Janus looks back at growth and ahead to value

Growth stocks are all the rage, but the granddaddy of growth is preparing for the day when value investing makes a comeback.

Denver-based Janus last week launched the Strategic Value Fund, its first mutual fund aimed at companies that are undervalued by Wall Street. It will be managed by David Decker, who also runs the $1.4 billion Janus Special Situations fund.

With 96% of its stock investments in fast-growing companies, Janus is obviously worried that a change in market sentiment would bring an end to its hot streak. In 1999, the no-load company had net long-term inflows of $35.7 billion, second only to Vanguard’s $45.8 billion, according to Financial Research Corp. in Boston.

“They clearly know the tide will turn,” says FRC analyst Raymond Liberatore. “I can see Janus launching one or two more value funds before the end of this year.”

The value fund launch comes at a time when most other fund companies are still cranking out new growth portfolios. Pittsburgh-based Federated Investors Inc., for example, last fall launched a growth fund investing in communications and technology companies. Merrill Lynch & Co. Inc., which already has a number of value funds, recently unveiled two new growth funds, Merrill Lynch Premier Growth and Focus Twenty Growth.

For its part, Janus dodges the question of whether more value funds are in the works. “I can’t tell you if there will be more down the road,” says company spokesman Stephen Stieneker. “I just can’t give any details at this time. We are watching this one very closely.”

Other companies placing bets on the resurgence of value include Legg Mason Inc., which just introduced its Classic Valuation Fund run by Alex Cutler and Tony Hitschler, both portfolio managers at Brandywine Asset Management, a subsidiary of value-oriented Legg Mason. Growth-oriented Aim Management Group is also working to expand its value lineup.

One thing is certain: Getting investors to put money into a value fund is likely to be difficult, even for Janus. The Wilshire Mid-Cap Growth Index gained 15.90% last year, vs. an 8.53% drop for the Wilshire Mid-Cap Value Index.

To get assets flowing, Janus is allowing investors to buy shares at the initial public offering price of $10 each by purchasing them directly or through San Francisco discount brokerage Charles Schwab Corp. The shares will be available at the subscription price until Feb. 29.

Under Mr. Decker’s oversight, Special Situations returned 52.5% last year, vs. 60.2% for the average mid-cap growth fund and 21.1% for Standard & Poor’s 500 stock index. In 1998, the fund’s 25.3% return beat its peers by 8.3 percentage points but lagged the S&P by 3.3 points, according to Chicago fund tracker Morningstar Inc.

While Special Situations is defined as a mid-cap growth fund, it comes as close to value territory as Janus has dared to go in recent years. It has fewer Internet plays and is less weighted in technology than many of its siblings.

Still, even by the most liberal definition, Special Situations hardly qualifies as a value fund, the kind that focus on buying shares in companies that are undervalued either because of a one-time problem or because the market does not know they exist. The fund’s top holdings include such names as Viacom Inc. and Time Warner Inc., which have price/earnings ratios of 117% and 261%, respectively.

“The key at Janus is that labels such as growth or value are not important to us,” Mr. Stieneker says. “The important thing is good stock picking.”