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Janus International, the US asset manager better known for its growth style of investment, is launching four mathematically-based investment strategies aimed at Europe’s largest pension funds.
The four strategies – large cap core, large cap growth, large cap value and enhanced index – use a mathematically based, risk controlled process developed by Janus’s US-based affiliate Intech, which it acquired at the beginning of the year.
Until now, Intech strategies have been available only in the US. Janus will now distribute them worldwide, principally in Europe and Japan. Janus says there is a demand from European pension funds, particularly in the Netherlands, for risk-managed products with a relative return strategy which aims to produce long-term returns 1% to 3% above the benchmark. Large cap core, the flagship US equity strategy has produced average annual returns above its S&P 500 benchmark index of 5.77% over one year, 4.73% over three years and 3.32% over five years.
Richard Garland, chief executive of Janus International, says pension funds will be the primary target. “We will focus on markets where there are significantly funded pension schemes particularly Holland, Scandinavia, Switzerland and the UK, but especially Holland where they have been every aggressive in using passive managers. We think it’s a natural extension to show a risk managed product to a pension fund that has already used a passive strategy.”
The Intech strategies uses mathematical methodology rather than fundamental company analysis. The methodology is based on a theorem of Robert Fernholz who, in 1982, identified “excess return portfolios” which could beat the index by an amount equal to 50% of the difference between equities with a high volatility relative to the index and a portfolio with low volatility.
The methodology identifies stocks with high relative volatility and a low correlation to each other. It then builds a portfolio with the ideal weightings of these stocks, within certain risk constraints, to generate a portfolio which exploits the natural volatility of stock prices. The aim is to produce an overall return greater than the benchmark index but with ‘benchmark-like’ risk.
A typical portfolio will be fully invested and broadly diversified, holding between 50% and 90% of the companies in the benchmark index. The portfolio is regularly rebalanced to maintain the optimal weighting in the portfolio. It is also continually evaluated to ensure that diversification and return characteristics are aligned with the investment objectives and the underlying mathematical theorem.
Robert Garvy, chairman and chief executive of Intech, says Intech’s investment process provides high information ratios, enabling it to “dial up” or “dial down” tracking error according to investors’ risk tolerance and tracking error targets. This makes it particularly suitable to risk-averse European pension funds.
“Risk-managed mathematical strategies fit within the general diversification policy of these large funds, enabling them to put together a collection of high quality, low risk active strategies,” he says. “An extra 1% is of critical importance in a decade where the focus is on the funding of obligations, rather than in the 1990s where stock was chosen just by throwing darts at an index fund.”

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