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Janus: The Roman God of Alpha/Beta Separation?

Mar. 27, 2007 3:49 PM ET
Christopher Holt profile picture
Christopher Holt

Janus, the company whose logo looks like an early version of that face transplant performed in France last year, has come out with an intriguing offering that aims to separate alpha and beta investment decisions.

It’s called “Modular Portfolio Construction” and according to Janus’ website, it’s targeted squarely at financial advisers.

In fairness, the “face transplant logo” is actually a representation of the Roman god of new beginnings named - you guessed it, Janus (as in Jan-uary). If Modular Portfolio Construction catches on, Janus hopes it might someday be recognized as a new beginning for retail portfolio construction. Say the rocket scientists at “Janus Labs”:

Today’s complex markets require more innovation and comprehensive solutions to investing than ever before. Traditional approaches, nine-box style grid, and core/satellite models may not meet those expectations.

What’s needed is a flexible framework hat will help your clients take full advantage of all the market has to offer today - all of its differentiated and non-correlated choices, the latest in active management and near-term macroeconomic opportunities.

The approach involves four separate buckets: “core”, “alpha”, “alternative” & “tactical”.

  • “Core” (a.k.a. beta): described by Janus as then “workhorse” of the portfolio. Curiously, it also “seeks to limit downside risk”. Short of overpriced portfolio insurance, we’re not sure equity market beta provides such protection.
  • “Alpha”: active small/mid-cap management, “concentrated styles”, and “unconstrained portfolios” (nee: hedge funds?)
  • “Alternative”: (they start to lose us here) Features a “low correlation with core and alpha”, “potential positive returns regardless of market”, and “lower standard deviation”. To us, this sounds like alpha.
  • “Tactical”: Janus says this portion of the portfolio can “potentially capitalize on macro-economic trends” by actively trading beta in the form of ETFs.

As you can see, this is really a half-step toward a pure alpha/beta approach. For example, the “Alpha” bucket actually contains a lot of beta simply because it includes active long-only managers. The portfolio

This article was written by

Christopher Holt profile picture
Chris Holt is the Managing Editor of AllAboutAlpha.com, a popular industry website/blog covering research and trends in alternative investments. In 2008, Pensions & Investments magazine ranked AllAboutAlpha.com as one of the world’s 10 best financial blogs, alongside the blogs of the Wall Street Journal and Financial Times. He has written over 1,000 articles on the hedge fund sector, with an emphasis on industry trends, academic research, surveys, and practitioner research. In his role with AllAboutAlpha.com, Chris is also a regular chair and moderator at hedge fund industry events around the world, including the semi-annual “Global Absolute Return Congress,” the world’s leading alternative investment conference for pensions and foundations. Chris is also head of industry relations in the Americas for the Chartered Alternative Investment Analyst (CAIA) Association. The CAIA Association is a non-profit global association of alternative investment professionals and is the sponsor of the CAIA designation. Based in Amherst, MA, the CAIA Association has offices in London, Singapore and Toronto and has a dozen chapters in the world’s largest financial centers. Prior to this, Chris was head of marketing for one of Canada’s largest hedge fund companies, and was a management consultant with several firms including Ernst & Young. Separately, he also consulted to the Annual Meeting of the Swiss-based World Economic Forum for 10 years. He is currently a member of the Editorial Board of the Journal of Alternative Investments, has an MBA from Duke University and is a CAIA Charter holder. Visit his site: All About Alpha (http://www.allaboutalpha.com/blog/)

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