Listen to our latest Intech® Equity Market Observations Watch 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.

For U.S. and Canadian Institutional Investors Only

Not your country? Please choose your country here.

Information contained in this area of the Website is published solely for general informative purposes and intended only for United States institutional investors, consultants, registered investment advisers (RIAs), financial advisers (FAs), and other financial intermediaries who are knowledgeable and experienced in the financial services market and investment products. 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 individual retail clients. If you choose to access this Website from locations outside of the United States, you do so at your own initiative and risk, and are responsible for compliance with all applicable laws.

U.S. Institutional Investors: By accessing this site, you confirm that you are an U.S. institutional investor as set forth in one of the categories described above, agree not to forward or make the contents of this site available to any person who is not an U.S. institutional investor, and agree to be subject to intechinvestments.com terms of use.

Canadian Institutional Investors: By accessing this site you confirm that you are a “permitted client” as defined in National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations of the Canadian Securities Administrators, you agree not to forward or make the contents of this site available to any person who is not a “permitted client”, and you agree to be subject to intechinvestments.com terms of use. The information on this Website is for informational purposes only and does not constitute (i) an offer for products or services or (ii) the provision of investment advice of any kind, tailored or otherwise. The information on this Website should also not be construed as an offer to sell or a solicitation of an offer to buy to any persons who are prohibited from receiving such information under the laws applicable to their place of citizenship, domicile or residence. Intech Investment Management LLC (“Intech”) does not have any funds that offer securities under a simplified prospectus for general offer or sale within Canada. No securities regulatory authority in Canada has reviewed or in any way passed upon this website or the merits of any investment available, and any representation to the contrary is an offense. Intech is registered with the United States Securities & Exchange Commission under the Investment Advisers Act of 1940. Intech is a subsidiary of Janus Henderson Group plc, and is affiliated with its subsidiaries and affiliates.

Decline - Redirect me to janushenderson.com

Global equities have enjoyed a historically long bull market – barreling through even a global pandemic. But the same low interest-rates that sustained the unprecedented growth have been a drag on pension funding levels. Exposure to equity returns remains a necessity to meet liabilities moving forward, while also representing a primary source of liquidity. At the same time, a market continually setting market highs may mean drawdowns are in our future – and the prospect of funding benefits out of equities in down markets can have outsized negative effects on long-term solvency.

Low volatility factor investing offers a potential solution: market-like returns with lower risk, in the form of reduced volatility and downside. MSCI’s Minimum Volatility Index suite offers a straightforward entry point in this space, and their backtested results represent the potential of the best-of-both-worlds outcomes that low volatility portfolios may promise.

f1 Index Performance

Minimum volatility indexes may have their long-term performance bolstered by a combination of a) better return compounding (lower ‘volatility drag’), b) under-weighting or excluding the highest-volatility stocks in the investable universe, and c) the capture of a rebalancing premium (as they are not buy-and-hold portfolios). Beyond that, they typically outperform in downturns or periods of market turmoil. This is an incidental and episodic source of outperformance, and sometimes only in backtests (index methodologies are sometimes re-tooled following the most significant drawdowns with the benefit of hindsight). In the absence of significant crises, or when market volatility is low, this outperformance may not be counted upon to cover implementation costs. Even during market crises, the turnover required for reliably navigating the market can result in overcrowded or concentrated trades that cost both return and risk reduction.

Because these indexes are intended for passive replication, their construction employs a number of rules and constraints to ensure they’re feasible in this role. These constraints, however, are compromises that should represent an opportunity for a skilled active manager to improve the risk-return outcome for their clients. We believe there are several dimensions in which an active manager can potentially better a minimum volatility index in a meaningful way. Here, we will focus on the possibility of providing additional return with a similar risk profile.

Happily, much like a traditional active manager can improve performance within a tracking error range against a cap-weighted index, so too an active manager can improve performance within a tracking error range measured against a minimum volatility index. Constraints with the goal of maintaining passive-like replicability and investability still inherently limit these indexes’ positioning away from the cap-weighted index. Relaxing these constraints allows a truly active approach to create a significantly more efficient portfolio.

f2 Active Management

 

More timely estimates of the stocks’ individual volatility and correlation relative to each other allow for consistently more diversified positioning. Freedom from the restrictive low-turnover and active constraints allows a much more adaptive and effective positioning and, combined with a more up-to-date and sophisticated rebalancing, unleashes the opportunity to harness the stocks’ individual price movements, or relative volatility (i.e., how they move relative to the total index) as a reliable alpha source. The overall result is to produce consistent excess returns while also managing active risk relative to the minimum volatility index – and, critically, can be achievable while maintaining a similar level of absolute risk, and downside protection, as that benchmark at the portfolio level.


f3 Hypothetical Min Vol

Follow the Funding Impact

We believe an active approach combined with minimum volatility indexes can add alpha while maintaining the more defensive risk profile, but the real-world benefit is in its impact on plan solvency. Learn more by downloading our eBook, “How to Improve Low Volatility Factor Investing Outcomes.”

How to Improve Low Volatility Factor Investing Outcomes  Learn how active managers can improve low volatility factor investing. Download 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 shown is 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. 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 hypothetical results shown.
In no circumstances should the hypothetical results be regarded as a representation, warranty, or prediction that investors will achieve or are likely to achieve the results displayed or that investors will be able to avoid losses. The hypothetical results include estimated trading fees, but do not reflect the deduction of advisory fees and other expenses, which will materially lower results over time. As with all investments, there are inherent risks that must be considered.
An index is unmanaged, is not available for direct investment, and does not reflect the deduction of management fees or other expenses. There is a risk/reward tradeoff that comes with investing in defensive equity strategies. These risk strategies are likely to underperform the index during periods of strong up markets and may not achieve the desired level of protection in down markets.
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 material has not been approved, reviewed, or produced by MSCI.