For the first time since the bear market of 2000-2002 and the mutual fund trading scandal that so tarnished its image,
Investors have stopped their massive net withdrawals, apparently buoyed by improved performance and a change in leadership. Since 2004, three-quarters of Janus’s funds rank in the top 30% of their peers. Whereas net withdrawals were $29 billion in 2004, $16 billion in 2005 and $10 billion in 2006, Janus expects modest inflows this year.
The only caveat to this good news is that Janus executives say they have not changed the company's “maverick” strategy for picking stocks. So, why should investors trust Janus? Because while it does give its portfolio managers more latitude than other investment management firms, it is a far more disciplined company than it was before its troubles began.
The firm has hired more analysts. In 1999, there were only 19 analysts with an average of less than two years of experience each covering 500 companies at Janus. In addition, Janus has discontinued the practice of so rapidly promoting these neophytes to portfolio managers. “We had a lot of folks running funds who shouldn’t have,” admitted Janus CEO Gary Black. Today, the analysts at Janus have more than 10 years of experience, the company has broadened the number of stocks they follow to 1,250, and a risk director makes sure that funds don’t all pile too heavily into the same stock or build too heavily an exposure to such high-risk stocks as emerging markets and foreign currencies. Further, Janus now ties portfolio managers’ compensation not to assets under management but to performance.
In addition, many of the managers have $1 million or more of their own money in the funds they oversee, and Janus is more willing to close a fund once it reaches an unwieldy size. Finally, the firm also sells its funds through brokers and has expanded its institutional Intech division to account for 38% of its assets, and both brokers and institutional investors require a steadier hand.
As Jim Goff, director of research, puts it: “We’re still mavericks, but we’re disciplined mavericks.”
