Greg Carlson: Hi. My name is Greg Carlson. I am a fund analyst with Morningstar.
I am joined today by Brent Lynn, the Manager of Janus Overseas. He is also the winner of Morningstar's award for the 2010 International Fund Manager of the Year.
Brent, welcome. Thanks for joining us today.
Brent Lynn: Thank you very much.
Carlson: Now Brent, before we get into 2010 and why the fund did so well, and a big reason why the fund earned the award, perhaps you could give us a brief overview of your strategy?
Lynn: Sure. At Janus we really focus on stock-picking, and my investment philosophy is very simple. I basically believe in two things. I believe in fundamental research and long-term high conviction investing. And on a short-term basis, markets are volatile, stocks can be very unpredictable, but long-term, stocks will move with the underlying company's cash flows, earnings, and business fundamentals. So, if we can understand our companies, if we can identify winners, then we really need to make high-conviction investments in order to withstand the inevitable market downturns.
Carlson: Do you think of yourself as a growth investor, and particularly as someone who focuses on fast-growing companies?
Lynn: We're looking for companies where we believe that their growth, their earnings power, their opportunities are not fully appreciated by the market.
Carlson: But in general, I think it's fair to say that the fund tends to own some companies with pretty fair to almost rapid earnings growth, but there are also some companies that are little more of a turnaround play, perhaps, in some ways?
Lynn: I think that's a very fair characterization. So the real bread and butter of the portfolio, I would say, is in growth stocks, companies where we see long-term growth opportunities, new markets, acquisitions, opportunities to grow margins, to grow revenues. Examples of that might be, for example, Li & Fung, the world's leader in outsourcing logistics for retailers. They are benefiting from a secular trend to outsource by retailers, because retailers need to focus on their core competencies and cut costs in order to survive in this difficult environment. So that's an example of our classic growth stock.
But then we also have an important component of the fund that are invested in what I call "special situations." This broadly means companies that are restructuring or industries that are restructuring, and we feel that restructuring is really underappreciated by the market, particularly in terms of low valuations.
An example of that might be the airline industry, where we've had investments now for some time, where we think that consolidation and reductions in capacity have made it a more profitable industry than it has been in the past.
Carlson: Right, and the airline stocks were a significant part of the fund's success in 2010, right?
Lynn: They were certainly important contributors, and we were investors in some U.S. airlines, like Delta and United, and also some international airlines, like Lufthansa and British Airways.
Carlson: Also the fund has often owned a significant stake in companies based in emerging markets. I think it's fair to say that played a pretty big role in 2010's returns as well. Correct?
Lynn: I think emerging markets have been a very important part of the return profile of the fund for a number of years, and for many years now, the fund has had a very significant weighting in emerging markets--because that's where we happen to find some of the most exciting growth companies in the world.
But I would say in 2010, some of the emerging markets performed well, but others like Brazil, like China, actually were only, I'd say, moderate performers, and so I think the performance in the fund came from a combination of some emerging markets like India and from some of our developed market holdings.
Carlson: We should also point out, I think, that some of the companies that are located within what we call "emerging markets" are much more global plays than they are plays focused on the growth of developing economies, such as Li & Fung?
Lynn: Absolutely. So, Li & Fung's business really depends on moves by retailers in the United States and Europe, that's where their primary customers are. Another example, Reliance Industries, which is one of the leading companies in India, they have a very large export business of refined product. That, again, is a sort of outside of emerging markets where they make an important part of their profits.