Daniel Villalon's guest appearances

Daniel Villalon

Orion's The Weighing Machine

Alpha Exchange

OwlTail

As Global Co-head of Portfolio Solutions at AQR Capital Management, Dan Villalon is primarily engaged in helping the firm’s clients address constantly evolving challenges around risk management. Central to these, of course, is the search for efficient sources of diversification. In this context, our discussion explores research his team has done in two primary areas.First, we talk about defending against drawdowns that are both fast and slow and back-tests that compare options-based hedging with strategies like trend following that do not require explicit premium payments. For rapid market sell-offs, like those that occurred during the GFC and the Covid crash, explicit, premium based insurance works well. This approach can suffer, however, as the market bottoms and recovers even as option prices remain high. Trend following strategies, while not as effective for sudden market plunges, tend to be more effective in offsetting losses that occur during slower drawdowns, as occurred in 2022.Dan makes the point that a robotic strategy that buys assets that have trended higher and sells those that have trended lower tends to work across asset classes and around the world, at odds with market efficiency. One possible explanation put forth is “under-reaction”. Here, investors respond to good news, but not initially by enough, leaving further gains on the table.Lastly, we talk about AQR’s recent work on international diversification. Noting that US stocks have been the place to be for 3 decades, the firm sees an important place for international equities going forward given the view that the tailwind of rising relative valuations in the US may be behind. I hope you enjoy this episode of the Alpha Exchange, my conversation with Dan Villalon.

As Global Co-head of Portfolio Solutions at AQR Capital Management, Dan Villalon is primarily engaged in helping the firm’s clients address constantly evolving challenges around risk management. Central to these, of course, is the search for efficient sources of diversification. In this context, our discussion explores research his team has done in two primary areas. First, we talk about defending against drawdowns that are both fast and slow and back-tests that compare options-based hedging with strategies like trend following that do not require explicit premium payments. For rapid market sell-offs, like those that occurred during the GFC and the Covid crash, explicit, premium based insurance works well. This approach can suffer, however, as the market bottoms and recovers even as option prices remain high. Trend following strategies, while not as effective for sudden market plunges, tend to be more effective in offsetting losses that occur during slower drawdowns, as occurred in 2022. Dan makes the point that a robotic strategy that buys assets that have trended higher and sells those that have trended lower tends to work across asset classes and around the world, at odds with market efficiency. One possible explanation put forth is “under-reaction”. Here, investors respond to good news, but not initially by enough, leaving further gains on the table. Lastly, we talk about AQR’s recent work on international diversification. Noting that US stocks have been the place to be for 3 decades, the firm sees an important place for international equities going forward given the view that the tailwind of rising relative valuations in the US may be behind. I hope you enjoy this episode of the Alpha Exchange, my conversation with Dan Villalon.

Daniel Villalon, Global Co-Head of Portfolio Solutions, AQR Capital Management

Due to the many risks facing today's market, many investors wonder whether now is the time to invest or just sit on the sidelines. While diversification can minimize exposure to any single economic, political, or market event, it's important to know the market's top risks to enable investors to manage expectations and protect their portfolios. But what are today's top market risks, and how can investors move forward?In this episode, Rusty and Robyn talk with Daniel Villalon, Principal and Global Co-Head of the Portfolio Solutions Group at AQR Capital Management. In his role, Daniel oversees the team responsible for advising clients on portfolio challenges and creating investor-oriented thought leadership. Additionally, Daniel founded, co-wrote, and hosted AQR’s podcast, The Curious Investor.Daniel talks with Rusty and Robyn about the market's top risks, what investors should expect moving forward, and how they can stay invested and reach their financial goals.Key Takeaways [05:25] - How Daniel went from the vineyard to the financial industry. [08:28] - The key role Daniel plays at AQR Capital Management. [11:04] - AQR's market outlook for the remainder of the year. [12:37] - The inflation perspective of AQR. [14:10] - Daniel's thoughts on recession risk. [17:01] - How Daniel rates the risk of fighting the Fed. [18:54] - How AQR measures the impact of investor expectations. [21:29] - Another potential risk Daniel is keeping an eye on. [23:38] - What investors could expect in terms of market returns in the years ahead. [26:58] - The return expectations for growth stocks versus value stocks. [32:16] - Why firms should have CMAs. [36:42] - What investors should do with their portfolios, given all the risks and challenges in the current market. [41:48] - AQR's perspective on commodities and real estate. [46:06] - How Daniel views long-short strategies. [47:50] - AQR's thoughts on managed futures and merger arbitrage. [52:48] - Daniel's personal investment strategy. [54:50] - How Daniel maintains his physical and mental well-being to perform at his best. Quotes[11:23] - "Coming up with an expected return for the future is easy to do, but very hard to do well." - Daniel Villalon[12:00] - "Diversification is the most reliable or least imperfect solution when positioning yourself for a world where you don't know with certainty what the next few months will bring." - Daniel Villalon[13:53] - "Inflation is a risk that neither of the two biggest traditional asset classes is particularly well suited to address." - Daniel Villalon[20:55] - "One of the challenges in terms of investor expectations is a lot of folks, implicitly or not, set their expectations based on what they've seen recently. That’s created a massive disconnect regarding what people expect from markets and what they're likely to get over the next five to 10 years." - Daniel VillalonLinks  Daniel Villalon on LinkedIn AQR Capital Management Help! by The Beatles The Laws of Wealth: Psychology and the Secret to Investing JP Morgan The Mitchell Madison Group Pine Ridge Vineyards The Curious Investor Podcast Investing Amid Low Expected Returns: Making the Most When Markets Offer the Least Buttonwood’s notebook | The Economist Connect with our hosts Rusty Vanneman Robyn Murray Subscribe and stay in touch Apple Podcasts Spotify Google Podcasts 1211-OPS-7/12/2022

Due to the many risks facing today's market, many investors wonder whether now is the time to invest or just sit on the sidelines. While diversification can minimize exposure to any single economic, political, or market event, it's important to know the market's top risks to enable investors to manage expectations and protect their portfolios. But what are today's top market risks, and how can investors move forward?In this episode, Rusty and Robyn talk with Daniel Villalon, Principal and Global Co-Head of the Portfolio Solutions Group at AQR Capital Management. In his role, Daniel oversees the team responsible for advising clients on portfolio challenges and creating investor-oriented thought leadership. Additionally, Daniel founded, co-wrote, and hosted AQR’s podcast, The Curious Investor.Daniel talks with Rusty and Robyn about the market's top risks, what investors should expect moving forward, and how they can stay invested and reach their financial goals. Key Takeaways<ul> <li>[05:25] - How Daniel went from the vineyard to the financial industry.</li> <li>[08:28] - The key role Daniel plays at AQR Capital Management.</li> <li>[11:04] - AQR's market outlook for the remainder of the year.</li> <li>[12:37] - The inflation perspective of AQR.</li> <li>[14:10] - Daniel's thoughts on recession risk.</li> <li>[17:01] - How Daniel rates the risk of fighting the Fed.</li> <li>[18:54] - How AQR measures the impact of investor expectations.</li> <li>[21:29] - Another potential risk Daniel is keeping an eye on.</li> <li>[23:38] - What investors could expect in terms of market returns in the years ahead.</li> <li>[26:58] - The return expectations for growth stocks versus value stocks.</li> <li>[32:16] - Why firms should have CMAs.</li> <li>[36:42] - What investors should do with their portfolios, given all the risks and challenges in the current market.</li> <li>[41:48] - AQR's perspective on commodities and real estate.</li> <li>[46:06] - How Daniel views long-short strategies.</li> <li>[47:50] - AQR's thoughts on managed futures and merger arbitrage.</li> <li>[52:48] - Daniel's personal investment strategy.</li> <li>[54:50] - How Daniel maintains his physical and mental well-being to perform at his best.</li> </ul> Quotes[11:23] - "Coming up with an expected return for the future is easy to do, but very hard to do well." - <a href="https://www.linkedin.com/in/daniel-villalon-cfa-1435b73/" rel="nofollow" target="_blank">Daniel Villalon</a>[12:00] - "Diversification is the most reliable or least imperfect solution when positioning yourself for a world where you don't know with certainty what the next few months will bring." - <a href="https://www.linkedin.com/in/daniel-villalon-cfa-1435b73/" rel="nofollow" target="_blank">Daniel Villalon</a>[13:53] - "Inflation is a risk that neither of the two biggest traditional asset classes is particularly well suited to address." - <a href="https://www.linkedin.com/in/daniel-villalon-cfa-1435b73/" rel="nofollow" target="_blank">Daniel Villalon</a>[20:55] - "One of the challenges in terms of investor expectations is a lot of folks, implicitly or not, set their expectations based on what they've seen recently. That’s created a massive disconnect regarding what people expect from markets and what they're likely to get over the next five to 10 years." - <a href="https://www.linkedin.com/in/daniel-villalon-cfa-1435b73/" rel="nofollow" target="_blank">Daniel Villalon</a> Links <ul> <li><a href="https://www.linkedin.com/in/daniel-villalon-cfa-1435b73/" rel="nofollow" target="_blank">Daniel Villalon on LinkedIn</a></li> <li><a href="https://www.aqr.com/" rel="nofollow" target="_blank">AQR Capital Management</a></li> <li><a href="https://open.spotify.com/track/6EdSN1iGtLPhcz43QDRkdK?autoplay=true" rel="nofollow" target="_blank">Help! by The Beatles</a></li> <li><a href="https://www.amazon.com/Laws-Wealth-Psychology-investing-success/dp/0857195247" rel="nofollow" target="_blank">The Laws of Wealth: Psychology and the Secret to Investing</a></li> <li><a href="https://www.jpmorgan.com/" rel="nofollow" target="_blank">JP Morgan</a></li> <li><a href="https://www.mmgmc.com/" rel="nofollow" target="_blank">The Mitchell Madison Group</a></li> <li><a href="https://www.pineridgevineyards.com/" rel="nofollow" target="_blank">Pine Ridge Vineyards</a></li> <li><a href="https://podcasts.apple.com/us/podcast/the-curious-investor/id1418110151" rel="nofollow" target="_blank">The Curious Investor Podcast</a></li> <li><a href="https://www.amazon.com/Investing-Amid-Low-Expected-Returns/dp/1119860199" rel="nofollow" target="_blank">Investing Amid Low Expected Returns: Making the Most When Markets Offer the Least</a></li> <li><a href="https://www.economist.com/buttonwoods-notebook" rel="nofollow" target="_blank">Buttonwood’s notebook | The Economist</a></li> </ul> Connect with our hosts<ul> <li><a href="https://www.linkedin.com/in/rusty-vanneman-cfa-cmt-304306/" rel="nofollow" target="_blank">Rusty Vanneman</a></li> <li><a href="https://www.linkedin.com/in/robynmurray/" rel="nofollow" target="_blank">Robyn Murray</a></li> </ul> Subscribe and stay in touch<ul> <li><a href="https://podcasts.apple.com/us/podcast/orions-the-weighing-machine/id486850755" rel="nofollow" target="_blank">Apple Podcasts</a></li> <li><a href="https://open.spotify.com/show/7k80G94zq4W2fiAUmsuKAq" rel="nofollow" target="_blank">Spotify</a></li> <li><a href="https://podcasts.google.com/feed/aHR0cDovL3d3dy5jbHNpbnZlc3QuY29tL3dtci9wb2RjYXN0L2Nsc19yc3MueG1s" rel="nofollow" target="_blank">Google Podcasts</a></li> </ul> 1211-OPS-7/12/2022