We've changed our opinions on these mutual funds.
When it comes to mutual funds, we Morningstar analysts are a skeptical bunch. Before we recommend a fund, we look for time-tested investment strategies, proven portfolio managers and analysts, low costs, good returns, and performance behavior that we can understand. New portfolio manager? We're cautious. New-fangled investment objective? Forget it. Rationalizing weak performance? Keep trying.
Sure, we have our favorites, and we'll stick by them through their ups and downs. But for the most part, funds need to be something special before earning a ringing endorsement. Our skeptic's eye, however, can soften, and there are a number of funds we've changed our opinion on--both to the negative and the positive. Following are a few that we've warmed to. If you haven't checked them out in some time, you'll want to give them a second look.
Janus Gets Back on Track
Once one of our favorite growth boutiques, Janus underwent a lot of changes in the mid-1990s. On the back of strong performance and as assets ballooned, it spawned more and more growth funds and growth fund managers. It also lost a couple of good ones. Meanwhile, it didn't keep up on the analyst front, and when the bear market hit in early 2001, the shop's concentration in just a few hard-hit industries took a huge bite out of investors' capital. When Janus' involvement in the fund industry's market-timing scandal came to light in 2003, we recommended investors consider selling their Janus funds.
As Janus has worked to correct some of its stewardship issues, we don't think investors need to stay away from Janus overall. And we're pleased that its analyst staff has grown into a group that can effectively cover almost the entirety of Janus' investment universe because it decreases the risk that the funds will share a lot of the same companies in their portfolios. (In fact, Janus now regularly keeps tabs on just how much overlap there is.) We still aren't ga-ga for most of its funds, but there are a couple of exceptions.
Janus Fund JANSX
David Corkins, who had successfully run Janus Mercury for three years and Janus Growth & Income
Janus Orion JORNX
Janus Orion is another choice we've warmed to. In this fund's early days, we were wary of manager Ron Sachs' inexperience as a portfolio manager, largely because of his eclectic style and this concentrated portfolio. As with many of its siblings, the fund lost a lot of money during the bear market. Even as Sachs improved the fund's record, however, we remained cautious and were disappointed when Janus gave Sachs another fund to run. But with more than five years running the fund under his belt and after giving up the second fund about a year ago, we're much more comfortable. Janus' expanded stock-analyst bench also helps, though Sachs has always depended more on his own stock-picking than others'. He's proved himself on that front.
One other promising story at Janus is Janus Worldwide. You wouldn't necessarily know it by its return rankings--it has continued to post relatively weak results since it suffered dramatically during the early 2000s bear market. But we're optimistic about its future. Jason Yee, who started his portfolio-management career at Janus running the more concentrated Janus Global Opportunities
A Morgan Stanley Manager Proves His Mettle
At the beginning of 1999, Morgan Stanley assigned Dennis Lynch, just six months into his role as an institutional fund manager the firm, to the $75 million Morgan Stanley Institutional Small Cap Growth
As Lynch showed he was able to maneuver the fund through both 1999's bull market as well as the subsequent bear market, Morgan Stanley took notice. Over the next five years, it gave Lynch and his growing team several others funds, including Morgan Stanley Institutional Mid Cap Growth
Lynch's added responsibilities highlighted another worry--Morgan Stanley's corporate culture. Seemingly concerned more with sales and performance than with its investors' returns, the fund family had given several of its best-performing managers more to do. It has also experienced a good amount of turnover at the executive level, and we've been displeased with its history of new fund launches, some of them too trendy for our tastes.
There's some good news on the culture front; Morgan Stanley seems to have moved to a more decentralized investment research structure, allowing smaller investment teams to be more autonomous. And what we've learned about Lynch is that he's not only a capable stock-picker in his own right, but he's also been able to put together a good group of analysts to support him in his additional responsibilities. Morgan Stanley also named Lynch head of its U.S. Growth investing in mid-2004.
Morgan Stanley Focus Growth
Lynch's small-cap charges are closed, and Morgan Stanley's institutional offerings aren't readily available to all investors. From an investments standpoint, our favorite of Lynch's funds is Morgan Stanley Capital Opportunities
We've limited this article to just a couple of fund families, because there were common threads among these funds. Our list of recovering mutual funds doesn't end here, however. Soon, we'll present you with another list of offerings that you should reconsider.
Bridget B. Hughes is an analyst with Morningstar.