This content is from: Portfolio

Fish out of water

Janus Capital Corp. may be suffering from the wipeout of growth stocks, some stinging press coverage and considerable management turmoil, but the Denver-based mutual fund group made one well-timed move last year: On February 29, the vaunted growth-stock manager introduced a value stock fund.

Janus Capital Corp. may be suffering from the wipeout of growth stocks, some stinging press coverage and considerable management turmoil, but the Denver-based mutual fund group made one well-timed move last year: On February 29, just as the Nasdaq was peaking, the vaunted growth-stock manager introduced a value stock fund.

By Laurie Kaplan Singh
February 2001
Institutional Investor Magazine

While the Standard & Poor's 500 index lost 9.1 percent and the Nasdaq declined 39.3 percent last year, Janus Strategic Value Fund gained 7.8 percent. Its year-end assets: an impressive $2.8 billion. The new fund on the block was one of only two Janus products to post a gain for 2000. (The other was Janus Global Life Sciences Fund, which returned 25.8 percent.)

"In hindsight, it seems extraordinarily well planned," says Janus spokeswoman Shelley Peterson. "We wish we had that kind of vision." Still, Janus Strategic Value lagged the average value fund, which returned 9.8 percent last year.

With many of its growth funds owning large stakes in the same handful of stocks (Cisco Systems, Sun Microsystems, America Online and VeriSign), Janus had nowhere to hide in 2000: Janus Venture Fund fell 45 percent, Janus Global Technology Fund declined 27 percent, Janus Twenty Fund lost 25.4 percent, and the flagship Janus Fund declined 10.9 percent.

For many years, fund shareholders encouraged Janus to offer lower-risk alternatives to its high-octane growth funds. During Strategic Value's 30-day initial subscription period, between January 31 and February 29, when investors could buy into the fund at an initial offering price of $10 per share, they poured $1.6 billion into the new fund. "It was definitely our most successful fund launch - by far," says Peterson.

Managed by David Decker, who also runs Janus Special Situations Fund, Strategic Value invests in large- and midcap companies with above-average growth prospects and reasonable valuations. Decker looks for strong management, growing free cash flow - "the cash that's left over after a company has paid all its bills," he says - and an increasing return on invested capital.

Janus Strategic Value boasts sizable positions in a number of stocks that outperformed in 2000. Its top holding, Coastal Corp., which represents 7.5 percent of the portfolio, gained 150 percent. Tyco International, the fund's third-largest holding, rose 42.4 percent. Solid returns from TJX Cos. and Johnson & Johnson also helped keep the fund afloat in last year's turbulent waters.

Some skeptics thought the Janus value product would become a growth fund in disguise, but it's not: The fund has an average price-earnings ratio of 22.4, about on par with the 22.9 average P/E of other value funds. "Its valuations are in line with those of most value funds and clearly below the S&P 500's," says Morningstar analyst Russell Kinnel.

Still, Strategic Value posts a trailing three-year average earnings growth rate of 18.8 percent, versus 12.6 percent for the average value fund. Certainly, it has owned its share of highfliers, sometimes to Decker's chagrin. Winstar Communications, a wireless telecommunications company, which soared 93 percent in 1999, represented 2.1 percent of the fund's assets when it plunged 77 percent last year. In January, though, the stock gained about 60 percent.

Decker must also regret buying Apple Computer (0.8 percent of assets). The stock plummeted 71 percent following an earnings shortfall caused by disappointing sales of the new G4 Cube computer. "In retrospect, we clearly overestimated the new product introduction," Decker said in his October letter to shareholders. He noted that Apple's decline "significantly impacted" the fund's 2000 return.

Decker is off to a strong start for 2001. Thanks partly to big rebounds in Winstar and Apple (up 37.8 percent), the fund gained 2.95 percent through January 17, versus a 2.1 percent gain for the S&P 500.

Related Content