Janus' rise, fall, and steady climb back.
If the years from 2000 to 2003 could be erased, what would people think of Janus today? History isn't that convenient, however, and the bear-market years--as well as Janus' involvement in the fund industry scandal of 2003--were indeed a humbling time for Janus and a painful period for its fund shareholders.
Yet, we think Janus is quietly re-emerging stronger and better than ever before. It has turned its focus back to investing, strengthened its central research pool, and become more sophisticated about risk. The firmwide improvements give us confidence in a handful of individual Janus funds that look quite attractive today.
The Disaster that Came from Quick Growth
Our willingness to look forward in Janus' case hasn't come without vigorous debate about Janus' current capabilities and a reflection on where we've been in the past. We've had very mixed feelings about Janus over the past 10 years. We liked several Janus funds in the 1990s when the firm was small and had a core competency investing in growth companies. Many talented managers, including David Decker, David Corkins, and Jonathan Coleman, grew out of Janus' research-driven processes in the early to mid-1990s.
In many ways, however, Janus was a victim of its own success. As fund returns soared in the mid to late 1990s, assets flooded into Janus funds. The biggest problem had as much to do with the velocity of flows than it did with investment process. The firm had a talented cadre of core managers, but it was taking in assets more quickly than its managers could put it to work in new ideas. Hence, Janus funds ended up with lots of overlap, and many of the analysts they did bring aboard were too new and inexperienced to realize that we were in a bubble. We're not letting Janus managers off the hook that easily, though. It was all too easy to forget about "risk" in the late 1990s because investors were rewarded handsomely for taking it and Janus managers--several of whom were experienced enough to know better--fell deep into that trap. We sounded alarms in our analyses of Janus funds about the sector- and stock-specific risks, but in hindsight they weren't loud enough. We maintained a positive outlook on many of the firm's offerings.
The asset growth and weakened research infrastructure were compounded by a combination of manager departures and the market timing scandal. Taken together, these events led us to seriously doubt Janus' culture and question where fund shareholders landed on the firm's priority list. To be sure, changes were definitely in order. Our concerns were so pressing, in fact, that we recommended that investors sell Janus funds in 2003.
The worst outcome, however, was that Janus investors got burned in worse ways than meets the eye. Janus funds were heavily marketed to individual investors in the late 1990s when most were simply attracted to the fund's hot returns. Those investors simply haven't made a lot of money by investing with Janus.
Investors' bad experience is painstakingly clear when you look at Janus funds' Morningstar Investor Returns. While total returns tell you how a buy-and-hold strategy fared over a given period, investor returns consider inflows and outflows to approximate the returns earned by a typical investor. Investor returns show just how badly investors actually fared with Janus funds when considering the timing of their purchases and sales. The average 10-year total return for Janus' funds was 9% through the end of February 2007, but the average investor made only 3.9% over that stretch. The disparity reflects that most of the money came in on the tail end of the bull market and left in droves as the funds crashed and the market-timing scandal surfaced. The results were especially bad for certain funds. Take Janus Enterprise
It's a New Day
Janus has come a long way since its rapid rise and fall, and we think some of its funds are not only worth considering, but look like strong buys.