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.

For U.S. and Canadian Institutional Investors Only

Information contained in this area of the Website is published solely for general informative purposes and intended only for United States and Canadian institutional investors, consultants, financial advisers, and other intermediaries who are who are knowledgeable and experienced in the financial services market and in investment products of this nature. If you are a retail, individual investor or non-ultra-high net worth individual then please leave this website immediately. The information is not authorized for use in a jurisdiction where distribution is not authorized and is not intended for distribution to retail clients, the general public or retail investors. If you choose to access this Website from locations outside of the United States or Canada, 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, you agree not to forward or make the contents of this site available to any person who is not an U.S. Institutional Investor, and you 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

We’ve covered the potential benefits of defensive equity strategies at length in previous papers, and their increasing market presence over the past decade is testament to their demand from asset owners as well. To summarize: they offer potential market-like (or better) returns, with greater downside protection and a narrower range of outcomes across a full market cycle. With actuarial targets (as well as decreasing fixed income yield and longer lifespans) necessitating an increase in equity exposure for some investors, defensive equity strategies offer a way to increase equity exposure without all of the corresponding increase in risk. As plans often consider equities as a primary liquidity source, and must continue to pay benefits through down markets, mitigating the drag of removing capital at market low points can have a substantial impact beyond less-volatile portfolios with the same annual arithmetic return. Adding potential excess return via an active manager represents even more added value.

To demonstrate the cumulative impact this can have on funding status, we look to the first decade of the millennium. 2020’s recent severe but short-lived dip in equities notwithstanding, investors have become comfortable in this historically long bull market. But we aren’t that far removed from the bursting of a stock market bubble led by tech names with wildly inflated valuations (sound familiar?) and a subprime mortgage crisis virtually no one saw coming. Bookended by two massive drawdowns in U.S. and global equities, that decade represented a worst-case scenario for plans relying on equities to meet return targets. From 2000-2009, the annualized returns (in USD) of the MSCI USA and MSCI World Index were -1.29% and 0.23%, respectively.

In the illustration below, we show a typical scenario in which a plan with a $100 million equity allocation must withdraw 4% annually, increasing with inflation. A plan relying exclusively on passive exposure to a cap-weighted index would have had its market value cut by over 50%. A passive allocation to a minimum volatility index would have lost considerably less, preserving an additional $33 and $40 million for U.S. and global portfolios, respectively. And our hypothetical active strategies producing a consistent excess return above that minimum volatility index would have made an even more profound impact on asset levels, actually increasing market values over this period. This kind of compounding during the worst periods markets have to offer can be the difference between solvency and default for plans without a surplus to burn.

 

ADDING ACTIVE TO MINIMUM VOLATILITY CAN ENHANCE FUNDING LEVELS WHEN IT IS NEEDED MOST

The Challenges of Implementing Defensive Equity

If the growing variety of offerings and increasing asset levels are any indication, the strategic benefits of adding defensive equity to your equity allocation lineup are becoming more and more accepted. It makes practical sense: who wouldn’t want to improve the resiliency of an equity exposure tasked with a greater share of the burden of capital appreciation? Many institutional and individual investors appear to have made this work very well within their equity lineups.

For others, however, it can be tactically awkward. The high tracking error typically associated with defensive positioning that can deviate greatly from the market for long periods can be unpalatable for investment professionals, committees, boards, and even 401(k) participants used to processing manager skill through the lens of relative risk-adjusted returns. They may have a difficult time assessing efficacy in long up-market periods, when typically lagging defensive strategies create poor optics and create behavioral stresses, even when the strategies work as intended.

Change Your Benchmark, Ease Your Evaluation

We offer one method for alleviating this concern: substitute or supplement a defensive equity index for the usual cap-weighted benchmark. And given the constraints of minimum volatility indexes, we believe that active management can improve their value proposition – while maintaining their defensive benefits. Learn how 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. 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.

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.