PRINT
EMAIL
COMMENT
BUZZ UP
DIGG THIS
The Janus mutual fund family has finally worked itself out of purgatory. For the first time since the technology bubble popped early this decade and Janus was named in the rapid-trading scandals, investors have stopped pulling more money from its funds than they have been putting into them. And there's good reason: Janus's funds are on a roll. Over the past one and three years, three-fourths of Janus's funds rank in the top 30% of their categories.
But Janus's new leadership remains unrepentant about the fund firm's maverick approach to managing money -- a style that in the first three years of this decade resulted in excruciating losses for many clients. So why should investors trust Janus again, no matter how well its funds have performed in recent years? Because although Janus's stock-picking philosophy hasn't changed dramatically, the company itself has.
The Janus way originated with Tom Bailey, who in 1969 started an investment firm that would be far away from Wall Street, not just in distance but in disposition. The Denver firm's analysts would conduct original research, looking for fast-growing companies that hadn't yet been discovered by the Street crowd. Bailey drove home the philosophy to recruits by giving them a video, featuring himself on horseback, titled This Ain't No Wall Street Joint.
With Bailey setting the tone and such franchise managers as Jim Craig and Tom Marsico picking the stocks, Janus built a reputation in the 1980s and early 1990s as a top-notch growth-stock shop. In the late '90s the firm hit marquee status. The flagship Janus fund rose 39% and 47% in 1998 and 1999, respectively. Janus Twenty, a more concentrated fund, rose 73% and 65% in the same two years. By 2000, no fund family was raking in more assets -- at one point, Janus was collecting $1 billion a day. Firmwide assets peaked in 2000 at $330 billion (they're about half that today).
But Janus had turned mainly into a two-trick pony. Its funds held enormous positions in technology and telecommunications stocks, such as America Online, Cisco Systems and Microsoft. And when the tech bubble burst in 2000, Janus funds had a tough time extricating themselves from positions in some of those companies because they held so many shares. The funds cratered like Wile E. Coyote diving onto a canyon floor. During the 2000-02 bear market, Janus fund sank 64% and Janus Twenty plunged 69%. Others suffered even more. Enterprise plummeted 78%, and Global Technology surrendered 84%.
It didn't seem as if things could get much worse. But in 2003, after the bear market had ended and Janus was starting to crawl out of the crater, a boulder flattened it. Regulators nailed the firm for letting some major clients profit from flipping money quickly in and out of funds, a technique that could eat into the profits of the funds' other investors. In 2004, Janus paid $226 million to settle charges that it violated state and federal securities laws.
You can't get anyone at Janus to cop to gluttony as the cause of its bubble trouble. All Janus officials will confess to is being unable to add analysts fast enough to cope with the "influx of capital," causing "the model to break down." They point out that they did close eight funds to new investors during the gold rush, although they concede they should have closed more and acted more quickly. But although their explanation is weak, their atonement has been strong.
Reprint Article
