Intech, a unit of Denver, Colorado-based Janus Group, is expanding in the region on several fronts, including a mutual fund version of its product for the Taiwan market and preparing to launch a global version of the mathematical investment strategy it has pursued in US large-cap stocks.
Jennifer Young, executive vice president in the firm's Palm Beach, Florida headquarters, says Asian institutional investors have been quicker to adopt Intech's strategy than counterparts in the United States, where bull markets in the 1980s and 1990s dampened demand for a highly risk-controlled approach to investing.
Intech has only been marketing outside the United States since 2003 but has already won mandates across Asia and Japan, she says.
The firm's strategy consists of a mathematical formula to pick stocks based on high volatility and low correlations, the combination of which statistically leads to outperformance. Unlike other quant shops it does not screen for factors or valuation inputs such as P/E or price to book. Rather it tweaks the formula to conform to mandate parameters, such as limiting exposure along geographic or sectoral lines. It seeks information ratios of 0.8 or higher, preferably above 1.0.
Although an institutional house, Intech does have a Dublin-listed mutual fund authorized in Hong Kong, the Risk Management Core Fund, which it will launch in Taiwan this month in Taiwan, having recently met the two-year track record required by Taipei regulations. It is sold as part of a series under Janus, with Intech serving as investment advisor.
The firm is pursuing this strategy in Taiwan to attract institutions. The institutional account business in Taiwan has not developed for the funds industry, for reasons of regulation and culture, and Intech believes it can grow its business there via a commingled product.
In addition, Intech is preparing to launch a global version of its existing US equities product in the fourth quarter, benchmarked to the MSCI World Index. Young says most of the other 22 markets in the index are sufficiently large and liquid to allow the underlying maths to work. The issue, however, is that the mix of stocks the formula selects, based on volatility and correlation, probably doesn't reflect the index's allocation, but the firm can impose constraints upon request.
The firm is confident this will prove a big seller in Asia. "International investors have limited demand for US equities," says Ilex Lam, director of institutional business at Janus in Hong Kong. "Asian pension fund appetite is for global equities or global fixed income." He adds the firm's emphasis on risk control instead of traditional fundamental management appeals to Asian clients sceptical of claims about alpha, and which want to limit downside without sacrificing the upside as is common in structured products. "This trend will continue for at least five to 10 years," he says.
The firm intends to follow suit with a mutual fund and commingled format for the global product. But first it will unroll the global strategy on an account basis, probably early next year.