Retire Rich

July 2, 2007

Janus Said to be Finally Rising Out of Purgatory'

Although there have been a smattering of articles about a reformation at Janus Capital appearing over the past few months, none has been as colorful or as compelling as one last week in Kiplinger's Personal Finance.

Harking back to the days when founder Tom Bailey used to show recruits a video called "This Ain't No Wall Street Joint," in which he appeared on horseback to emphasize the Denver culture, all the way up to the technology craze of the late 1990s, when Janus was pulling in $1 billion in assets a day, the article makes a strong case for a turnaround.

For the first time since the bear market of 2000-2002 and the mutual fund trading scandal that so tarnished its image, Janus appears to be rising out of "purgatory," as Kiplinger's puts it.

Investors have stopped their massive net withdrawals, apparently buoyed by improved performance and a change in leadership. Over the past one- and three-year periods, 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 when a majority of its funds were overloaded with technology stocks.

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. In addition, Janus has discontinued the practice of rapidly promoting these neophytes to portfolio managers. 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 high-risk securities. Further, Janus now ties portfolio managers' compensation not to assets under management but to performance, and Janus is more willing to close a fund once it reaches an unwieldy size. Finally, the firm also sells its funds through brokers.

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