About INTECH

INTECH Investment Management LLC, or INTECH, is a well-established investment manager that has pioneered a unique investment process based on a mathematical theorem that attempts to capitalize on the random nature of stock price movements. The theorem is the result of research conducted by Dr. Robert Fernholz and published in his 1982 paper, Stochastic Portfolio Theory and Stock Market Equilibrium. The goal of the investment process is to achieve long-term returns that outperform the benchmark index, while controlling risks and trading costs. INTECH manages $47.3 billion of assets (as of 9/30/09) located in offices in Palm Beach Gardens, Florida; Princeton, New Jersey; and London. INTECH is an independently-managed subsidiary of Janus Capital Group, which owns an approximate 89.5% stake in the company. INTECH employees own the remaining 10.5%.

INTECH Timeline

About INTECH's Investment Process

INTECH offers equity investors a highly disciplined, mathematical investment process designed to seek long-term returns in excess of the target benchmark, while attempting to reduce the risk of significant underperformance.

INTECH's mathematical process searches for stocks with high relative volatility and low correlation in an effort to build portfolios whose total return will exceed the return of the component stocks over the long-term. INTECH's process utilizes the relative volatility of stock prices to attempt to capture an excess return as opposed to attempting to forecast stock alpha. This unique approach to investment management involves no specific sector or security selection decisions based on fundamentals or valuation metrics. The investment process is designed to determine potentially more efficient equity weightings of the securities held in the portfolio utilizing a specific mathematical formula to optimize and rebalance the portfolio.

Investment Process Flow Chart

The investment decision making process begins with the establishment of the appropriate stock universe which can be the S&P 500® Index, the Russell 1000® Index, MSCI Index or any of their respective style subset indices. Next, INTECH narrows this universe of stocks by excluding stocks that are too illiquid to trade. This screen typically will exclude a small percentage of the stocks in the benchmark index; the remaining universe of securities is the eligible universe.

The mathematical investment process is then applied to the universe of stocks within certain risk parameters based on the risk profile of the client's desired portfolio. The process results in a portfolio of stocks and their target proportion. Once these proportions are determined and the portfolio is constructed, it is then rebalanced and re-optimized regularly.

Frequently Asked Questions (FAQs)

1.	What are the key differentiators for INTECH as an investment manager?
	INTECH has managed assets for clients since 1987, and offers equity investors a highly disciplined, mathematical investment strategy designed to seek long-term returns in excess of the target benchmark, while attempting to reduce the risk of significant underperformance. We believe that the following key differentiators set us apart from our competitors. Mathematical Basis: INTECH's investment process is unique in that it is based on a mathematical theory. Many of the systems utilized were developed by and remain proprietary to INTECH. Sound Theory and Advanced Technology: Sound mathematical principles combined with sophisticated technology provide INTECH with a unique investment process. The results show that over most strategies, returns are competitive while relative risks are low. [See INTECH's most recent quarter-end performance.] This results in high information ratios, one of the best measures of investment efficiency. Risk-Managed Focus: INTECH employs a risk-managed approach to equity management. This is a competitive advantage as INTECH has historically been able to provide competitive returns on the upside, but has done so at low levels of relative risk. Stable Team: INTECH has enjoyed very low turnover in the firm as a whole, including a stable senior management team. This level of stability and continuity of management is very important to the strength of a firm. At INTECH, succession planning is a priority; we strive to find, develop and retain quality people.
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2.	How is INTECH different from quantitative managers?
	INTECH's investment process is 100% mathematical. All stock selection decisions are a result of the mathematical algorithm. INTECH employs a proprietary optimization routine designed to identify stocks with high relative volatility and low correlation in an effort to build a portfolio whose total return will be greater than the return of the benchmark index over the long-term. Investors have transparency into INTECH's process, it is not a "black box" INTECH seeks to produce a high reward-to-risk ratio, versus simply maximizing portfolio returns or minimizing portfolio volatility No fundamental predictions or forecasts in INTECH's stock selection process Consistent with the efficient markets hypothesis, INTECH's formula does not depend on securities mispricing INTECH's investment process is based on mathematical principles, not on multi-factor modeling
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3.	Does INTECH use leverage?
	INTECH does not utilize derivative financial instruments in its long-only portfolios. INTECH has a Broad Large Cap Core 130/30 portfolio, which does employ leverage, and intends to expand its lineup of long-short products over time.
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4.	How is INTECH risk-managed?
	INTECH attempts to control the tracking error of the portfolio within the expected excess return targets, resulting in portfolios with high information ratios. Within certain risk constraints established as part of the investment process, the optimization routine attempts to construct a portfolio that is more efficient than the benchmark index from which it is drawn. Historically, INTECH has been able to produce returns in excess of the benchmark index over the long-term with high information ratios. [See INTECH's most recent quarter-end performance.]
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5.	How does INTECH's process capture volatility and translate it into excess returns?
	We believe the best way to illustrate INTECH's mathematical process is to provide a two-stock, two-period hypothetical example. The discussion below refers to the following two-stock hypothetical example: This two-stock hypothetical example illustrates how it is possible to capture some of a stock's relative volatility in the form of a portfolio relative return. INTECH attempts to accomplish this by using the mathematics of Stochastic Portfolio Theory to determine target weights for the portfolio and rebalance back to these target weights on a regular basis. The box on the left represents a two-stock, two-period capitalization-weighted Benchmark. The volatility characteristics of the stocks are that each stock has a 50/50 chance of either going up by a factor of 2 (up 100%) or down by a factor of 0.5 (down 50%) in each period. To make things simple for the illustration, the maximum possible relative volatility (i.e., volatility of stocks relative to one another) is built in to this example by having the two stocks always move in opposite directions, which corresponds to the stocks being perfectly negatively correlated. Although this is not realistic, we feel the insights hold for real markets. In Period 1, Stock 1 rises from $120 to $240, while Stock 2 declines from $80 to $40. The market is up from $200 to $280 in Period 1. For the two-stock example to be representative of the long-term over two periods, Stock 1 declines from $240 to $120 in Period 2 and Stock 2 rises from $40 to $80. The market declines from $280 to $200 in Period 2. At the end of Period 2, the stocks and the market end where they began. They have a 0% return over the two periods. In the box on the right, INTECH's mathematical formula is applied to the two-stock example with the goal of maximizing the portfolio's long-term relative return. For INTECH's portfolio, the target weights are 50% weights in each stock, or $100 of the portfolio's $200 in each stock. Note that the calculation of these weights is based only on the volatility and correlation characteristics of these two stocks, not on a forecast of which stock will have the higher return. In Period 1, the $100 invested in Stock 1 rises to $200 and the $100 invested in Stock 2 declines to $50, resulting in a portfolio value of $250. At the end of Period 1, the portfolio's weights are off their 50/50 target and need to be rebalanced to 50/50 at the beginning of Period 2. The portfolio starts Period 2 with a $125 investment in each stock. In Period 2, the $125 invested in stock 1 declines to$ 62.50 and the $125 invested in Stock 2 rises to $250.00. The portfolio ends the two periods at $312.50 versus the market's value of $200. Thus, INTECH's portfolio has captured the volatility among the two stocks to generate a positive relative return of $112.50.
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6.	How are stocks chosen or screened from portfolios?
	All stock selection decisions are a result of the mathematical algorithm. INTECH's investment process begins with the securities in the benchmark index. Next, INTECH narrows this universe of stocks by excluding stocks that are too illiquid to trade. This screen typically will exclude a small percentage of the stocks in the benchmark index. The remaining universe of securities is the eligible universe. Within specific risk constraints, the mathematical investment process builds a portfolio of stocks with high relative volatility and low correlation. The process attempts to build a portfolio that will outperform the benchmark index with limited relative risk over the long-term.
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7.	How does INTECH re-weight stocks?
	INTECH's investment process involves rebalancing the portfolio on a regular basis as stocks move within a range from their target weights. The portfolio is partially re-optimized weekly.
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8.	How is INTECH's investment process implemented?
	Please refer to About INTECH's Investment Process for a description of INTECH's mathematical investment process.
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9.	Does market volatility impact INTECH's investment process?
	INTECH's process relies on relative stock volatility (i.e., volatility of stocks in relation to one another), not market volatility. The process requires some level of volatility to be present in individual stocks to allow us to "capture" that in the optimization and rebalancing process. INTECH's portfolios could outperform or underperform their respective benchmark indices in volatile markets. Should individual stock volatility go to zero, though unlikely, that would be an environment where generating incremental returns would be virtually impossible. INTECH is not attempting to maximize excess returns, but is rather attempting to achieve a targeted excess return goal with a minimum amount of tracking error. As such, the process only requires a moderate, normal level of market volatility.
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10.	What is INTECH's capacity? How is it determined?
	For INTECH, capacity is primarily a function of trading costs. INTECH has experienced significant growth in assets under management in recent years, but that growth has not led to higher implementation shortfall trading costs. INTECH believes its current capacity is substantial but continues to closely monitor the efficiency of its trading process and would consider closing certain products if trading costs increased to an unacceptable level.
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11.	Should investors expect INTECH to achieve its targeted returns over any and all time periods?
	While we expect each year to have the same probability of realizing our expected excess return targets, various periods of above and below target returns have occurred. The risk controls that are built into the process attempt to control the magnitude and duration of the periods of underperformance. The goal is to produce strategies that have more consistent and repeatable return patterns resulting in high information ratios and the increased likelihood of long-term outperformance.
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12.	What products does INTECH offer?
	INTECH's current product line includes multiple applications of its mathematical process to build Core, Growth & Value, Global & International, and Long/Short portfolios.
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13.	What is the latest publicly-available performance on INTECH's products?
	See INTECH's most recent quarter-end performance.
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