What Is HML-Devil?

HML-Devil is AQR’s improved version of the classic Fama-French HML value factor. The original HML ranks stocks on book-to-market using a book value and a price both lagged to the prior fiscal year-end, so the price in the ratio can be stale by up to 18 months. HML-Devil instead uses the most recent (current) price together with the lagged book value, which makes the value signal more timely. Andrea Frazzini and Cliff Asness titled the paper “The Devil in HML’s Details” because this seemingly minor construction choice materially changes the factor’s returns.

HML-Devil is a strong diversifier for momentum: because it reacts to current prices, it loads against recent winners and tends to rally during a momentum crash, making it a natural hedge for a momentum-heavy book even when its standalone Sharpe is modest.

Example: despite a weak standalone Sharpe, HML-Devil received a large 31% weight in the optimal long-only portfolio precisely because it hedges the heavy UMD momentum exposure — it was very useful in the post-GFC momentum crash of 2009.

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