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Morningstar Fund Spy

Which Proverb Should Janus Heed?
Stick to your knitting, the old saying tells us. If you're talented and experienced in one area, don't tempt fate by jumping into things you know nothing about. Another proverb instructs just the opposite: Don't put all your eggs in one basket. Judging from the recent comments of Jim Craig, Janus' new director of research, the high-flying Denver fund firm is favoring the baskets over the knitting.

In a conference call last week, Craig said that Janus, which has achieved stunning success with a lineup of funds skewed toward fast-growing, high-priced stocks, will likely turn toward value-oriented fare with some new funds.

It would be easy to criticize this decision. Indeed, Janus tried this once before with dismal results: The fund now known as Janus Twenty JAVLX started out as a value offering that struggled for several years before the company changed the fund's stripes. Other successful fund managers also have struck out trying to expand their horizons. Witness Schooner Fund, the small-cap offering created by the smart folks who run large-cap Clipper Fund CFIMX. That one barely got out of port and was eventually given a decent burial at sea.

However, Janus can't be blamed for trying to diversify its menu. The key will be in the implementation. If the firm simply sticks someone at a desk and declares that person the value manager, without adding analysts and other support, the effort could sink like a wobbly schooner. But if Janus makes a sincere effort to build--or buy--a true value shop that's deeply committed to a different way of investing, the result could be beneficial both for the firm and for Janus fund shareholders who want to broaden their portfolios without leaving the family.

Janus isn't the only style-specific firm trying to expand its reach. For example, Neuberger Berman has approached the issue from the other direction. Known as a pure-value shop, it realized the limitations of that strategy as value stocks lagged in recent years, and it hired growth managers and brought out new growth funds. The jury's still out on the success of this transition, but it's hard to argue with the justification. At least Janus is trying to act before its style hits the rocks instead of after.

Don't forget that way back in 1987, Mario Gabelli, a committed value investor, decided to add a growth fund to his shop in the interest of diversification. The managers of Gabelli Growth GABGX--first Elizabeth Bramwell and then Howard Ward--made that decision a successful one. The fund is one of the best in the Gabelli stable.

Chasing Performance, Any Performance
I bet if you asked around before this year, few investors would have told you, "I really want to own a Japanese small-company fund." And with good reason. Forget the woeful performance of the handful of such funds. The merits of owning a fund that limits its manager to buying in a single foreign market are debatable; going beyond that, to a fund that restricts itself to just one segment of one foreign market, seems unwise for any ordinary investor.

Apparently, many people disagree with my thinking. Fidelity Japan Small Companies FJSCX, which started 1999 with $130 million in assets, now has nearly $1.7 billion. The rapid appreciation of the portfolio's stocks accounts for part of that astonishing increase. But more than $1 billion of the money was poured in by investors who suddenly decided small Japanese companies were underrepresented in their portfolios. That realization just happened to come when Japan's small-cap market had caught fire for the first time in years.

No doubt some of the people who have piled in have made good money and have gotten out. Maybe others will make money by sticking with it. I just can't help suspecting that a lot of the fund's new shareholders bought this offering without learning much about it beyond the fact that its year-to-date return was in triple digits.

Stat du jour
$799 million. That's the current asset base of Fidelity Japan FJPNX--roughly half the amount in Fidelity Japan Small Companies. Entering 1999, Fidelity Japan had more than double the assets of its small-cap sibling.