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 a previous paper, Making Sense of Defensive Equity Indexes, we provided an overview of the defensive equity benchmark options from the major index providers. We noted that these indexes can vary substantially, even during market crashes, and in many ways more closely resemble active strategies than their cap-weighted counterparts. At that time, we used MSCI’s Minimum Volatility indexes as our strawman for improving upon “passive” defensive or low volatility equity with a truly active approach. Here, we’ll examine the pros and cons of how they’re put together, as well as their backtested results.

Construction Methodology

MSCI’s Minimum Volatility indexes begin with a cap-weighted parent index (e.g., the MSCI USA or MSCI World) that serves as the eligible investment universe. From there, they quantitatively optimize for the lowest absolute volatility, using a covariance matrix based on Barra Equity Models and subject to a number of constraints for risk and investability reasons (see MSCI Minimum Volatility Index: Optimization Constraints below for a comprehensive list). The index is re-optimized with new constituents and weights just twice a year. In between reconstitutions, MSCI maintains the covariance matrix with monthly updates, using the latest version at the time of the semi-annual optimizations.

MSCI MINIMUM VOLATILITY OPTIMIZATION CONSTRAINTS

The Results

The results of this construction methodology are benchmark portfolios that differ substantially in composition from their comparable parent index (see below). Some key distinctions are relevant for active managers using the Minimum Volatility Indexes as their investment benchmarks. For starters, the much smaller universe of stocks represents a narrower opportunity set. (Even if an active manager is willing to invest outside of the benchmark universe, the risks of style drift and higher-than-acceptable tracking error necessarily limit the proportion of the portfolio invested in this way.) Beyond that, the characteristics currently associated with more defensive stocks are apparent in lower P/E, higher dividend yield, and a less growth-oriented stance. Finally, the differences in market cap are substantial, with a clear preference for the smaller end of the capitalization spectrum within the parent index.

INDEX COMPOSITION MINIMUM VOLATILITY

Accompanying these differing characteristics are returns that are competitive with cap-weighted indexes over the long term (in simulation), and are even more attractive when you consider their lower beta and lower volatility that results in notably higher Sharpe ratios (see below). Despite strong risk-adjusted performance on an absolute basis, such divergence from the broad market comes with periods of underperformance, while the tracking error often approaches double digits over short periods.

INDEX PERFORMANCE MINIMUM VOLATILITY

Implementation Challenges

While defensive equity strategies come in many shapes and sizes, let’s consider these minimum volatility indexes as a useful proxy for the category from the perspective of active risk. The deviation in performance compared with their respective cap-weighted indexes can create an issue for plan expectations. Devising the appropriate way to measure the effectiveness of these strategies over less than a full market cycle can be vexing, especially in long, stable up-market periods while awaiting the next severe drawdown or volatility event. Their asymmetric performance contours should be expected to be inherently more dynamic than the typical active manager whose primary objective is to beat the market year in and year out. Consequently, a defensive equity strategy working precisely as designed may still underperform the cap-weighted index for longer periods than plan sponsors would like to have to explain.

Many investors are able to integrate this behavior into their equity portfolios without issue; they’re comfortable with the high tracking error relative to a cap-weighted index and are content to employ other risk and efficiency metrics for short-term analysis (e.g., standard deviation, beta, Sharpe ratio, downside capture, etc.), retaining a long-term comparison relative to the cap-weighted index. For plans that aren’t easily able to accommodate this approach, however, an alternative exists: change the benchmark. Substitute a defensive equity index, such as MSCI’s minimum volatility offerings, for the usual cap-weighted benchmark, or at least consider this as a secondary benchmark. The benefits for the investment decision-makers here are twofold. First, the new benchmark provides a clear reference for measuring and attributing a manager’s performance for their board. Second, it allows the inclusion of a defensive component within their equity portfolio with all of the potential advantages that entails, while allowing the possibility of added returns from a skilled manager.

Explore an Active Approach

We’ve detailed the benefits – and limitations – of minimum volatility indexes. But we believe you can do better. The right active strategy can build upon these indexes for added return, within a tracking error range you can be comfortable with. Learn more in our latest paper, “How a New Benchmark Adds to Defensive Equity Strategy Evaluation.”

 

How a New Benchmark Adds to Defensive Equity Strategy Evaluation  Add alpha to DE - with active risk you can count on. Download Paper

 

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. An index is not available for direct investment; therefore, its performance does not reflect the expenses associated with the active management of an actual portfolio. MSCI makes no express or implied warranties or representations and shall have no liability whatsoever with respect to any MSCI data contained herein, if shown. The MSCI data may not be further redistributed or used as a basis for other indices or any securities or financial products. This information has not been approved, reviewed, or produced by MSCI.