jm's dynamic valuation and 'why' philosophy


System Dynamics Models for Stock Selection (TM)

 JM uses its proprietary System Dynamics Models for Stock Selection (TM) to construct diversified portfolios designed to outperform a passive index.  Fama and French as well as others 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. 

Long Term Future Growth Potential

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. 

Total Return Includes Dividends

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. 

Optimizing Industry Sectors

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.