INTECH Investment Management is launching a passive alternative to capitalization-weighted indexes, based on the same “volatility capture” processes that power the firm’s active strategies, said Jennifer Young, the firm’s president and co-CEO, in a telephone interview.
The firm’s Alpha Capture Index strategy will seek to deliver annualized returns that exceed comparable cap-weighted indexes — initially, the S&P 500, Russell 1000 and MSCI World indexes — by 50 to 60 basis points, with far lower tracking error, at 2% or less, than other alternatives to cap-weighted indexes currently offer, she said.
The Alpha Capture Index strategy is “intended to be a very significant complement to the active suite of products that we have,” said Ms. Young, who noted that following a period of general underperformance for quants in the wake of the global financial crisis, 100% of INTECH’s active strategies had outperformed their benchmarks for the 12 months through March 31.
In the same interview, Adrian Banner, INTECH’s co-chief investment officer, said INTECH’s alternative to cap-weighted indexes uses a patented process to combine cap-weighted and equal-weighted portfolios in order to “alleviate most of the disadvantages” of using either in isolation.
Ms. Young said investors can tap the strategy for modest fee levels — for a managed portfolio, depending on the scale of the mandate, for 10 basis points or less. But INTECH will also be able to license the technology to clients who would prefer to trade the strategy in-house, she noted, while an ETF offering is likewise a possibility.