Janus Grapples With Talent Losses

Janus has seen more than its share of peaks and valleys over time. To its credit, the firm consistently has come back from the depths. After a crash and burn in the 2000-02 bear market (due to heavy investments in tech and telecom) and the exposure of Janus' involvement in the 2003 market-timing scandal, the firm got back on its feet due to solid performance runs by managers David Corkins and Scott Schoelzel.

But then Janus suffered through a wave of exits: Corkins, along with promising young manager Minyoung Sohn, left in in late 2007 to start a new asset management firm. Schoelzel retired at the end of 2007.

The manager changes continued at a steady trickle. For example, David Decker left Janus Contrarian JSVAX last year, and just 10 days ago John Eisinger of Janus Global Select JORNX left. Some departures have been Janus' idea, but either way, it shows the firm still has work to do. All the while, performance, which had picked up nicely, has fallen off in the last couple of years. 

Widespread Struggles
Janus' talent losses have taken a toll. The departures in 2007 led to a number of new assignments at some of its most prominent funds. Jonathan Coleman replaced Corkins at Janus Fund JANSX, Ron Sachs took on Schoelzel's role at Janus Twenty JAVLX and Janus Forty JARTX, and Marc Pinto filled Sohn's shoes at Janus Growth & Income JAGIX. While each manager had posted solid records at previous posts, these changes haven't worked out well. Coleman, Pinto, and Sachs lag 65%-80% of their large-growth peers during the 4.5-5 years they've managed their current charges--which are Janus' four largest domestic all-equity funds--and each fund trails its benchmark (the Russell 1000 Growth Index for all except Growth & Income, which competes with the S&P 500) by an annualized 2.5 to 4.5 percentage points.

A number of other manager changes at Janus' equity funds since then haven't yielded good results thus far, either. Here's a quick look at them:

• Janus Global Select: Eisinger took over this fund when Sachs moved to Janus Twenty and Janus Forty in January 2008. He posted wildly varying returns, and the fund finished in the bottom decile of the world-stock category from the time he took over until he left the firm on Aug. 3, 2012.
• Janus Worldwide JAWWX: This fund lost its footing in the 2000-02 bear market and hasn't found it since. After Helen Young Hayes retired in 2003, comanager Laurence Chang ran it solo for one year, then left the firm. Contrarian investor Jason Yee took over, struggled during both the mid-decade rally and 2008's decline, then left Janus. Laurent Saltiel got off to a good start, but jumped ship to Alliance Bernstein just 13 months later. Clearly unprepared for his departure, Janus embarked on a 10-month search before hiring George Maris in early 2011. Maris ran portfolios for more than seven years with better-than-average results before joining Janus, but that track record was split between three different firms. He's off to a slow start at Worldwide; the fund is 5 percentage points behind the category norm in his first 17 months on the job. Despite that sluggish start, Maris was just tapped to replace Eisinger at Global Select.
• Janus International Equity JAIEX: Saltiel had managed this small fund for 3.5 years when he left in May 2010. The installation of his three replacements made fundamental sense--Julian McManus, Guy Scott, and Carmel Wellso were accomplished foreign-stock analysts for Janus--but they, too, have stumbled thus far. That fund lags three quarters of its foreign large blend peers in their first two years managing it, even though the fund's growth tilt should have given it a slight edge.

A Maybe

• Janus Contrarian: Decker, the fund's lead manager since its 2000 inception, left the firm in June 2011 amid a run of poor, volatile performance. Daniel Kozlowski was hired to take Decker's place. The fund has struggled in his first 13 months on board, but particularly in Kozlowski's first three months as some of Decker's less-liquid holdings were difficult to dump as stocks declined sharply. Kozlowski's hiring makes sense: He worked closely with Decker as an analyst at Janus from 2000-08 before leaving to start a hedge fund, and has toned down the fund's bold look to some degree.

Morningstar's Analyst Ratings reflect our concerns about the uncertain prospects of the above funds: Janus Fund, Janus Forty, Janus Global Select, Janus Growth & Income, Janus Twenty, and Janus Worldwide all earn Neutral ratings. (Morningstar hasn't yet published a rating for Janus Contrarian or Janus International Equity.)

Janus' analysts also have struggled during the latter part of the period from 2008- to mid-2012, particularly those who cover U.S. large caps. That's reflected in the weak 18-month performance of Janus Research JAMRX, an analyst-run U.S. equity fund. Janus Global Research JARFX boasts a strong longer-term record, but its performance has moderated lately.

Bright Spots
There have been a couple of changes at Janus that have worked out or look quite promising, but they're focused in what have long been relatively minor parts of the firm's lineup: small- and mid-cap U.S. equity funds.

• Janus Triton JATTX: Chad Meade and Brian Schaub took the helm of this then-young fund in July 2006 and have knocked the cover off the ball. It invests in a mix of small- and mid-growth stocks and has roared ahead of most small- and mid-growth funds since then. They also took over the small-cap-focused Janus Venture JAVTX in July 2010 and have done a stellar job there thus far.
• Janus Enterprise JAENX: When Coleman stepped off this mid-growth fund in November 2007 to run Janus Fund, Brian Demain (previously a comanager on this fund) took sole control. The fund has since beaten roughly two thirds of its peers. 
• Furthermore, Janus' fixed-income team has done a fine job since the hiring of Gibson Smith as chief investment officer in 2006. But although assets in this area have grown, bonds are still a relatively small part of the overall pie here.

The outcomes of Janus' manager changes raise questions about the strength of its bench, which may have gradually eroded from the departures of the last decade. And given the struggles of the managers who have been in place for nearly five years, that bench may be tested yet again.

It's clearly not all gloom and doom at the firm. In addition to the attractive options in small- and mid-cap equity and in fixed income, Brent Lynn at Janus Overseas JAOSX owns a fine long-term record--although shareholders can't be happy with the fund's brutal performance over the last 19 months due to a big bet on emerging markets. Meanwhile, the U.S. large-cap funds run by Coleman and Sachs have mounted a comeback thus far in 2012. But it will take time for Janus to restore confidence in what used to be its strongest areas.