Fama and French as well as others, have demonstrated that on average, value investing outperforms growth investing where “value” is synonymous with “cheap” and “growth” is synonymous with “expensive”. In this context, “value” is often defined by a low ratio of stock price to the book value of the company while “growth” is identified as a high price to book ratio.
Jantz Management improves and redefines “value” as valuation. JM’s dynamic valuation methodology simulates future growth in its estimates of the value of each stock in the investable universe. JM’s forecast of stock value is used to estimate the expected rate of return and dispersion (risk) relative to its current market price. In general, JM uses a statistical technique to optimize the proportion of each stock held in the portfolio such that the expected portfolio risk is minimized for given portfolio requirements. Portfolio requirements, including a required level for the portfolio’s expected rate of return, are entered into the optimization process as constraints. The resulting Model Folios are used to change the portfolio weights for a target portfolio. JM’s strategy emphasizes adherence to the quantitative models and processes and it is designed to remove many of the human cognitive limitations and biases that inhibit portfolio performance.
Management for total return rather than to a benchmark also increases the performance capabilities of the firm’s portfolios. Consequently the portfolio does not track the benchmark and for short periods can even under-perform it. Nevertheless, the result is a potentially higher average level of return at a level of risk designed to be approximately that of the comparable index fund benchmark.
Further, JM’s quantitative optimization approach to portfolio construction is sector agnostic, allowing the fund to capture the full benefit of market inefficiencies that cause securities to be underpriced or overpriced without regard to industry sector. Risk is reduced through diversification by holding positions in a substantial number of equities – ranging from 50 to 100 depending on the portfolio. The size of each position is weighted to enhance the risk-adjusted return to the portfolio with target weights at the time of portfolio rebalance of no greater than 3.0%. Finally, profits are taken based on monthly re-evaluations of the entire set of index constituents.
Value portfolios seek to significantly outperform the index over the long run. There are currently three available products:
- JM Value applies our optimized value methodology to the S&P 500 universe and is the product which launched the firm in 2002. With it, the firm’s goal is to, over the long-term, significantly exceed the performance of the S&P 500 Index.
- JM Mid-Cap Value applies our optimized value methodology to the S&P 400 universe. It is designed to deliver high excess return over the long-term in the mid-cap space, significantly exceeding the performance of the S&P 400 Index.
- JM Small-Cap Value applies our optimized value methodology to the S&P 600 Index universe. The goal is to deliver superior active return over the long-term in the small-cap space, significantly exceeding the performance of the S&P 600 Index.