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 - I am not an Institutional Investor

Stock and bond markets around the globe have been moving in tandem this year. And in the 2020 market pullback, stock and alternative risk premia strategies were unexpectedly correlated. Such relationships increase portfolio volatility – the opposite of their intent – which is something we might accept in the short-term, at least statistically.

But can investors accept the impact of these correlations on their portfolios?

For institutional and individual retirement investors alike, the higher portfolio volatility translates into higher uncertainty about funding future liabilities. For many corporate treasurers, it may also directly impact balance sheets, drawing scrutiny from investors, creditors, analysts, and the public.

Cross-Asset Class Diversification Isn't Enough

Traditionally, institutional investors address this challenge with MORE asset class diversification; portfolios have become increasingly complex over the years to achieve a nominal 7% return. Unfortunately, this has invited much higher exposure to riskier assets and commensurate volatility.

We contend that there’s a better, less expensive way to increase risk-adjusted return potential. Private equity, real estate, infrastructure, and other alternative investments already make up nearly a fifth of global pensions. This strategy can potentially dampen volatility but also invites other risks, like liquidity risk.

Build Resiliency in Your Equities

We believe investors can tackle the shortcomings of cross-asset diversification by focusing on the asset class that’s likely the largest contributor to volatility: equities. Investors can diversify their equity allocation by employing a long-only equity strategy designed to align with equity return expectations, mitigate funded status volatility, and keep a lid on governance costs: low volatility equity.

Low volatility strategies all have a common objective: less volatility, lower drawdowns, and market-like or -better returns. As a result, they have the potential to improve most portfolios. But what is the proper allocation assuming you plan to retain your overall equity allocation?

Modeling a Low Volatility Allocation

No single asset allocation decision is correct for every plan sponsor. It depends on the maximum drawdown you’re willing to endure and how much potential upside return you might trade for that protection. Nonetheless, we can model the potential effect of incremental low-vol allocations on your total equity allocation when combined with a cap-weighted index allocation.

As shown in the figure below, with just a 30% share of your total equity allocation, a low volatility strategy can potentially reduce your total equity volatility by 20% without detracting from the total return. Indeed, returns actually improved historically.

Volatility vs- Return for Hypothetical Global Blended Portfolios

See Disclaimer for additional information regarding hypothetical performance.

 

Effect at the Total Portfolio Level

But how does this affect outcomes at the overall plan level? Given the large proportion of global public equities in many institutional portfolios, replacing just a third of the equity allocation with a low volatility equity strategy can alter the total portfolio’s risk-return profile and cumulative growth potential.

In the next figure, we examine the effects within a hypothetical example of a modern institutional multi-asset portfolio: 50% public equities, 30% bonds, 10% real estate, and 10% private equity, rebalanced annually. Comparing a 100% passive exposure to global equities versus those where we replace 1/3 of the equity allocation with MSCI World Minimum Volatility Index, the results represent genuine value over time in terms of capital growth, with less volatility along the way.

Effects of Replacing 1/3 of Global Equity Allocation with Hypothetical Defensive Equity Strategies For hypothetical multi-asset portfolios, returns for global public equities reflect the MSCI World Index, returns for global bonds reflect the Bloomberg Barclays Global Aggregate Bond Index, returns for real estate reflect the FTSE NAREIT (All) Index, and returns for private equity reflect the Thomson Reuters PE Buyout Index. See Disclaimer for additional information regarding hypothetical performance.

 

Replacing a third of a passive global public equity allocation with the MSCI World Minimum Volatility Index lowers volatility and maximum drawdown with similar or better returns, resulting in appreciably superior Sharpe ratios. While we’ve kept the total public equity portion of the overall portfolio static in this hypothetical example, the reduction in total portfolio risk actually frees up risk budgets for increased exposure to public equities or other return-seeking assets.

Look for Diversification Where It Matters

Intech knows a thing or two about diversification – it’s the backbone of our investment process. That’s why we always support and advocate broader asset class diversification for portfolios, but it’s also critical to examine better diversification within asset classes, especially equities. Low volatility equity strategies offer that potential.

Intech has been managing low volatility equity portfolios for over a decade now. We offer a deep well of resources on the subject, including how to differentiate and evaluate low volatility equity strategies. Our recent paper, “Low Volatility Investing: Assess, Analyze, and Act” is a great primer on these topics.

 

Assess, Analyze, and Act on Low Volatility Investing  A Low Volatility Investing Primer Read More

 

The information expressed herein is subject to change based on market and other conditions and is issued by Intech. 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 for other reasons. Past performance is no guarantee of future results. Investing involves risk, including possible loss of principal and fluctuation of value. Indexes are unmanaged and cannot be invested in directly.

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.

Low volatility 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.

Indices are not available for direct investment; therefore, 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. 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.