Wearied in recent years by a bear market and the market-timing and late-trading scandal, Janus Capital is introducing two new funds that could finally signal a turnaround for the onetime fund giant and a departure from its reputation for aggressive growth.
What the upcoming Janus Triton and Janus Research funds probably are not, warned Chris Sporcic, a research analyst at Boston-based Financial Research Corp., is the beginning of an industry-wide trend toward a wave of new products.
Nonetheless, American Century also recently introduced a new fund, the American Century Focused Growth Fund, a large- and mid-cap fund managed by veteran skipper Greg Woodhams.
"We've noticed more consolidation over entire product lines," he said, noting that only two product launches in 2004 captured in excess of $1 billion. One was an exchange-traded fund, the other from an institutional asset manager. "Certainly, some funds are launching products to fill in holes - lifecycle funds have been popular, for example - but I wouldn't think this is a new product trend."
If anything, the trend is toward more of the same, Sporcic said.
"A lot of the funds we tracked last year weren't segment related. There were large volume funds, large-cap funds, moderate allocation funds - more plain vanilla, if you will. People have gotten away from trying to find that hot new sector, as they did in the late 1990s and got burned."
But it wasn't long ago that Denver-based Janus truly was a Roman god of the asset management universe. At the height of the technology bubble in 1999 and 2000, it took in $37.3 billion and $40.6 billion, respectively.
But with the crash came redemptions and questions.
In 2001, investors reclaimed $11.3 billion, which was followed by another $13.5 billion in redemptions in 2002. Since 2003, investors have pulled $33 billion from Janus funds, and in August of 2004 the firm agreed to pay $225 million in fines and restitution for market-timing abuses. Assets in long-term funds have plummeted from $181.4 billion in 1999 to $74.5 billion in 2004. Top executive talent and star portfolio managers, Mark Whiston and Helen Young Hayes among them, also bolted. And for a firm that boasted in quirky television advertisements of its top-notch research yet had so many funds tanking in performance, it surely didn't seem as if Janus was doing its homework.
"It does sort of beg the question of what sort of research they were doing," remarked Rachel Barnard, Ph.D., a senior stock analyst at Morningstar in Chicago.
While a team of executives led by newly minted CIO Gary Black are "doing a bang-up job of trying to sell Janus products through every possible channel," Barnard said, the overall picture is still of a company that needs a turnaround.
"I don't think the launch of new funds is a signal of [a turnaround]. It's a step in the right direction, but they're trying to turn a battleship here that's had a big whole in its hull for some time," she said.
The one bright spot at Janus over recent years has been its Intech unit. Acquired in 2002, the unit employs a risk-managed, mathematically driven investment strategy that tries to capitalize on random stock price movements and beat passive indices. Its four portfolios have all handily beaten their benchmark indices - the three-year performance of the large-cap growth portfolio, for example, has bested its benchmark by more than 7.2% - but Intech will not lend its stock-picking expertise to either of Janus' new funds, said company spokeswoman Shelly Peterson.
Janus Triton and Janus Research are the first new retail fund launches from the firm in four years. The Triton fund will invest in dynamic companies with small- and medium-size market capitalizations and, unlike some small-cap funds, it will hold stocks for the long term. Ron Sachs, manager of the $553 million Janus Orion Fund, will also manage Triton.
The Janus Research fund will invest in the most compelling ideas Janus analysts have, regardless of a company's size, industry, or location, officials said. Jim Goff, director of research at Janus, will guide the investment process and manage the fund day to day.
The funds will officially launch next month with $7.5 million and begin trading with a net asset value of $10 per share. Janus will sell them directly and via major supermarkets, including Charles Schwab.
Roy Weitz, the voice behind fund-alarm.com, a mutual fund and portfolio manager performance Web site, likes the idea behind the new funds, but echoes recent Janus criticism by saying he's wary of their management.
"Triton, that's a great idea," Weitz said, noting that the fund doesn't penalize fund managers for discovering great investments once those companies outgrow their market capitalization limits. "Having said that, I think Sachs is a good manager, but he hasn't exactly shot the lights out at Orion."
Sachs, who joined Janus in 1996, has delivered an average return of 7.7% on the Orion fund over the last three years. Based on total returns for the three-year period ended Jan. 31, Orion finished in the top 14%, ranking 48th out of 353 funds.
The introduction of a small-cap fund from Janus also seems to run against an industry that's gravitating towards large-cap. And while a fund that covers any number of industries also runs against the Janus tradition of picking sector-specific stocks, Weitz calls the Triton fund a smart decision.
"There's a real shortage of good small-cap funds out there that are still open. It's not a niche, it's an important market sector and probably an area where research would give you the greatest market advantage. To their credit, they realize they don't bring a lot to the party in terms of large cap," he continued.
According to Janus, the Research fund will also cover a wide variety of stocks, but the company's analyst team will select the individual names for the fund and stock recommendations will reflect the conviction of the research analyst who follows that company and its industry every day. The individual positions within the same sector, Janus officials said, will initially be weighted, and sector exposure will be kept within a fixed range. Goff will oversee that process.
"Research is 80% of the investment process, and it's where we can add tremendous value," Black said in a statement. "This fund gives investors direct access to our analysts' best ideas and diversification across a broad range of industries."
Weitz said the Research fund is outside anything Janus, or any other firm, has ever done, and that if the idea is going to work, "it's going to take an exceptional research team." But what worries him most is the lack of enthusiasm expressed at his Web site's lively discussion board over the funds.
"The announcement came out so suddenly, too. At fundalarm.com, when Wasatch launched its latest fund, there was a lot of excitement. I didn't see anything on the Janus launch, even to chide them. Janus is saying, watch us,' but I think people are taking a show-me' attitude."
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