAQR Education Strategies About Us PORTFOLIO CONSTRUCTION Systematic vs. Discretionary 3Q 2017 - AQR Capital Management Topics - Portfolio Construction Factor/Style Investing Systematic vs. Discretionary In this quarter’s Alternative Thinking, we compare and contrast systematic and discretionary investment approaches. Despite differences, there are important commonalities: both can be fundamentally grounded, relying on similar economically intuitive inputs but in different ways. We discuss several other myths about systematic managers besides their supposed black-box nature. One such myth is that “they all do the same thing” whereas we show that the correlations between the active returns of individual systematic managers are very low, comparable to those between discretionary managers. We present empirical evidence of systematic and discretionary managers’ performance and risk, arguing that neither group has been inherently better than the other one and that they can be excellent complements in investor portfolios. Research Alternative Thinking Download Related Thinking Buffett's Alpha Journal Article - November 1, 2013 Fact, Fiction and Value Investing Journal Article - November 5, 2015 AQR Capital Management, LLC, (“AQR”) provide links to third-party websites only as a convenience, and the inclusion of such links does not imply any endorsement, approval, investigation, verification or monitoring by us of any content or information contained within or accessible from the linked sites. If you choose to visit the linked sites, you do so at your own risk, and you will be subject to such sites' terms of use and privacy policies, over which AQR.com has no control. In no event will AQR be responsible for any information or content within the linked sites or your use of the linked sites. The information contained herein is only as current as of the date indicated, and may be superseded by subsequent market events or for other reasons. The views and opinions expressed herein are those of the author and do not necessarily reflect the views of AQR Capital Management, LLC, its affiliates or its employees. This information is not intended to, and does not relate specifically to any investment strategy or product that AQR offers. It is being provided merely to provide a framework to assist in the implementation of an investor’s own analysis and an investor’s own view on the topic discussed herein. Past performance is not a guarantee of future results. Hypothetical performance results have many inherent limitations, some of which, but not all, are described herein. The hypothetical performance shown was derived from the retroactive application of a model developed with the benefit of hindsight. Hypothetical performance results are presented for illustrative purposes only. Diversification does not eliminate the risk of experiencing investment loss. Certain publications may have been written prior to the author being an employee of AQR. This material is intended for informational purposes only and should not be construed as legal or tax advice, nor is it intended to replace the advice of a qualified attorney or tax advisor. AQR Capital Management is a global investment management firm, which may or may not apply similar investment techniques or methods of analysis as described herein. The views expressed here are those of the authors and not necessarily those of AQR. Education Featured Thinking Research Cliff's Perspectives Data Sets Learning Center Quick Clips Podcasts Strategies Overview Equities Fixed Income Alternatives ESG Tax-Aware Investment Vehicles About Us Our Firm News Careers Academic Engagement Contact Us MyAQR Log In Register Privacy Policy Social Media Disclaimers Terms of Use Disability Accommodation for Applicants Equal Opportunity Employer ©2021 AQR Capital Management, LLC. All rights reserved.