Jim Goff is a rare portfolio manager and research director who sticks to his guns no matter how erratic or rewarding the market. In fact, he has stuck, for 20 years now, with a fund complex that has just about seen it all.
Janus is best known for its meteoric rise during the 1990s' boom years, and then the dot-com mania and bust of 1999 and 2000.
The firm has since been marred by its portfolio managers' stubborn bravado on their aggressive growth calls, costing investors dearly in returns. That was quickly followed by the mutual fund trading scandal of 2003-2005, Janus' widely followed spinoff and IPO from parent railway company Stilwell Financial, significant net redemptions that only started reversing in late 2007, an ongoing drain of talent over the past two years and a total revamping from a direct-sold fund company to one partnering with financial planners. Getting on 100,000 individual platforms isn't easy.
In fact, analysts tracking the firm and its funds have, at times, been brutal.
Yet Goff remains at Janus, where he has continued to excel at unparalleled research skills that have earned him the nickname "research maniac." Shortly after joining Janus in the early 1990s, Goff was promoted from separately managed account analyst to portfolio manager of the Janus Enterprise Fund.
Under Goff's leadership, Janus Enterprise excelled, most notably returning 41% in 1999, without his holding any pure-play Internet stocks. Instead, Goff turned to, and made as sexy a case as possibly feasible, for such stocks as payroll processing, cellular phone towers, wireless connections and arsenide semiconductor chips. It's the nuts and bolts of growing industries that turn Goff on.
In fact, it is much to Goff's quiet credit that the entire Janus family of funds are, once again, delivering outsized returns. As director of research at Janus and portfolio manager of U.S. equity research for the Janus Global Research Fund and the Janus Research Fund, Goff can also be credited with bringing a far more structured approach to research and analysis to the firm.
This approach is earning Janus renewed respect and helping it to attract top-notch, seasoned talent.
In a year when the subprime credit crisis is shaking everyone's confidence, Money Management Executive posed some difficult questions to an asset manager and researcher whose track record speaks for itself. An edited version of Goff's e-mail interview follows.
MME: With JanusINTECH Institutional doing so well, in this momentous year of 2008, with so many leading firms caught by the subprime/collateralized debt obligation/misplaced underwriting crisis, are you ever tempted to set aside proven, rational, man-based approaches to market research in favor of a truly mathematical and unemotional approach?
Jim Goff: We leave the quantitative or mathematical approach up to our sister company INTECH, which has generated tremendous success over time. Fundamental bottom-up research has been the core of Janus' investment culture for 40 years, and that won't change. It is important to recognize what you are good at and stick with it.
It is during times like this where there is a lot of change that we can add a lot of value. We are excited that we have had five straight years of strong investment performance in some very different types of markets, including the current downturn.
MME: That appears to be true. The Janus Global Research Fund you manage is up 8.33% over the past year, beating its category by 10.79 percentage points. That's impressive growth.
Goff: Janus expects to outperform in bull and bear markets, and we believe we can add a lot of value during difficult times such as this. Early results are encouraging.
MME: You have been with Janus for 20 years now. What has it been like to work there all this time, and what has changed?
Goff: In my mind, the most important thing about Janus is what has not changed. We went through difficult times after the tech bubble. A lot of firms that did the same gave up on what made them special.
We never did. It's all about research and investing with conviction. That is the core that drives our performance. We have tripled our spend on research since I became director of research in 2002. And no one has ever accused us of index investing.
We have four disciplines-opportunistic alpha, all-cap growth, concentrated growth and international growth-which are in the first percentile in their categories over the past five years. Furthermore, if you look at the Janus funds that Morningstar rates, 77% of them have four- and five-star ratings.
We continue to invest with conviction.
MME: Are you responding in any specific way to this year's massive subprime crisis, and are you able to do this without stifling the various creative and individualistic approaches of your investment professionals?
Goff: Yes. What has changed, and this is often misunderstood by the outside world, is that we have built disciplines into our investment process to drive consistency of investment performance across market cycles.
We now have a much more experienced research team with capabilities across all sectors and geographies. We strengthened our valuation discipline and risk management. We have incorporated discipline into the investment process without destroying the creative, entrepreneurial core of digging deep and investing with conviction. The adversity we went through ultimately made us a much better investment firm.
MME: Janus is being increasingly recognized for improved performance and a more "refined approach," to the substantial credit of work you oversee in your division. That said-how do you go above and beyond the typical tools of the trade, those being: risk control, avoiding overlapping positions, and better pinpointing and sidestepping downside risk?
Goff: Performance has been strong. Ninety-four percent of our assets under management are 1st or 2nd quartile in their Lipper categories over the past three and five years, with the vast majority being top quartile performers.
We brought in Dan Scherman as head of our risk management effort four years ago. He has taken our thinking to a new level and has helped us understand the risks that are created by our bottom-up stockpicking. Our business is about taking risks. Dan has served as a coach rather than a cop, allowing us to continue to invest with conviction, but with a clear understanding of the risks we are taking.
I also think about how research can support risk management. By deeply researching our investments and staying disciplined with valuations, we are able to mitigate our downside risk one stock at a time. We focus on intrinsic value and not relative valuation analysis. By expanding our research capabilities to where we are strong in all sectors, we are able to generate more ideas for the portfolio managers, which promotes diversification across our portfolios.
MME: What other changes have you made to the research team at Janus?
Goff: We are covering more stocks: 1,300 versus 500 in 2001. We have increased the number of analysts and the average experience level of the equity research team, quadrupling the cumulative years of investment experience of the analyst team since 2001.
More importantly, we have developed a credible career analyst track, which means we are getting and keeping better people.
We have also built a team of 30 research associates and junior analysts that support the analysts. This group allows us to systematically build out a better body of information around the companies we research.
You can outperform the competition by doing a better job of interpreting the data that everyone else has, but think about how much better you can be if you are the only one who has the data.
MME: What is it that Jim Goff brings to the table that you believe will continue to strengthen Janus' competitive edge and enable you to attract the top-notch, seasoned talent you now seek?
Goff: I operate in conjunction with our CIOs, Jonathan Coleman and Gibson Smith. Our greatest strength as leaders is that we fundamentally believe we can add value through research.
We also have a healthy level of paranoia.
The research business gets more competitive all the time. If you are not constantly improving the level of your game, you will be left behind.
We also understand that this is a creative enterprise. You cannot micromanage your way to success. Our role is to get the right people and give them the right tools and the right environment to allow them to be successful. The magic is in the analysts and portfolio managers, and it becomes particularly powerful when they work together as a team.
MME: There has been significant turnover among Janus' investment managers and researchers over the past five years, beginning with the famous departure of CIO Helen Young Hayes in 2003.
You just reiterated that you are working to create a career path for your analysts, and yet there continues to be reports of many moving out of Janus. What is the culture at your Denver offices at the present time?
Goff: I oversee our research analysts, and we've had relatively lower turnover in the analyst ranks. It's true, though, that we have gone through a change in the research model and culture at Janus. I think about our business as being all about generating investment insight.
We used to be what I refer to as "old school," where the portfolio managers had all of the experience, and generated the vast majority of the investment insight. The role of analysts was to serve portfolio managers. Compensation resided primarily with portfolio managers. The clear statement of the organization was that the only way to be successful and well paid was to become a portfolio manager.
This approach can lead to high turnover among analysts who are not promoted. It struck me as being a tough way to generate sustained research excellence. Things had to change.
We have evolved to "new school," where the analysts are highly experienced specialists who generate substantial investment insight. Compensation intersects with portfolio managers, and the analysts manage money. Ideally, analyst turnover should be low in this model, and, in fact, our analyst turnover over the last three years is less than 5%.
We believe our investment team will generate more compelling and more sustainable performance when we generate investment insight at both the analyst and portfolio manager levels.
The evolution in the research model and the change from a "cult of the individual" to a more team-oriented culture has driven some of the turnover in portfolio managers in 2007. When the culture changes, it is often better for everyone if those who do not agree with the changes move on. While turnover is generally viewed as indicative of a bad culture, I would argue that it has contributed to a more cohesive culture at Janus.
MME: You have launched research portfolios driven by your analyst team in recent years. Why have you gone in this direction?
Goff: Like I said earlier-you have to believe that you can add value through research. If you don't do great research, there would be no reason to create research portfolios.
Several years ago, we saw that the performance of our analysts' stock picks was strong across all sectors. This inspired us to create our U.S. and global research portfolios. We intentionally wanted to create research portfolios that held our analysts' best ideas.
These portfolios differ from our portfolio manager-led disciplines from the standpoint that they are directly driven by the analyst team, they are sector neutral and are highly diversified. They capture the value of our research while managing risk through diversification.
The Janus Global Research Fund, for instance, has outperformed the MSCI World Growth Index by about 750 basis points per year over the last three years, placing it in the fourth percentile of its Lipper peer group. More importantly, we got there in the right way with a highly diversified portfolio and no sector bets.
Our top priority is to create compelling portfolios, but we are excited, as well, that these research portfolios also help us retain career analysts and generate sustained research excellence. That is good for all of our clients and shareholders.
Director of Research Janus
Other Responsibilities: Portfolio Manager, U.S. Equity Research, Janus Global Research Fund and Janus Research Fund.
Career Highlights: 20 years with Janus, Goff was promoted early on from senior analyst, private accounts, to manager of the Janus Enterprise Fund, where he delivered an outsized return of 29.79% in 1992.
Unlike his counterparts at Janus, Goff also soundly resisted strong calls in 1997-1999 to move aggressively into pure-play Internet stocks, instead investing in such areas as payroll processing, cellphone towers and arsenide semiconductor chips.
Performance Highs: Janus Enterprise Fund rose 41% in 1999, placing it in the top 3% of mid-cap funds.
Roots: Born in Williamstown, Mass., Goff graduated magna cum laude from Yale University, earning a B.A., in economics, with distinction. He has worked alongside Thomas Marsico and trained as an analyst with David Alger.
Reputation: A Òresearch maniacÓ who Òlooks deeply for misunderstood stocks,Ó Goff executes concentrated trades with conviction and is able to spot growth among an eclectic array of companies.
Passion: Goff takes great professional satisfaction in Òfinding all the great, high-growth companies of the world that are going to dominate their areas.Ó
Hobbies: Ice-climbing rocks and frozen waterfalls in Vermont. ÒInvesting is a lot like climbing,Ó Goff once told Barron's, Òin that a lot depends on who your partners are.Ó
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