INTECH: A Pioneer in Equity Portfolio Management
INTECH is a specialist in large-cap equity management for institutional investors, and has been at the forefront of both the theory and practice of equity portfolio construction for over three decades. Long before the term ‘smart beta’ was first coined INTECH had been successfully using the power of mathematics to construct portfolios as a risk-managed alternative to capitalization-weighted equity portfolios. INTECH’s goal has always been to generate returns greater than the benchmark index whilst minimizing relative or absolute risk. The same investment process has been applied to all of its large-cap equity portfolios since the firm’s inception in 1987. The firm now manages approximately $51.0 bn on behalf of national and local governments, sovereign wealth funds and public and private pension funds across five continents.
Volatility: A Source of Reward
The foundation of INTECH’s investment process is Stochastic Portfolio Theory, which demonstrates that capitalization–weighted indices are inefficient and therefore do not offer investors an optimal risk/reward trade off. The premise is that a portfolio can be constructed to generate alpha, without having to predict stock returns, but by “capturing” the natural volatility of stocks through rebalancing to a more efficient (higher returns with comparable or less risk than a benchmark) weighting scheme. This use of stock volatility to generate returns ensures an alpha source that is highly scalable, ever-present and not dependent on temporary market anomalies. It is also a very different source of alpha, making portfolios constructed according to these principles highly complementary to more traditional approaches
A Broad-Range of Strategies Spanning the Risk/Reward Spectrum
INTECH applies this methodology to a diverse range of strategies in U.S., Global, European and Emerging Market Equity markets. Different relative return targets of between 1 and 4 % can be specified, with risk objectives tailored to minimize tracking error or portfolio variance, depending on an investors’ return objectives and risk budgets. In this way, INTECH strategies can be used to perform a variety of roles in an overall equity allocation: low-volatility anchor, enhanced index core, or more aggressive return seeking satellite, yet all in a highly risk-managed framework.
News from IPE
Local government pension scheme awards active, smart beta mandates
Analysis from IPE
Andrew Formica, co-CEO of Janus Henderson Investors, talks about the benefits and challenges of the recent merger
Mark Burbach, the chief investment officer of Blue Sky Group, tells Brendan Maton how it is coping with increased investment regulations
Lynn Strongin Dodds finds that as the strategy becomes more popular, pioneers in the alternative-indexation field are warning investors to avoid being just performance chasers
The role of asset managers is in the spotlight as institutional investors question whether active asset management achieves better results than passive strategies
The ability to generate alpha might be a skill, but the amount of alpha available from the market is not a constant. Martin Steward asks how we might measure the alpha opportunity and whether investors should vary the risk budget they allocate to active management as a result