AQR's Outperformance in 2025: A Blueprint for Capitalizing on Volatility and Factor Strategies

The year 2025 has been a proving ground for investment strategies designed to navigate uncertainty. Amid geopolitical tensions, erratic monetary policies, and volatile equity markets, one firm has emerged as a standout performer: AQR Capital Management. By leveraging its proprietary trend-following and long-short equity approaches, AQR has not only outperformed traditional benchmarks but also demonstrated the enduring value of factor-based investing. This article dissects AQR's success and explores why its multi-strategy funds are a compelling blueprint for investors seeking resilience in turbulent times.

The Case for Trend Following in a Volatile World

Trend-following strategies, which capitalize on persistent price or fundamental shifts across asset classes, have long been AQR's cornerstone. In 2025, this approach has delivered standout results. The firm's Apex Strategy, which combines stocks, macro trades, and arbitrage opportunities, returned 11.4% net in the first half of the year—more than doubling the S&P 500's 5.3% gain during the same period. Similarly, the Helix Strategy, which focuses on trend signals across equities, fixed income, currencies, and commodities, generated a 7.4% return.

These results align with AQR's research, which highlights trend following's “crisis alpha” properties. For instance, its 2022 paper Trend-Following: Why Now? argues that such strategies thrive when macroeconomic uncertainty is high—a condition that persists today. The firm's recent CVX Fusion Fund, launched in June 2025, extends this logic, targeting trend signals across four major asset classes. This fund's design reflects AQR's belief that trend following is not just a tactical tool but a core component of long-term portfolios.

Long-Short Equity: Precision in a Noisy Market

While trend following dominates headlines, AQR's long-short equity (LSE) strategies quietly deliver consistent results. The Delphi Equity Fund, with $4.1 billion in assets, returned 11.6% net in the first half of 2025 by pairing equity exposure with trend-based risk mitigation. The newly launched LSE Fusion Fund builds on this model, aiming for market-neutral beta (1.0 to the S&P 500) while exploiting mispricings in global equities.

The edge here lies in factor discipline. Unlike traditional active managers, AQR uses quantitative models to identify undervalued stocks and hedge against broad market swings. This approach reduces reliance on stock-picking luck and aligns with its 2025 research, Tax-Aware Long-Short Investing, which emphasizes minimizing tax drag while maximizing alpha.

The Fusion Funds: Multi-Strategy Diversification at Scale

AQR's June 2025 launch of the Fusion Mutual Fund Series represents its most ambitious integration of trend-following and factor strategies. The series includes four funds:
1. CVX Fusion Fund: Pure trend-following across four asset classes.
2. LSE Fusion Fund: Global long-short equity with beta neutrality.
3. MS Fusion Fund: Multi-strategy blend of macro and equity-neutral approaches.
4. MS Fusion HV Fund: Higher-volatility variant for capital efficiency.

These funds aim to address a critical investor dilemma: how to balance exposure to equity markets with protection against drawdowns. By targeting a portfolio beta of 1.0 to U.S. equities, AQR positions the Fusion Funds as complements—not substitutes—to core equity holdings. The tax-aware design further enhances their appeal, particularly for long-term wealth accumulation.

Why 2025 Validates AQR's Approach

The current market environment has amplified the case for factor-based strategies. Key drivers include:
- Elevated macro uncertainty: Trade wars, energy shortages, and central bank hawkishness create fertile ground for trend signals.
- Low expected equity returns: With U.S. equities trading at historically high valuations, active management must add value through diversification.
- Institutional demand for resilience: Pension funds and endowments, wary of 2022-style crashes, seek “crisis alpha” providers like AQR.

AQR's research underscores this: its Certainly Uncertain (2023) paper argues that trend following and long-short equity can reduce portfolio volatility during market dislocations. In 2025, this has translated to real-world performance, as the S&P 500's near-20% April sell-off was swiftly erased—a scenario where trend followers would have profited from both the decline and rebound.

Risks and Considerations

No strategy is without flaws. Trend-following's reliance on persistent trends can backfire in low-volatility environments, while long-short equity faces execution risks in highly efficient markets. AQR's funds also carry a 2.31% expense ratio, reflecting their active management. Investors must weigh these costs against the potential for risk-adjusted outperformance.

Investment Recommendation: Build Factor Exposure Gradually

For allocators, AQR's 2025 performance offers a clear roadmap:
1. Add trend-following exposure via CVX Fusion Fund: This serves as a hedge against equity volatility while capitalizing on macro trends.
2. Pair with LSE Fusion Fund for equity diversification: Its market-neutral beta reduces reliance on broad market calls while capturing stock-specific alpha.
3. Consider MS Fusion HV for aggressive risk-tolerant portfolios: This targets higher returns but requires acceptance of elevated drawdown risk.

These allocations should form a buffered equity sleeve—a 10–20% allocation to AQR's funds alongside core holdings. This approach aligns with AQR's own research, which shows that factor-based alternatives reduce portfolio tail risk without sacrificing long-term growth.

Conclusion: The Future Belongs to Factor Engineers

In an era of heightened uncertainty, AQR's success in 2025 reaffirms the value of systematic, multi-strategy investing. By combining trend following's crisis resilience with long-short equity's precision, the firm has created a blueprint for capitalizing on volatility. For investors, the message is clear: factor-based approaches are no longer niche—they are essential for navigating the new normal.

As markets continue to grapple with geopolitical storms and economic crosswinds, AQR's Funds Series may well be the lighthouse guiding investors through the turbulence.