What Happened to Janus?

Christine Benz: Hi, I'm Christine Benz for Morningstar.com.

Janus was the hot fund company in the late '90s, but the firm has since suffered from mixed performance and a spate of manager departures.

Joining me to discuss Janus, as well as a related firm composed of former Janus managers, is Greg Carlson. He is a senior fund analyst with Morningstar.

Greg, thank you so much for being here.

Greg Carlson: Thanks. Great to be here, Christine.

Benz: Janus has recently had some big high-profile manager changes. We've seen changes on Triton Fund, Venture Fund, Janus Fund, Janus Twenty, Janus Forty--a lot of changes. You've been reviewing the firm's parent grade, assessing the firm's culture. What do all of these manager changes mean for your view of the firm's corporate culture or that parent grade?

Carlson: We do think these changes negatively impact the culture at Janus, and we've lowered the firm's parent rating to a Neutral.

Benz: What kinds of things are you looking at? Are you looking at why the managers left? What makes you think that the culture perhaps isn't what it once was?

Carlson: Well, you had the best-performing equity managers in-house leaving, so that was a real blow to the firm--the best-performing managers by far. That really hurts.

And right now, they just don't have a lot of attractive equity funds, and that's been their real calling card over the years, obviously.

Benz: So, there have also been some issues at the very top of the firm, where you have seen a lot of CEOs come and go over the years. Let's talk about how that intersects with the firm's parent grade.

Carlson: That's correct. Since founder Tom Bailey, stepped down from the CEO role in 2002, the firm has had four CEOs, plus an interim CEO. Some of that instability was caused by Janus' involvement in the market-timing scandal of 2003, but they've had increased turnover since then as well. And we think that probably has a negative impact on the firm's attractiveness to promising investors.

Benz: Let's step back and discuss what happened. You and I were both watching Janus in the late '90s; it was really at the top of the heap, the top asset gatherer, a lot of funds at the top of their performance charts. In hindsight, a lot of that was maybe [related to] the dotcom boom and bust. But are there any other issues that you think have contributed to Janus' change in fortunes over the past decade?

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Carlson: I think there has been a change in the culture there, which arguably in some respects is positive, coming out of that dotcom bubble. Looking back, Janus realized that they didn't have enough fundamental research. They didn't have a big enough research staff. So, they built up their research staff, which in turn has led to a more collaborative culture and perhaps less of a star manager culture. And I think, while that is perhaps healthy for the firm, it has caused some of those previous managers who had good records to leave the firm.

Benz: I think of lot of people might look at Janus at this juncture and wonder why bother with this firm at all. Are there any funds that we really recommend unequivocally, that we think are truly very strong competitors within their peer groups?

Carlson: It's a fair question. The equity group has really seen some tough sledding. One of the funds that we've really liked is Janus Overseas, but that's undergoing a very tough stretch now. We're, in fact, in the process of revaluating that one.

Janus Enterprise, a mid-growth fund, has been a fairly solid performer, perhaps not top of the heap, but it's been pretty good. Also the Global Research Fund, which is run by their full equity analyst team, has been fairly solid.

And then beyond that, Janus actually has built up a very good fixed-income group, something you never would have…

Benz: Kind of surprising.

Carlson: … You never would have thought of Janus for bonds a decade ago, except perhaps with their high-yield fund. Now their Flexible Bond Fund is a very good fund and one of our most highly rated.

Benz: The firm had been thought of as a top destination for growth investors. When you think about where growth fund investors might go, if they wanted to invest with an active manager, are there any firms that we think have taken Janus' place in that respect?

Carlson: Not on a large scale. I think the 2000 bear market really had an impact. … We haven't seen a lot of firms that focus heavily on growth since then, except perhaps for some more conservative growth shops, such as American Funds or T. Rowe Price. I think, otherwise, you find the real growth specialists to be smaller boutiques--some that we've liked for a long time, such as PRIMECAP and Jennison, which runs Harbor Capital Appreciation. Also the growth teams at Artisan Funds have done a very good job.

Benz: I wanted to discuss a side story. As I mentioned, there has been a spin-off firm composed of a lot of former Janus managers. That's Arrowpoint. It recently made a bid to acquire the Meridian Group of funds.

First let's talk about who is at Arrowpoint, which former Janus people are now there, and also what's going on with the Meridian Funds. Let's start with the alums from Janus who are running Arrowpoint.

Carlson: David Corkins and Minyoung Sohn left Janus in 2007. Corkins was, at one time, the head of equities. He ran the Janus Fund and the Growth & Income Fund, and he did a great job. Minyoung Sohn was more of an up-and-comer. He had run Growth & Income for a few years. Also Karen Reidy, who managed Janus Balanced Fund--I think she left in 2005. So, those are the three main partners of that firm, which was formed in late 2007, and they have grown that firm very slowly, [and] haven't entered the mutual fund world until now.

Benz: Just within the past few weeks, the firm made a bid to acquire the Meridian Group of Funds. So, let's talk about Meridian. There is Meridian Growth, which I know is a growth fund that we have long liked, as well as Meridian Value. Let's take them one-by-one. Meridian Growth is actually going to be run by some other Janus managers--if in fact, this acquisition goes through?

Carlson: That's correct. Chad Meade and Brian Schaub, who ran Janus Triton and Janus Venture, who we talked about earlier, they are successful managers. They joined Arrowpoint in late May, after leaving Janus, and they are slated to run the Meridian Growth Fund as part of Arrowpoint.

Benz: I know you have to do a full-blown review of that fund, but at this point for people who had Meridian Growth and owned it under the previous manager, Rick Aster, and maybe are hanging on, what's your take on what [those] investors should do?

Carlson: Well, we certainly think they should stick around. Meade and Schaub had excellent records at Triton and Venture. They are somewhat risk-averse investors. They tend to protect on the downside, [but] not as well at Triton and Venture as the former managers of Meridian Growth had done. It's not as risk-averse, but Meade and Schaub performed better on the upside. So, expect the fund to be a little bolder going forward, but that's on a relative basis. It's still going to be one of the tamer mid-growth funds around.

Benz: Meridian Value, it's interesting because we've got a lot of growth people, ex-Janus people, at the firm. They've now got a value fund, or they will have a value fund under their umbrella. What's your take on Meridian Value, because that one, too, has seen some manager upheaval?

Carlson: For the most part, the managers have stayed in place, but we've seen a little bouncing back and forth. After the founder of the firm that advised Meridian passed away in early 2012, they rehired a couple of old employees. They are keeping one around and the other is leaving again. But overall that team has done a fairly solid job, and they are expected to stay in place, although they are going to be in a very separate office there in the San Francisco area, while Arrowpoint is in Denver. So, it will be interesting to see how that dual-office arrangement works out over the long haul.

Benz: OK, Greg. Some old-school fund intrigue going on here. It's great to get your insights. Thank you so much for being here.

Carlson: Thank you, Christine.

Benz: Thanks for watching. I'm Christine Benz for Morningstar.com.