Intech’s COVID-19 Response Update Read Now

Please Choose Your Country

Welcome. This website is intended solely for the use of institutional investors, consultants and other professionally recognized financial intermediaries in specific countries. Intech Investment Management LLC (“Intech”), is an investment adviser registered with the United States Securities & Exchange Commission. Intech is not permitted to offer products and services in all countries. It is the responsibility of prospective investors to inform themselves of and to observe all applicable laws and regulations of any relevant jurisdictions, including the legal requirements and tax consequences within the countries of their citizenship, residence, domicile and place of business with respect to the acquisition, holding or disposal of shares or securities, and any foreign exchange restrictions that may be relevant thereto. The products and services referred to in this website are not offered to any person or entity in any jurisdiction where the advertisement, offer or sale of such products and services is restricted or prohibited by law or regulation or where we would be subject to any registration or licensing requirement not currently held by Intech or our affiliates. If Intech does not offer a website for your country, please visit www.janushenderson.com.

Australia Institutional Investor Confirmation

Not your country? Please choose your country here.

This website is intended solely for the use of institutional investors, consultants, and other professionally recognized financial intermediaries in Australia and is not for general public distribution.

The words ‘Intech,’ ‘we,’ ‘us’ or ‘our’ used herein refer to Intech Investment Management LLC (“Intech”), an investment adviser registered with the United States Securities & Exchange Commission, and ‘you’ or ‘yourself’ may refer to an individual, Independent Financial Advisor, consultant, company, or other entity visiting this website.

This website is issued by Intech Investment Management LLC (“Intech”). Intech is permitted to conduct financial services pursuant to an exemption from the need to hold an Australian financial services licence under the Australian Corporations Act 2001. Intech is regulated by the Securities Exchange Commission of the U.S. under U.S. laws, which differ from Australian laws. Unless stated otherwise, information on this web site is provided by the issuer of the applicable financial product.

Information contained on this Website is published solely for general informative purposes and is intended only for institutional investors, consultants, and financial advisers, and other intermediaries in Australia who are who are knowledgeable and experienced in the financial services market and in investment products of this nature. Should you proceed to access this Website, you will be representing and warranting that you are an institutional investor, financial advisor, or other professionally recognised financial intermediary located in Australia. If you are a retail or individual investor, then please leave this Website. The information is not authorized for use in a jurisdiction where distribution is not authorized and is not intended for distribution to retail clients.

In continuing to access or use Intech’s Website at www.intechinvestments.com/au (“Website”), you agree to be bound by the Terms of Use applicable to your use of this Website and any information obtained from it. If you do not agree to these Terms of Use, please do not use this Website or download or read content from it.

The information contained on this web site is believed to be accurate and current at the time of compilation and is provided in good faith. Intech does not accept any responsibility arising in any way (including negligence) for errors in or omissions from information contained on this web site or for any loss or damage (whether direct, indirect or otherwise) suffered by the recipient of the information contained on this web site, or any other person. Intech does not accept any legal responsibility for material published on third party linked sites.

What follows is not an offer or invitation to acquire an investment to, and should therefore not be relied upon by, any person anywhere other than Australia or any person in any jurisdiction where such an offer or invitation would be unlawful. Persons in respect of whom such prohibitions apply must not access this Website.

If you choose to access this Website from locations outside of Australia, you do so at your own initiative and risk, and are responsible for compliance with all applicable laws. Otherwise, please return to intechinvestments.com/au and choose the appropriate jurisdiction, where you will find investment products and services that are available to you.

This Website is reserved exclusively for non-U.S. persons and should not be accessed by any person in the United States. A “U.S. Person” is defined by US laws and regulations in force from time to time. If you are resident in the U.S., or as a corporation or other entity are organised under U.S. law or administered by or operated for the benefit of a legal or natural U.S. person, you should take professional advice to determine whether you are a U.S. Person and you should not access this Website until you are sure that you are not a “U.S. Person”.

WE BELIEVE THAT THE INFORMATION THAT MAY BE VIEWED ON THIS WEBSITE IS ACCURATE AS AT THE DATE OF PUBLICATION, BUT WE DO NOT GUARANTEE THE ACCURACY OR CURRENTNESS OF THE DATA AND WE DISCLAIM ALL REPRESENTATIONS AND WARRANTIES OF ANY KIND, WHETHER EXPRESS OR IMPLIED, INCLUDING WITHOUT LIMITATION, WARRANTIES OF MERCHANTABILITY, FITNESS FOR PARTICULAR PURPOSES, TITLE AND NON-INFRINGEMENT. FURTHERMORE, THE INFORMATION MAY BE AMENDED BY US AT ANY TIME WITHOUT NOTICE. BY PROCEEDING YOU AGREE TO THE EXCLUSION BY US, SO FAR AS THIS IS PERMITTED UNDER THE PROVISIONS OF THE UK FINANCIAL SERVICES AND MARKETS ACT (OR ANY REPLACEMENT LEGISLATION INSOFAR AS SUCH LEGISLATION PERMITS SUCH A STATEMENT TO BE MADE) AND THE APPLICABLE UK REGULATORY SYSTEM, OF ANY LIABILITY FOR ANY DIRECT, INDIRECT, PUNITVE, CONSEQUENTIAL, INCIDENTAL, SPECIAL OR OTHER DAMAGES, INCLUDING WITHOUT LIMITATION, LOSS OF PROFITS, REVENUE OR DATA ARISING OUT OF OR RELATING TO YOUR USE OF AND OUR PROVISION OF THIS WEBSITE AND CONTENT REGARDLESS OF THE FORM OF ACTION, WHETHER BASED ON CONTRACT, TORT (NEGLIGENCE), WARRANTY, STATUTE OR OTHERWISE, AND REGARDLESS OF WHETHER WE HAVE BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES. IF YOU ARE DISSATISFIED WITH ANY PORTION OF THIS WEBSITE, OR OF THIS IMPORTANT INFORMATION, YOUR SOLE AND EXCLUSIVE REMEDY IS TO DISCONTINUE USE OF THIS WEBSITE.

Our affiliates, officers and/or employees may have holdings in Intech and/or Janus Henderson Investors’ investment products and may otherwise be interested in transactions that you effect in those products.

If you are unsure about the meaning of any information provided on this Website, then please consult your financial or other professional adviser. We do not offer investment advice.

Cookies: This Website uses cookies to remember your preferences and to help us to improve this Website through the use of web analytics. By continuing without changing your cookie settings we will assume that you are happy to receive cookies for these two purposes. For full details on how to manage our cookies and how we use them, please see our Cookie Policy as well as the Cookies section within our Privacy Policy.


Decline - Redirect me to janushenderson.com

In our last blog, we outlined the theoretical underpinnings of how the natural relative volatilities and correlations in a portfolio of stocks can actually represent a component of that portfolio’s return over the long term. But simple implementations to capture this potential alpha source come with potential drawbacks, such as long periods of underperformance due to significant exposure to size and additional risk-adjusted returns left untapped.

In Intech’s own equity portfolios, we combine securities based on how their stock prices move relative to one another and the overall market. We believe that while equity markets may or may not be efficient, traditional approaches to representative benchmarks certainly are not. Hence, long-term enhanced return opportunities can be achieved by optimizing portfolio weights, based on stock volatilities and correlations. Systematic rebalancing is a core component of this process. We have found that consistently resetting portfolio holdings back to their optimization weights has historically captured attractive levels of rebalancing premium that have been reliably additive to overall portfolio returns in the vast majority of market environments, regardless of whether stock price movements alone may be offering any real gains.

A unique aspect of our investment approach is that we utilize security volatility, rather than return potential, in our optimization process. This is because we have found volatility to be an observable and accessible alpha source, regardless of market direction. Individual stock volatility characteristics also tend to be more consistent than return profiles, as shown below.

Fig_6_Volatility A More Stable Stock Characteristic

This exhibit is based on the one-year returns and volatilities (measured by standard deviations) for the individual stock components of the MSCI World Index over 28 years. These securities were segmented into thirds based on high, medium and low classifications for each characteristic. The chart shows the average percentage of stocks remaining in the same category the following year. Of note, while return characteristics proved to be highly variable—with only 30% to 35% staying within the same segment—volatility characteristics were much more reliable, particularly within the more extreme high and low segments, where they were, on average, more than twice as likely to maintain the same volatility hierarchy year over year.

Equally important to our optimization process is the correlation characteristics of each stock relative to each of the other portfolio holdings, as well as to the broader market. A combination of higher volatility and low correlation typically offers a greater rebalancing premium. For example, consider two pairs of stocks, one with perfect negative correlation and one with positive 0.5 correlation. With everything else being equal, rebalancing the first pair would generate a higher rebalancing premium.

Once optimization weights are determined and trading bands are put in place around them, the portfolio is systematically rebalanced when it deviates outside the bands back to these allocations on a periodic basis. The goal of this approach is to capture more stable excess return rates over time. This has, indeed, consistently been the case over full market cycles, as shown in the chart below, which highlights the steady long-term performance of the Intech U.S. Enhanced Plus strategy and a simple equal-weighted portfolio relative to the S&P 500 Index. Relative returns may lag over shorter time frames when the market is dominated by a handful of stocks for extended periods, such as the current investment climate, but it’s evident that a more sophisticated approach such as Intech’s does a better job at smoothing the ride by mitigating transitory headwinds.

Fig_7_Consistent Long Term Outperformance

In our experience, the key to capturing outperformance across full market cycles is to maintain a disciplined focus on the long-term trend, rather than become distracted by shorter-term periods that are deviating from the norm. Betting against market mean reversion, i.e., market stability, over the long term rarely ends well. In other words, gamblers may beat the odds from time to time, but long term the house usually wins.

Go Back to Basics

We’ve shown that a sophisticated approach to diversification can add significant value above a cap-weighted benchmark over the long term. If you’re curious where today’s concentrated market fits in a historical context, or want a better understanding of the theoretical basis of the rebalancing premium, check our latest paper,Does Rebalancing Still Make Sense?

Does Rebalancing Still Make Sense?  Why diversification remains relevant. Read Now

 

The information expressed herein is subject to change based on market and other conditions. The views presented are for general informational purposes only and are not intended as investment advice, as an offer or solicitation of an offer to sell or buy, or as an endorsement, recommendation, or sponsorship of any company, security, advisory service, or fund nor do they purport to address the financial objectives or specific investment needs of any individual reader, investor, or organization. This information should not be used as the sole basis for investment decisions. All content is presented by the date(s) published or indicated only, and may be superseded by subsequent market events or other reasons. Past performance is no guarantee of future results. Investing involves risk, including possible loss of principal and fluctuation of value. Hypothetical performance results presented are for illustrative purposes only. Hypothetical performance is not real and has many inherent limitations. It does not reflect the results or risks associated with actual trading or the actual performance of any portfolio and has been prepared with the benefit of hindsight. Therefore, there is no guarantee that an actual portfolio would have achieved the results shown. In fact, there will be differences between hypothetical and actual results. No investor should assume that future performance will be profitable, or equal to the results shown. Hypothetical results do not reflect the deduction of advisory fees and other expenses incurred in the management of a portfolio.