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Getting an Edge On the S&P 500
Aug. 5, 2003 — The Janus Risk-Managed Stock fund does not have lofty goals, says Robert Fernholz, who developed the investment process used to run the portfolio.
The fund, which was launched by Janus in February, employs a mathematical formula in an effort to beat the Standard & Poor’s 500-stock index.
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Using a computer model, “we’re able to improve, slightly, on the performance of the index,” says Fernholz, the chief investment officer and CEO of Enhanced Investment Technologies LLC (INTECH), a subsidiary of Janus Capital Group (JNS). “It’s a modest improvement.”
The strategy tries to top the return on the index by one to four percentage points and “can do this on a reasonably regular basis,” Fernholz says. While a slight gain like this may not seem like much in the short term, over time, say 20 years, it can add it to “a pretty interesting number,” he adds.
The idea behind the methodology is to pick stocks that have high volatility compared to the index and low correlations to each other; that is, they don’t move in the same direction at the same time. It also seeks to outpace the index with less risk.
In general, the Janus fund holds only about 80% of the stocks in the S&P 500 and is biased towards its smaller components, according to Fernholz.