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By Greg Carlson | 12-04-2012 01:00 PM

Is This Fund's Underperformance a Reason for Concern?

Janus Overseas manager Brent Lynn says investor risk aversion significantly weakened his fund's performance in the past two years, and he also details opportunities for his top holdings.

Greg Carlson: Hi, I am Greg Carlson, and I am fund analyst for Morningstar. I am joined today by Brent Lynn, the manager of Janus Overseas.

Thanks for joining us today.

Brent Lynn: Thank you.

Carlson: I want to preface the first question with a little overview of the fund. You've managed it on your own since mid-2003. It has an excellent long-term record over that span, but the fund has had some very poor short-term performance in 2011 and 2012. I thought we might start, Brent, by just talking about the sources of that underperformance and then we can maybe touch on a couple of current holdings.

Lynn: Great. Well, thank you very much. If I were to say one thing to my fundholders, it would be to apologize for the very poor performance of the fund over the past two years. And this is not the performance that I expected myself and not the performance that I believe my fundholders deserve. That being said, I believe that there is cause of optimism on a longer-term basis.

Let me try to address what happened. I believe that the core source of underperformance for the fund has been that the style of the fund--which is a very contrarian-oriented style where we're willing to invest for the long term in stocks that we believe are truly misunderstood and misperceived in emerging markets, in financials, in cyclical, in sectors that have been beaten up--just has not worked in this market environment, which I believe has been an environment that has primarily rewarded defensive-oriented stocks, stocks in sectors where the visibility of the business and the earnings in cash flows on a shorter-term basis is much clearer and where there has been much less attention to valuation and also, I believe, less attention on sort of a longer-term growth.

I believe that the key reason for this defensive-oriented market environment has been that there has been huge risk aversion on a global basis because of all the political uncertainty over the past few years. Political uncertainty relating to the spike in oil prices starting from last year, related to all of the fiscal disagreements here in the United States, related to just the problems in Europe, the sovereign debt problems that seem to recur and recur and recur. So, I believe that once we can have a little bit more visibility in some of these macro areas that there will be a reduction in risk aversion in the markets and hopefully, at that point the performance of the fund can improve.

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