About INTECH

INTECH Investment Management LLC, or INTECH, is a global investment management company with headquarters in West Palm Beach, Florida, a research facility in Princeton, New Jersey, and an international division headquartered in London, England. The firm’s unique investment process is based on the mathematical foundation of Stochastic Portfolio Theory and seeks to build diversified portfolios that offer the potential to generate long-term return in excess of a target benchmark, while reducing the risk of significant underperformance. With a record of mathematically driven equity investing spanning more than two decades, the firm has achieved positive excess returns with low tracking error, resulting in historically high information ratios across most of its investment strategies over the long term. The firm manages $39.9 billion (as of December 31, 2011) and is an independently-managed subsidiary of Janus Capital Group, which owns an approximate 95% stake in the company. INTECH employees own the remaining 5%.

INTECH Timeline

About INTECH's Investment Process

INTECH offers equity investors a highly disciplined, mathematical investment strategy that seeks to provide long-term return in excess of a target benchmark, while attempting to reduce the risk of significant underperformance relative to the target benchmark. The equity investment policy is established by the application of a mathematical process developed by INTECH. This unique approach to investment management does not require specific country, sector or security selection decisions based on fundamentals. The investment process is designed to identify potentially more efficient equity weightings of the benchmark’s securities by utilizing a mathematical optimization and then maintaining those weightings with a disciplined rebalancing procedure.

The investment process begins with the establishment of an appropriate benchmark index. For U.S. equity mandates, the S&P 500, Russell 1000, MSCI USA, or any of their respective style subset indices, can serve as appropriate universes. The MSCI World and MSCI EAFE indices serve as the investment universes for global and non-U.S. equity mandates, respectively.

Investment Process Flow Chart

INTECH then eliminates stocks from consideration that make up less than one basis point of the index. This screen typically excludes only a small percentage of the stocks in the benchmark index. INTECH uses four years of historical stock-return data to estimate the variances and covariances of stocks’ relative returns for the remaining stocks. These estimates are used as inputs into an optimization program designed to identify a portfolio that seeks to generate a targeted level of excess return at a minimum amount of tracking error.

Risk controls aimed at mitigating portfolio risk are embedded in the investment process and may include maximizing the information ratio, active-weight collars, a limit on beta, and limited size exposure through a weighted-average market capitalization constraint. Once the target weights are determined and the portfolio is constructed, it is then rebalanced to those target proportions and re-optimized on a periodic basis. The portfolio is continually evaluated to ensure that diversification and return characteristics are consistent with the investment objectives and underlying mathematical theory.

Frequently Asked Questions (FAQs)

1.	What are the key differentiators for INTECH as an investment manager?
	INTECH offers equity investors a highly disciplined, mathematical investment strategy that seeks to provide long-term return in excess of a benchmark, while attempting to reduce the risk of significant underperformance relative to the benchmark. The firm has a record of mathematically driven equity investing that spans more than two decades, having managed large-cap equity portfolios since 1987. We believe that the following key differentiators set us apart from our competitors: Mathematical Basis INTECH's investment process is based on a mathematical theory, providing a potentially more solid theoretical basis than other investment processes. The firm has published extensively on Stochastic Portfolio Theory and its application to the portfolio construction process. Many of the systems utilized were developed by and remain proprietary to INTECH. Sound Theory & Disciplined Implementation By combining advanced mathematical principles, sophisticated technology systems, and robust and resistant statistical processes, INTECH can implement its proprietary investment process against many different benchmarks and across many different market conditions. Emphasis on Risk Management Risk management is at the heart of INTECH's investment process, which has historically generated positive excess returns, low levels of risk relative to the benchmark and high information ratios over the long term across most of its investment strategies. We believe the information ratio is one of the best measures in analyzing the efficiency of a manager's investment process. Higher information ratios, over the long term, suggest a significant amount of risk control relative to excess return and a higher probability of outperformance. Stable Investment Team Stability and continuity of management is important to INTECH's strength. The firm possesses a stable team of senior investment professionals and has experienced low turnover among its employees. Research Intensive INTECH's research team of Ph.D.s conducts ongoing research with the goal of identifying and implementing enhancements to the engineering of the existing process in an effort to improve long-term results. Unique Investment Focus The unique nature of the process is such that in a multi-manager structure, the overall risk/reward profile is typically enhanced by adding INTECH to the portfolio. Because the process is different from either traditional fundamental or quantitative strategies, return patterns tend to be less correlated, providing additional diversification in the portfolio. Historically, adding INTECH to the overall portfolio tends to reduce tracking error and/or increase information ratio, often providing higher information ratios in aggregate than the managers provide separately.
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2.	How is INTECH different from quantitative managers?
	INTECH's investment process is mathematical. Stock selection decisions are a result of applying a mathematical algorithm. INTECH's mathematical investment process seeks to identify potentially more-efficient equity weightings of a benchmark's securities by utilizing a mathematical optimization and a disciplined rebalancing procedure. The following differentiates INTECH's mathematical investment process from a traditional quantitative manager: Descriptive in Nature INTECH's mathematical theory attempts to describe the market's behavior (the specific random nature of stock price movements). The process does not attempt to forecast the direction of stock prices or attempt to beat the market by identifying winners and losers. Virtually No Reliance on Normative Assumptions INTECH's mathematical theory makes no assumptions about how markets and investors should behave. Rather it attempts to describe their actual behavior. Relies only on Covariance Estimation The only estimations in the process are the variances and covariances of stocks' relative returns, which are arrived at using robust and resistant statistical techniques. "Pure Science" Orientation The mathematical theorems upon which INTECH relies are rooted entirely in the pure science of mathematics. Devoid of Bias and Emotion Mathematical relationships are not swayed by subjective biases or preconceptions about individual stocks, sectors, or markets. Based on Inefficiency of Benchmark Indexes INTECH relies on the fact that cap-weighted benchmarks are inefficient in that they do not properly take into consideration correlation and volatility; hence do not generate the most possible reward for the least possible risk. INTECH's investment process does not attempt to exploit market anomalies and does not require that stocks be priced inefficiently. Mathematical Underpinnings Unchanged The mathematics behind INTECH portfolios is as applicable today as it was more than 20 years ago. Researchers continue to try to identify ways to improve its implementation. Risk Management is at the Heart of the Investment Process INTECH's risk-managed investment process targets positive excess returns with limited relative risk. Historically high information ratios across most of its investment strategies over the long term suggest a significant amount of risk control relative to excess return.
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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 manage the tracking error of the portfolio consistent with the targeted excess return target, resulting in portfolios with high information ratios. Risk controls aimed at mitigating portfolio risk are embedded in the investment process and may include active-weight limits, limits on beta, and a limit on the difference between each portfolio's weighted-average capitalization and that of the benchmark. Once the target weights are determined and the portfolio is constructed, it is then rebalanced to those target weights and re-optimized on a periodic basis. The portfolio is continually evaluated to ensure that diversification and return characteristics are consistent with the investment objectives and underlying mathematics. Over the long term, INTECH has generated positive excess returns, with low tracking error, across most of its products. While the nature of the investment process is unique and uses only relative volatility to attempt to produce a return in excess of the benchmark index, the specific engineering of the process and the risk controls are what provide the strategies with the long-term consistency that has been experienced.
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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 periodic basis as stocks move within a range from their target weights. The portfolio is also re-optimized on a periodic basis.
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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 investment process seeks to capture some of stocks' movements relative to a benchmark, as opposed to the benchmark's movements. In this sense, market volatility does not impact INTECH's investment process. In an environment where every stock always moved by the same percentage as every other stock, then there would not be any relative volatility and generating incremental portfolio returns from relative volatility capture would be impossible. However, the only reasonable expectation is that stocks always will move relative to one another and relative to a benchmark. All INTECH's investment process needs to be successful is a modest level of relative volatility among stocks, which has always been present historically.
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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 believes its current capacity is substantial, but continues to closely monitor the efficiency of its trading processes 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 offers institutional investors enhanced index, core, value, and growth strategies within the U.S. large-cap market segment, as well as global, international, and long/short equity strategies, all of which are engineered with risk controls and optimization parameters that are specific to each strategy's underlying benchmark index and level of aggressiveness. INTECH has a history of utilizing a mathematical approach and each of its product offerings are logical extensions of an investment style that has existed for more than two decades.
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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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