• / Free eNewsletters & Magazine
  • / My Account
Home>Research & Insights>Investment Insights>Will the Janus-Henderson Merger Benefit Fund Shareholders?

Related Content

  1. Videos
  2. Articles
  1. Kinnel: The Biggest Mutual Fund Stories of 2016

    Volatile performance among equity and bond funds, continued interest in passive investing, and personnel changes at T. Rowe Price headlined a busy year.

  2. Continued Outflows a Yellow Flag at PIMCO

    An additional $12.5 billion left PIMCO's flagship Total Return Fund in January, bringing the total outflow to more than $90 billion since Bill Gross' departure.

  3. When Managers Change, So Can Ratings

    Recent manager changes at T. Rowe and Janus resulted in Analyst Rating downgrades, says Morningstar's Russ Kinnel.

  4. Key Considerations for PIMCO Total Return Investors

    Investors need to be aware of risks ranging from outflows to board stewardship, but the core investment process remains sound in the wake of Gross' departure.

Will the Janus-Henderson Merger Benefit Fund Shareholders?

The early returns are meager.

Greg Carlson, 06/08/2017

"Mergers suck. They're hard. They take years and years off your life."--Larry Fink, CEO of BlackRock

The history of fund company mergers isn't an especially pretty one. As Larry Fink said at the Morningstar Investment Conference in April, they're tough to pull off. Too often they result in culture clashes and the departures of key personnel. It's even more difficult, it seems, to find fund company mergers that benefit fund shareholders in a clear and material way. The merger between Janus Capital Group and U.K.-based asset manager Henderson Group that closed on May 30 (the combined entity is known as Janus Henderson Group) doesn't appear to be one of those mergers, at least not yet.

According to a press release Janus and Henderson prepared on the deal, the Janus-Henderson merger, first announced last October, will result in an estimated cost savings of $110 million. And yet no long-term fee cuts for funds have been announced. (There will be one short-term cut involving the calculation of the performance-adjusted management fee of large-growth fund Janus Henderson Forty JDCAX, which absorbed Janus Twenty.) Indeed, previous fund company mergers in the past decade haven't always delivered on oft-promised cost savings in a meaningful way. BlackRock and JPMorgan, both of which have engaged in acquisitions, sport Below Average Morningstar Fee Levels on average, but AllianceBernstein, Columbia Threadneedle, Invesco, and WellsFargo--other acquisitors--show merely middling Average fee levels. Janus and Henderson may have a starting advantage--both firms' fund fees were modestly lower than their competitors' prior to the merger--but it remains to be seen whether fundholders will realize a cost benefit after the merger. The industry's record doesn't make a strong case.

That's unfortunate news, as Janus Henderson funds' results haven't stood out in aggregate. Janus Henderson Group's risk-adjusted success ratio, which measures the percentage of a firm's funds that have both survived and outperformed their Morningstar Category peers on a risk-adjusted basis in a given time period, was just 23% during the past 10 years through May 2017. (In comparison, the average success ratio of the 20 largest fund families in the United States by assets--Janus was 24th--was recently 38%.) The current lineup's Morningstar Analyst Ratings reflect its unremarkable nature. Several Neutral-rated funds were recently merged away, but 16 of the 37 remaining funds that are rated earn Neutral ratings. Eleven earn Bronze ratings and 10 earn Silver ratings, but there are no Gold-rated funds in the combined lineup. And neither Janus nor Henderson has been a standout parent company, in our view, which is why both firms earned a Neutral Parent rating prior to the merger.

Fee cuts would benefit fundholders and help the combined firm compete in an industry where fees have been steadily declining in recent years. One prominent transaction that led to fee cuts was BlackRock's 2009 acquisition (on Fink's watch) of Barclays Global Investors and its iShares ETF unit. Some iShares ETFs saw fee cuts in subsequent years, and the firm also launched a suite of cheaper ETFs to help it compete with Vanguard's low-cost ETF offerings, which had gained some market share. (Competition on fees has been especially fierce among passive vehicles.)

Will the Fund Lineup Be Trimmed Further?
Janus and Henderson did pare their fund lineups to a degree in the runup to the close of the deal in an attempt to put more assets in the hands of more-promising managers. Janus merged four funds into other funds managed by Janus and another into a Henderson-managed offering; it also liquidated one fund. In addition, two Janus-managed funds are now run by Henderson managers. Meanwhile, Henderson merged one of its U.S.-sold funds into a Janus-managed offering while shutting down three other funds.

These kinds of fund consolidations and liquidations tend to be typical in fund-company mergers--and help explain why firms that have merged or made acquisitions tend to have lower success ratios (though they are often eliminating weaker performers to begin with). For Janus Henderson, we expect further consolidation given the extensive nature of the combined company's fund lineup and the question marks within it.

For example, Janus' global and international equity offerings have largely struggled. In some cases, they have seen manager departures in recent years. This year, Janus liquidated a small non-U.S. stock fund in early 2017, merged its emerging-markets funds into Henderson's, and had Henderson take over its Asia-focused equity fund. But Janus still manages sizable non-U.S. and world stock funds with uncertain prospects.  Henderson has demonstrated particular expertise in developed Europe and emerging-markets equities and could take over those offerings in the future.

Greg Carlson is a fund analyst with Morningstar.

©2017 Morningstar Advisor. All right reserved.