Janus rebound in works

Firm shows inflows, strong performance, but advisers remain skeptical of revival

Feb 4, 2008 @ 12:01 am

By Sue Asci

While more money flowed into Janus Capital Group's mutual funds in 2007 than out - an occurrence not seen since 2000 - advisers are skeptical about whether the once-troubled fund company has regained its footing completely.

Janus Capital Group Inc. attracted $6.1 billion to its stock and bond funds last year, a significant improvement from the previous year, when investors yanked $1.8 billion from those funds, according to Financial Research Corp. of Boston.

What's more, about 80% of Janus' stock funds outperformed the average fund in their categories last year, according to Morningstar Inc. of Chicago.

Even so, some advisers are reserving judgment about whether Janus' turnaround will last.

One reason is because fund managers are bolting from the Denver-based firm in droves. Since 2006, 14 of the firm's 26 portfolio managers have left, including such well-known managers as David Corkins, former manager of the flagship $12.5 billion Janus Fund, and Scott Schoelzel, former manager of the $12.6 billion Janus Twenty. "Caution is the word," said Kevin Brosious, president of Wealth Management Inc., a fee-only financial planning firm in Allentown, Pa. "I see no reason to rush into these funds at this point. The departure of three of its seasoned managers from a couple of their top funds gives me pause." Others advisers simply remain wary of Janus' past.
Janus, which oversees $207.6 billion, fell out of favor with many advisers when the collapse of technology stocks in 2000 led to a painful stretch of underperformance. To make matters worse, the company found itself front and center in the industrywide investigation into trading practices launched by then-New York Attorney General Eliot L. Spitzer in late 2003. "I think they are the poster boys of the tech stock mania that went on," said George Papadopolous, founder of an eponymous financial planning firm in Novi, Mich. "They treated their shareholders in such a horrendous fashion." Janus said that it has made a lot of changes over the past 10 years.

A DARK PAST

"We have made a concerted effort to improve the depth and breadth of our research," said Gibson Smith, the firm's co-chief investment officer. "We've enhanced our risk and valuation disciplines, and strengthened the overall investment team, with the objective of delivering consistently strong long-term results."

For example, since 2000, the firm has increased its analyst team to 34, from 27, and increased the number of companies those analysts follow to 1,300, from 500. Also, it has hired 22 new research associates over the past five years.

CHANGE IS IN THE AIR

The return to positive net flows is a sure indication that change is occurring at Janus, said Geoff Bobroff, a Greenwich, R.I.-based mutual fund consultant.

"It's a very good swing," he said. "This is a very important step for Janus. The proof will be in the pudding three or four years from now."

However, manager turnover remains a concern.

"Nobody sticks around," said Mr. Papadopolous, who declined to say how much his eight-year-old firm has in assets under management. "Why take my clients through that?"

MANAGER DEFECTIONS

Advisers aren't the only ones guarded about Janus.

"Performance turnaround has been promising, but it's not an indication of a sustained turnaround," said Karen Dolan, a fund analyst at Chicago-based research firm Morningstar Inc. "We're watching it closely."

Morningstar recently downgraded Janus' score for corporate culture to a D, from a C, because of the defections.

"When people flee like that, it points to cultural disruptions that indicate they may not be on the same page," Ms. Dolan said.

Mr. Smith downplayed that concern, saying manager turnover is an issue for any business.

"I have a tremendous amount of faith in the individuals who serve in the successor role," he added. "We have a long history of strong performance from successors. What we are focused on right now is continuing to provide good long-term performance."

To be sure, the company is positioned for growth.

In 2007, Janus reported net income of $126.3 million, which included a $75.7 million loss from discontinued operations. In 2006, net income was $133.6 million, which included a $5.3 million loss from discontinued operations.

Revenue totaled $1.12 billion last year, up from $935.8 million in 2006.

"I think Janus is turning into a much more mature, stable company," said Rachel Barnard, a Morningstar stock analyst. "I think the performance has had a miraculous turnaround. They have a broader base of investments. They are a different company than they were five years ago."

Sue Asci can be reached at sasci@crain.com.

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