N-CSR 1 primary-document.htm
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
     Washington, D.C. 20549
 
FORM N-CSR
 
CERTIFIED SHAREHOLDER REPORT OF REGISTERED
MANAGEMENT INVESTMENT COMPANIES
 
Investment Company Act file number: 811-22235
 

AQR Funds

(Exact name of registrant as specified in charter)
 
         One Greenwich Plaza
                        Greenwich, CT 06830
                        
(Address of principal executive offices) (Zip code)
 
H.J. Willcox, Esq.
Principal and Chief Legal Officer
AQR Capital Management, LLC
                         One Greenwich Plaza
                        Greenwich, CT 06830                            
(Name and Address of Agent for Service)
 
 
Registrant’s telephone number, including area code: 203-742-3600
 
Date of fiscal year end:  December 31
 
Date of reporting period:  January 1, 2022 to December 31, 2022
 
Item 1. Reports to Shareholders.
 
a.) The following is a copy of the report transmitted to shareholders pursuant to Rule 30e-1 under the Investment Company Act of 1940, as amended (the “1940 Act”) (17 CFR 270.30e-1.)
 
b.) A copy of the notice transmitted to shareholders in reliance on Rule 30e-3 under the 1940 Act that contains disclosures specified by paragraph (c)(3) of that rule is included in the Annual Report. Not applicable.
 
Annual
Report
December
31,
2022
AQR
Alternative
Risk
Premia
Fund
AQR
Diversified
Arbitrage
Fund
AQR
Diversifying
Strategies
Fund
AQR
Equity
Market
Neutral
Fund
AQR
Long-Short
Equity
Fund
AQR
Macro
Opportunities
Fund
AQR
Managed
Futures
Strategy
Fund
AQR
Managed
Futures
Strategy
HV
Fund
AQR
Multi-Asset
Fund
AQR
Risk-Balanced
Commodities
Strategy
Fund
AQR
Style
Premia
Alternative
Fund
AQR
Sustainable
Long-Short
Equity
Carbon
Aware
Fund
Table
of
Contents
Shareholder
Letters
(Unaudited)
AQR
Alternative
Risk
Premia
Fund
...................................................................
2
AQR
Diversified
Arbitrage
Fund
.....................................................................
4
AQR
Diversifying
Strategies
Fund
...................................................................
8
AQR
Equity
Market
Neutral
Fund
....................................................................
10
AQR
Long-Short
Equity
Fund
.......................................................................
12
AQR
Macro
Opportunities
Fund
.....................................................................
14
AQR
Managed
Futures
Strategy
Fund
................................................................
17
AQR
Managed
Futures
Strategy
HV
Fund
.............................................................
20
AQR
Multi-Asset
Fund
............................................................................
23
AQR
Risk-Balanced
Commodities
Strategy
Fund
........................................................
25
AQR
Style
Premia
Alternative
Fund
..................................................................
27
AQR
Sustainable
Long-Short
Equity
Carbon
Aware
Fund
..................................................
29
Schedule
of
Investments
AQR
Alternative
Risk
Premia
Fund
...................................................................
33
AQR
Diversified
Arbitrage
Fund
.....................................................................
63
AQR
Diversifying
Strategies
Fund
...................................................................
87
AQR
Equity
Market
Neutral
Fund
....................................................................
88
AQR
Long-Short
Equity
Fund
.......................................................................
108
AQR
Macro
Opportunities
Fund
.....................................................................
135
AQR
Managed
Futures
Strategy
Fund
................................................................
152
AQR
Managed
Futures
Strategy
HV
Fund
.............................................................
181
AQR
Multi-Asset
Fund
............................................................................
211
AQR
Risk-Balanced
Commodities
Strategy
Fund
........................................................
227
AQR
Style
Premia
Alternative
Fund
..................................................................
236
AQR
Sustainable
Long-Short
Equity
Carbon
Aware
Fund
..................................................
269
Financial
Statements
and
Notes
........................................................................
290
Report
of
Independent
Registered
Public
Accounting
Firm
.....................................................
366
Other
Federal
Tax
Information
(Unaudited)
................................................................
367
Fund
Expense
Examples
(Unaudited)
....................................................................
369
Trustees
and
Officers
(Unaudited)
.......................................................................
372
Board
Approval
of
Investment
Advisory
Agreements
(Unaudited)
................................................
374
Shareholder
Letter
(Unaudited)
AQR
ALTERNATIVE
RISK
PREMIA
FUND
2
AQR
Funds
|
Annual
Report
|
December
2022
Dear
Shareholder:
The
AQR
Alternative
Risk
Premia
Fund
(the
“Fund”)
returned
25.26%,
net
of
fees,
(Class
I
shares)
in
2022.
Over
the
year,
the
Fund
realized
14.8%
annualized
daily
volatility
and
a
-0.4
correlation
to
global
equities,
as
represented
by
the
MSCI
World
Index.
The
ICE
BofA
U.S.
3-Month
Treasury
Bill
Index,
which
is
the
Fund’s
benchmark,
returned
1.46%
over
this
period.
Utilization
of
derivative
instruments
is
inherent
to
the
Fund's
principal
investment
strategies.
During
the
year
ended
December
31,
2022,
the
Fund's
use
of
derivative
instruments
in
accordance
with
its
principal
investment
strategies
did
not
cause
the
Fund's
performance
to
materially
deviate
from
AQR's
performance
expectations
for
the
Fund
under
the
market
conditions
experienced
over
this
period.
During
the
2022
fiscal
year,
the
Fund
invested
in
five
different
asset
groups,
including
using
derivatives
such
as
futures
and
swaps:
equities
of
major
developed
markets,
country
specific
equity
indices,
bonds,
currencies
and
commodities.
The
Fund
employed
market-neutral
and
long-short
strategies
across
these
asset
groups
based
on
five
investment
styles:
Value
-
The
tendency
for
cheap
assets
to
outperform
expensive
ones
Momentum
-
The
tendency
for
an
asset’s
recent
relative
performance
to
continue
in
the
future
Carry
-
The
tendency
for
higher-yielding
assets
to
provide
higher
returns
than
lower-yielding
assets
Defensive
-
The
tendency
for
lower-risk
and
higher-quality
assets
to
generate
higher
risk-adjusted
returns
Trend
-
The
tendency
for
an
asset’s
recent
performance
to
continue
in
the
future
Gains
were
mainly
driven
by
the
Stocks
and
Industries
(“Stocks”)
asset
group,
with
Value
being
the
dominant
driver
of
performance.
Fixed
Income,
Commodities
and
Equity
Indices
also
contributed
positively,
while
Currencies
detracted.
A
majority
of
Stocks
gains
occurred
during
the
first
and
second
quarter.
The
group
then
generally
performed
poorly
until
the
beginning
of
the
fourth
quarter
as
Value
retraced
a
large
portion
of
what
it
had
previously
earned
before
recouping
again
toward
the
end
of
the
year.
Stocks
had
positive
performance
across
all
the
style
factors,
with
Value
being
the
biggest
contributor.
Fixed
Income
saw
its
gains
coming
from
Momentum
and
Trend.
Commodities
saw
its
gains
come
from
Value
as
well
as
Trend.
In
Equity
Indices,
positive
contributions
from
Carry
and
Value
were
offset
by
negative
contributions
from
Momentum
and
Defensive.
Currencies’
negative
performance
was
driven
by
Value
and
Defensive.
This
year’s
Stocks
Value
gains
are
a
continuation
in
the
style’s
recovery
that
began
towards
the
end
of
2020.
AQR’s
research
suggests
that
the
Value
losses
of
the
prior
couple
of
years
have
been
due
to
a
temporary
disconnect
between
prices
and
fundamentals.
Investors
were
demanding
stocks
with
high
long-term
growth
forecasts,
seemingly
without
concern
for
the
price
paid
for
those
securities.
Our
prediction
had
been
that
performance
for
Value
would
rebound
meaningfully
as
the
bubble
burst.
The
shift
in
2021
was
a
meaningful
step
in
this
direction,
and
the
continuation
of
the
trend
in
2022
has
solidified
our
conviction
in
our
prediction.
Jordan
Brooks
Principal
Andrea
Frazzini
Principal
John
Huss
Principal
Yao
Hua
Ooi
Principal
Nathan
Sosner
Principal
3
Shareholder
Letter
(Unaudited)
AQR
ALTERNATIVE
RISK
PREMIA
FUND
AQR
Funds
|
Annual
Report
|
December
2022
Past
performance
does
not
guarantee
future
results.
Investment
results
and
principal
value
of
an
investment
will
fluctuate
so
that
an
investor’s
shares,
when
redeemed,
may
be
worth
more
or
less
than
their
original
cost.
Current
performance
may
be
lower
or
higher
than
the
performance
data
quoted.
As
of
the
latest
prospectus,
the
gross
expense
ratio
for
the
Fund’s
Class
I/N/R6
shares
are
4.31%,
4.57%
and
4.22%,
respectively.
Call
1-866-290-2688
or
visit
www.aqrfunds.com
for
current
month-end
performance.
AQR
ALTERNATIVE
RISK
PREMIA
FUND
VS.
ICE
BofA
U.S.
3-MONTH
TREASURY
BILL
INDEX
VALUE
OF
$10,000
INVESTED
ON
09/19/2017
The
chart
above
represents
historical
performance
of
a
hypothetical
investment
of
$10,000
in
the
Fund
over
the
past
ten
years
(or
since
inception
if
shorter).
Performance
data
quoted
represents
past
performance
and
does
not
guarantee
future
results.
Returns
shown
are
total
returns,
which
assume
the
reinvestment
of
dividends
and
capital
gains.
The
table
and
graph
presented
above
do
not
reflect
the
deduction
of
taxes
a
shareholder
would
pay
on
fund
distributions
or
the
redemption
of
fund
shares.
test
test
AVERAGE
ANNUAL
TOTAL
RETURNS
AS
OF
12/31/2022
AQR
ALTERNATIVE
RISK
PREMIA
FUND
1
Year
3
Year
5
Year
Since
Inception
Date
of
Inception
Fund
-
Class
I:
QRPIX
25.26%
4.16%
0.28%
0.28%
9/19/2017
Fund
-
Class
N:
QRPNX
24.83%
3.90%
0.03%
0.05%
9/19/2017
Fund
-
Class
R6:
QRPRX
25.46%
4.29%
0.39%
0.41%
9/19/2017
ICE
BofA
U.S.
3-Month
Treasury
Bill
Index
1.46%
0.72%
1.26%
1.25%
9/19/2017
Shareholder
Letter
(Unaudited)
AQR
DIVERSIFIED
ARBITRAGE
FUND
4
AQR
Funds
|
Annual
Report
|
December
2022
Dear
Shareholder:
The
AQR
Diversified
Arbitrage
Fund
(the
“Fund”)
invests
in
arbitrage
strategies,
including
merger
arbitrage,
convertible
arbitrage,
and
event-driven
strategies.
The
investment
process
seeks
to
capture
a
liquidity
premium
around
corporate
control
and
capital
raising
events,
while
maintaining
a
highly
diversified
portfolio
of
securities
with
low
exposure
to
other
risk
premia.
Over
the
2022
calendar
year,
the
Fund’s
Class
I
shares
returned
-3.29%,
net
of
fees,
due
to
negative
returns
in
all
three
major
strategy
buckets.
The
convertible
arbitrage
strategy
was
the
largest
contributor
to
the
fund
loss
(2.74%)
followed
by
merger
arbitrage
(0.13%)
and
event-driven
(0.41%).
A
discussion
of
specific
performance
drivers
for
each
of
the
three
core
strategies
is
included
below.
Since
its
inception
on
January
15,
2009,
the
Fund’s
correlation
with
overall
equity
and
credit
markets
remains
low.
Based
on
monthly
returns
since
inception
through
December
31,
2022,
the
Fund’s
equity
market
beta
(relative
to
the
S&P
500
Total
Return
Index®)
is
0.13,
its
annualized
volatility
is
5.1%
and
its
Sharpe
ratio
is
0.71.
Use
of
derivative
instruments
is
inherent
to
the
Fund's
principal
investment
strategies,
both
to
obtain
financial
leverage
and
to
hedge
portfolio
risks.
During
the
fiscal
year
ended
December
31,
2022,
the
Fund's
use
of
derivative
instruments
in
accordance
with
its
principal
investment
strategies
did
not
cause
the
Fund's
performance
to
materially
deviate
from
AQR's
performance
expectations
for
the
Fund
under
the
market
conditions
experienced
over
this
period.
Fund
Description
Unlike
the
textbook
definition
of
arbitrage
that
requires
no
capital
and
where
identical
securities
can
simultaneously
be
bought
and
sold
for
different
prices,
corporate
arbitrage
investments
require
significant
capital
and
involve
the
purchase
and
sale
of
related
but
not
identical
securities
at
advantageous
prices.
For
example,
in
merger
arbitrage,
the
target
stock
can
often
be
purchased
for
a
price
that
is
less
than
the
merger
consideration
offered
by
the
acquiring
company.
Arbitrageurs
attempt
to
capture
this
difference
by
buying
the
target
stock,
and
in
the
case
of
a
stock
merger,
also
selling
short
the
acquirer’s
stock.
Similarly,
in
the
case
of
convertible
arbitrage,
investors
typically
purchase
a
convertible
bond
at
a
price
below
fundamental
value
and
hedge
the
risk
of
the
underlying
equity
call
option
that
is
embedded
in
the
bond
by
selling
short
the
issuer’s
common
stock.
Arbitrageurs
generally
profit
when
the
prices
of
securities
purchased
converge
to
their
fundamental
values.
Like
merger
arbitrage
and
convertible
arbitrage,
the
event-driven
strategies
employed
by
the
Fund
involve
the
purchase
of
securities
around
corporate
events
at
discounts
to
their
fundamental
values.
For
most
of
the
investments,
an
attempt
is
made
to
mitigate
the
embedded
systematic
risk
via
hedging.
Where
there
is
no
direct
hedge
for
a
particular
security,
correlated
indirect
hedges
are
employed.
For
example,
systematic
equity
market
risk
is
hedged
by
shorting
S&P
500
futures
and
swaps.
Similarly,
for
example,
credit
and
interest
rate
risks
are
hedged
using
derivative
contracts
(credit
default
swap
indices
and
Treasury
futures).
Although
indirect
hedges
can
effectively
mitigate
systematic
risk
(e.g.,
beta)
on
average,
they
expose
the
Fund
to
basis
risk—
the
basket
of
securities
purchased
around
corporate
events
does
not
necessarily
move
in
lockstep
with
the
hedging
instruments.
Performance
Attribution
Over
a
long
horizon,
we
expect
arbitrage
returns
to
have
a
low
correlation
to
equity
and
credit
market
returns,
and
exceed
short-term
Treasury
bill
returns.
In
some
years,
like
2014,
arbitrage
strategies
generate
returns
that
are
below
expectations.
In
other
years,
such
as
2020,
arbitrage
strategies
generate
returns
that
are
significantly
greater
than
the
long-run
expected
average.
Years
with
significant
outperformance
often
follow
severe
market
dislocations,
like
we
experienced
in
March
2020,
which
can
create
favorable
market
conditions
for
arbitrage
strategies.
Since
its
inception
in
2009,
the
Fund
has
returned
an
annualized
average
return
of
3.6%
above
the
ICE
BofA
U.S.
3-Month
Treasury-Bill
Index.
Convertible
Arbitrage
Convertible
arbitrage
contributed
(2.74%)
to
the
Fund’s
return
in
2022.
Negative
returns
can
be
attributed
primarily
to
severe
credit
spread
widening
of
convertible
bond
issuers
throughout
the
year
amid
the
sell-off
in
technology
and
growth-related
equities
coupled
with
an
increase
in
interest
rates.
The
widening
credit
spreads
for
these
companies
exceeded
the
magnitude
of
spread
widening
in
the
high-yield
bond
market
and,
in
many
cases,
convertible
prices
fell
even
more
than
the
implied
move
in
credit
spreads
would
explain.
Jordan
Brooks
Principal
Rocky
Bryant
Principal,
AQR
Arbitrage
Mark
Mitchell,
Ph.D.
Principal,
AQR
Arbitrage
Todd
Pulvino,
Ph.D.
Principal,
AQR
Arbitrage
John
Eckert
Managing
Director,
AQR
Arbitrage
5
Shareholder
Letter
(Unaudited)
AQR
DIVERSIFIED
ARBITRAGE
FUND
AQR
Funds
|
Annual
Report
|
December
2022
Following
two
years
of
robust
new
issuance,
the
U.S.
convertible
market
experienced
a
significant
slowdown,
with
only
$29
billion
raised
by
issuers.
For
context,
the
market
raised
$114
billion
in
2020
and
$93
billion
in
2021.
The
slowdown
in
2022
was
the
result
of
several
factors
including
the
sell-off
in
technology
and
growth
equities,
volatile
market
conditions
(e.g.,
the
Volatility
Index
(“VIX”)
moved
from
below
20
to
above
30
on
three
occasions),
widening
credit
spreads,
and
uncertainty
about
interest
rates.
While
the
decrease
in
issuance
presented
the
Fund
with
fewer
chances
to
deploy
capital
into
attractively
priced
high-delta
convertibles,
historically
we
have
seen
that
higher
interest
rates
can
cause
companies
to
issue
convertibles
to
fund
their
businesses
because
of
the
lower
cash
coupon
relative
to
a
high-yield
bond.
We
began
to
see
some
indication
of
this
dynamic
in
December,
which
saw
the
largest
number
of
new
convertibles
issued
of
any
month
in
2022.
This
pickup
in
issuance
is
encouraging
and
could
pave
the
way
for
more
opportunities
in
2023.
Merger
Arbitrage
Merger
arbitrage
contributed
(0.13%)
to
the
Fund’s
return
in
2022.
The
second
and
third
quarters
drove
the
strategy’s
negative
return
for
the
year,
though
only
one
deal
failed
over
this
period,
due
to
widening
of
spreads
in
the
merger
universe
from
a
median
annualized
spread
of
7.0%
in
March
to
16.5%
in
September.
Spreads
tightened
in
the
fourth
quarter
to
5.1%,
which
would
have
resulted
in
positive
strategy
returns
for
the
quarter
if
not
for
a
loss
incurred
by
the
failure
of
DuPont
de
Nemours,
Inc.
to
obtain
regulatory
approval
for
its
acquisition
of
Rogers
Corporation.
Overall,
the
deal
termination
rate
of
3.3%
in
2022
was
slightly
below
the
long-term
average,
but
merger
arbitrage
returns
were
impeded
by
spread
widening
and
a
relative
dearth
of
deals
with
increases
in
consideration.
The
domestic
investible
universe,
defined
as
definitive-agreement
U.S.
deals
with
value
greater
than
$500
million,
expanded
from
$269
billion
to
$420
billion
over
the
first
half
of
2022
before
falling
to
$298
billion
at
year-end.
The
number
of
deals
in
the
universe
declined
steadily
over
the
course
of
the
year,
beginning
at
56
and
ending
at
39,
as
existing
deals
were
completed,
and
the
average
size
of
announced
mergers
increased
in
the
first
half.
Deal
flow
slowed
in
the
second
half
of
2022
due
to
several
factors
including
poor
equity
market
conditions,
a
backlog
of
leveraged
debt
on
banks’
balance
sheets,
and
uncertainty
about
the
path
of
monetary
policy.
Looking
ahead,
we
anticipate
that
merger
activity
will
depend
on
the
resolution
of
these
impediments
to
dealmaking.
Event-Driven
The
event-driven
strategy
contributed
(0.41%)
to
the
Fund’s
return
in
2022.
The
Special
Purpose
Acquisition
Companies
(“SPAC”)
and
Closed-End
Fund
(“CEF”)
strategies
contributed
positively
to
performance,
but
overall
returns
were
inhibited
by
market
volatility,
especially
in
the
first
quarter,
that
induced
losses
in
the
capital
markets
sub-strategies
The
SPAC
sub-strategy
accounted
for
over
90%
of
the
event-driven
strategy’s
allocation
in
2022,
exceeding
30%
of
the
Fund’s
long
market
value
until
December,
when
it
fell
to
26%
as
a
result
of
SPAC
liquidations
and
redemptions
by
the
Fund.
Performance
in
the
SPAC
sub-strategy
was
driven
by
several
factors.
Existing
SPACs
lost
value
due
to
worsening
market
conditions
and
the
underperformance
of
growth
stocks,
which
was
especially
detrimental
to
de-SPAC
warrants.
New
issuance
of
SPACs
declined
dramatically
from
the
record
$157
billion
issued
in
2021
to
only
$15
billion
in
2022.
This
was
largely
driven
by
the
reluctance
of
investment
banks
to
underwrite
SPACs
after
the
Securities
and
Exchange
Commission
proposed
new
rules
in
March.
The
SPAC
market
was
also
impacted
by
the
passage
of
the
Inflation
Reduction
Act
of
2022
in
August,
which
imposes
an
excise
tax
on
share
repurchases
that
potentially
applies
to
SPAC
redemptions.
This
led
to
a
rush
of
liquidations
by
sponsors
that
were
unable
to
find
merger
targets,
while
others
announced
extension
votes
to
allow
investors
a
chance
to
redeem
capital
without
tax
consequences.
The
shrinking
size
of
the
SPAC
universe
led
to
significant
tightening
of
the
median
spread-to-trust
from
3.1%
at
mid-year
to
0.2%
at
year-end.
This
spread
tightening
led
to
profits
on
SPAC
shares
but
the
rise
in
early
liquidations
caused
losses
on
warrants,
which
are
rendered
worthless
by
liquidation.
1
Performance
in
the
CEF
sub-strategy
was
driven
by
the
fourth
quarter,
which
exhibited
volatility
in
discounts,
and
a
sharp
tightening
of
municipal
discounts
in
November,
that
facilitated
profitable
trading
by
the
Fund.
Median
CEF
discounts
widened
substantially
over
the
course
of
2022,
ending
the
year
around
8%
in
each
of
the
three
segments
we
track
(equity,
credit,
municipal)
after
beginning
the
year
near
zero.
As
a
result,
we
expect
this
sub-strategy
to
remain
attractive
moving
forward.
The
Fund
participates
in
corporate
issuance
of
equity
and
debt
securities
to
capture
the
liquidity
premium
issuers
pay
to
access
capital
markets.
New
issuance
declined
substantially
in
2022
from
the
record
levels
observed
in
2021,
so
opportunities
in
this
space
were
limited.
The
negative
returns
to
these
sub-strategies
were
driven
by
market
volatility,
particularly
in
the
first
quarter
of
2022.
Performance
of
the
Fund
in
2022
was
driven
by
heightened
volatility
and
declining
valuations
in
equity
and
debt
markets,
which
impacted
all
three
major
strategy
groups.
The
cheapening
of
convertible
debt
and
the
widening
of
CEF
discounts
in
2022
created
attractive
opportunities
that
the
Fund
will
aim
to
exploit
in
2023,
and
we
are
optimistic
that
prevailing
market
conditions
will
lead
to
increased
convertible
debt
issuance.
We
anticipate
that
the
finalization
of
proposed
rules
surrounding
SPACs
will
stabilize
that
market,
though
we
do
not
anticipate
a
recovery
of
issuance
at
the
levels
observed
in
2020
and
2021.
The
resolution
of
uncertainty
about
the
Federal
Reserve’s
rate
hikes
and
the
ongoing
efforts
of
banks
to
offload
leveraged
debt
holdings
should
lead
to
continued
merger
activity
and
a
recovery
in
capital
markets
issuance.
Irrespective
of
where
the
Fund
deploys
capital
in
2023,
the
Fund
will
continue
to
hedge
systematic
equity,
credit,
and
interest
rate
risks,
with
the
intention
of
delivering
uncorrelated
excess
returns.
2
6
Shareholder
Letter
(Unaudited)
AQR
DIVERSIFIED
ARBITRAGE
FUND
AQR
Funds
|
Annual
Report
|
December
2022
1
The
two
primary
risks
in
the
SPAC
strategy
are
mark-to-market
risk
and
the
risk
of
a
SPAC
failing
to
find
an
acquisition
target.
Regarding
mark-to-market
risk,
as
long
as
the
Fund
does
not
need
to
sell
SPACs
at
a
discount,
thereby
locking
in
losses,
this
risk
eventually
falls
away.
When
a
SPAC
fails
to
find
an
acquisition
target
and
thus
liquidates,
the
warrants
associated
with
the
SPAC
become
worthless,
but
shareholders
still
receive
the
trust
value.
2
Note
that
the
Fund
uses
various
derivatives
instruments
(e.g.,
futures,
options,
forwards,
and
swaps),
primarily
to
hedge
systematic
risks
including
credit
risk
and
interest
rate
risk.
While
the
purpose
of
employing
derivatives
instruments
is
to
decrease
the
Fund’s
overall
risk,
hedging
instruments
are
imperfect
tools
and
their
effectiveness
depends
on
the
degree
of
price
correlation
between
the
derivative
instruments
and
the
assets
being
hedged.
Imperfect
correlation
may
be
caused
by
several
factors,
including
temporary
price
disparities
between
derivative
markets
and
markets
for
the
underlying
assets.
Past
performance
does
not
guarantee
future
results.
Investment
results
and
principal
value
of
an
investment
will
fluctuate
so
that
an
investor’s
shares,
when
redeemed,
may
be
worth
more
or
less
than
their
original
cost.
Current
performance
may
be
lower
or
higher
than
the
performance
data
quoted.
As
of
the
latest
prospectus,
the
gross
expense
ratio
for
the
Fund’s
Class
I/N/R6
shares
are
1.53%,
1.78%
and
1.44%,
respectively.
Call
1-866-290-2688
or
visit
www.aqrfunds.com
for
current
month-end
performance.
test
test
AVERAGE
ANNUAL
TOTAL
RETURNS
AS
OF
12/31/2022
AQR
DIVERSIFIED
ARBITRAGE
FUND
1
Year
3
Year
5
Year
10
Year
Since
Inception
Date
of
Inception
Fund
-
Class
I:
ADAIX
-3.29%
8.77%
7.37%
4.10%
4.22%
1/15/2009
Fund
-
Class
N:
ADANX
-3.54%
8.47%
7.12%
3.84%
3.95%
1/15/2009
Fund
-
Class
R6:
QDARX
-3.22%*
8.83%
7.48%
N/A
4.71%
9/2/2014
ICE
BofA
U.S.
3-Month
Treasury
Bill
Index
1.46%
0.72%
1.26%
0.76%
0.59%
1/15/2009
*
Total
return
information
is
based
on
net
asset
values
calculated
for
shareholder
transactions.
Certain
adjustments
were
made
to
the
net
assets
of
the
Fund
at
12/31/2022
for
financial
reporting
purposes,
and
as
a
result,
the
net
asset
values
for
shareholder
transactions
and
the
total
returns
based
on
those
net
asset
values
differ
from
the
adjusted
net
asset
values
and
total
returns
for
financial
reporting.
7
Shareholder
Letter
(Unaudited)
AQR
DIVERSIFIED
ARBITRAGE
FUND
AQR
Funds
|
Annual
Report
|
December
2022
AQR
DIVERSIFIED
ARBITRAGE
FUND
VS.
ICE
BofA
U.S.
3-MONTH
TREASURY
BILL
INDEX
VALUE
OF
$10,000
INVESTED
ON
12/31/2012
The
chart
above
represents
historical
performance
of
a
hypothetical
investment
of
$10,000
in
the
Fund
over
the
past
ten
years
(or
since
inception
if
shorter).
Performance
data
quoted
represents
past
performance
and
does
not
guarantee
future
results.
Returns
shown
are
total
returns,
which
assume
the
reinvestment
of
dividends
and
capital
gains.
The
table
and
graph
presented
above
do
not
reflect
the
deduction
of
taxes
a
shareholder
would
pay
on
fund
distributions
or
the
redemption
of
fund
shares.
Shareholder
Letter
(Unaudited)
AQR
DIVERSIFYING
STRATEGIES
FUND
8
AQR
Funds
|
Annual
Report
|
December
2022
Dear
Shareholder:
The
AQR
Diversifying
Strategies
Fund
(the
“Fund”)
returned
14.69%,
net
of
fees,
(Class
I
shares)
in
2022.
Over
the
year,
the
Fund
realized
a
9.0%
annualized
daily
volatility
1
and
a
-0.3
correlation
to
global
equities,
as
represented
by
the
MSCI
World
Index.
The
ICE
BofA
U.S.
3-Month
Treasury
Bill
Index,
which
is
the
Fund’s
benchmark,
returned
1.46%
over
this
period.
The
Fund
seeks
to
provide
an
all-in-one
alternatives
solution
through
an
allocation
to
six
alternative
AQR
Funds.
Leveraging
AQR’s
research
and
20-year
track
record
in
alternative
investing,
the
Fund
is
designed
to
complement
an
investor’s
traditional
stock
and
bond
portfolio.
The
Fund
invests
in
a
portfolio
of
AQR
Funds,
providing
exposure
to
both
Active
Multi-Asset
strategies
and
Absolute
Return
strategies:
Active
Multi-Asset
Strategies:
seek
to
provide
tactical
and
risk-managed
allocations
among
major
asset
classes
across
global
markets.
These
strategies
are
expected
to
have
some
correlation
to
traditional
asset
classes
over
the
long-term.
Absolute
Return
Strategies:
seek
to
capture
returns
from
well-established
investment
styles,
such
as
value
and
momentum.
Certain
strategies
may
also
provide
exposure
to
less
accessible
types
of
returns.
These
strategies
tend
to
be
uncorrelated
to
traditional
asset
classes
over
the
long-term.
Gains
were
entirely
driven
by
the
Absolute
Return
Strategies,
whereas
the
Active
Multi-Asset
strategies
partially
detracted.
Performance
across
the
diverse
set
of
Absolute
Return
strategies
was
almost
entirely
positive.
Gains
were
led
by
the
exposure
to
the
style
premia,
equity
market
neutral,
trend
and
global
macro
strategies.
The
stock
selection
strategy
was
the
dominant
driver
of
returns
for
style
premia,
driven
largely
by
value,
while
the
macro
asset
groups
contributed
more
modestly.
The
equity
market
neutral
strategy
performance
was
in
large
part
attributable
to
U.S.
and
European
stock
selection,
with
the
most
gains
coming
from
the
value
and
defensive
themes.
The
trend
and
global
macro
strategies
also
contributed
positively,
with
gains
primarily
driven
by
short
positioning
in
fixed
income
instruments.
The
arbitrage
strategy
was
marginally
down.
The
Active
Multi-Asset
strategies
were
impacted
by
sell-offs
in
traditional
equity
and
fixed
income
markets.
Central
banks
across
the
developed
work
embarked
in
monetary
tightening
as
inflation
increased.
The
strategies
lost
due
to
exposures
in
equities
and
nominal
bonds.
Gains
derived
from
commodity
exposures
were
not
enough
to
offset
those
losses.
1
Volatility
is
a
statistical
measurement
of
the
dispersion
of
returns
of
a
security
or
fund
or
index,
as
measured
by
the
annualized
standard
deviation
of
its
returns.
Higher
volatility
generally
indicates
higher
risk.
John
Liew
Founding
Principal
Jordan
Brooks
Principal
Andrea
Frazzini
Principal
Yao
Hua
Ooi
Principal
John
Huss
Principal
Lars
Nielsen
Principal
9
Shareholder
Letter
(Unaudited)
AQR
DIVERSIFYING
STRATEGIES
FUND
AQR
Funds
|
Annual
Report
|
December
2022