Janus’s troubles began in the late 1990s when its growth investing style was delivering impressive returns, and, with it, strong asset flows. As a result, the funds ended up with overlap and the firm hired a slew of analysts who were too inexperienced to recognize the impending burst of the bubble.
Then, the bubble did burst and the performance of nearly all of Janus’s growth-oriented funds was abysmal. Star managers left the firm in droves. And then the scandal hit.
“Our concerns were so pressing,” Morningstar attests, “that we recommended that investors sell Janus funds in 2003.”
Particularly egregious was the fact that many investors placed money in Janus funds at the tail end of the bull market and left as the market crashed and Janus scandal headlines began appearing. Morningstar Investor Returns show that in the 10 years ended February 2006, Janus funds in aggregate returned 9% but the average investor made only 3.9%.
Today, however, Morningstar credits Janus CEO Gary Black with instituting a compensation plan that puts portfolio managers’ focus on long-term results, recruiting more experienced analysts and researchers, expanding the universe of stocks that they track, attempting to reduce risk by offering a more diversified array of funds and selling more carefully and methodically through advisers rather than directly to investors.