Alternatives

Coming off a big year, Janus files for exotic ETFs

Move launches competition with Goldman Sachs in alternative space

Janus Capital Group Inc. this year has already snagged the world’s most famous bond fund manager and acquired a manufacturer of exchange-traded funds.
But it has even bigger plans in the ETF market, and they go beyond Bill Gross, according to filings with federal regulators.
The fund manager late Thursday asked the Securities and Exchange Commission for permission to build alternative exchange-traded funds based on indexes that it would create and manage. The initial fund could employ exotic strategies involving borrowed assets, according to the filing.
The filing — which comes after the Goldman Sachs Group Inc. disclosed extensive plans for hedge-fund-style and so-called smart-beta ETFs — advances the ETF industry toward a more competitive frontier, according to Dave Nadig, chief investment officer at ETF.com.
“We have some big players moving into the space, and they’ve made some thoughtful opening moves,” Mr. Nadig said. “They’re going for the more exotic stuff, so it’s clear they think that’s where there’s growth opportunity — and it shows they’re not going head to head with BlackRock and Vanguard on a full offering, at least yet.”
Janus, which in September hired Mr. Gross, co-founder of Pacific Investment Management Co., reversed 36 months of mutual fund outflows in October, bringing in $1.6 billion over the three months through November, according to Morningstar Inc.
On Oct. 13, Janus agreed to buy VelocityShares’ holding company for at least $30 million.
The splashy decisions offered new evidence of how Richard M. Weil, approaching his fifth year as chief executive of Janus, plans to leave his mark on an old brand in the mutual fund category that some suggested needed of a reboot. Janus did not respond to a request for comment.
The company said that, should it receive permission, the first fund it plans would invest in the large-company S&P 500, as well as use futures and swaps to make leveraged investments to tamp down market volatility. Strategies of that ilk are often promoted as “hedging tail risk,” particularly since the 2008 market rout, because they ostensibly limit investors’ exposure to rare but devastating market turmoil.
Specifically, the fund manager requested the ability to use long/short fund strategies on domestic and international securities, in which the fund bets on the price of some securities to fall, as well as a related strategy known as “130/30.”
Janus also has a separate application, which it recently updated, to offer a series of actively managed ETFs. It indicated that the first fund offered under that application would be similar to the “unconstrained” strategy Mr. Gross is running as a mutual fund.
He now runs the Janus Global Unconstrained Bond Fund (JUCAX) and serves as a member of the company’s global allocation investment committee.
The $3 billion ETF version of the Pimco Total Return Fund (BOND), formerly managed by Mr. Gross, has been among the most popular actively managed products in that space.
The timing of a Janus ETF launch is unclear. The filings are preliminary and could languish without SEC consideration. Even if Janus does receive approval, it’s under no obligation to launch the funds.
“That will take some time,” Mr. Weil said in October. “ETFs are not immediately launchable.”
But earning a go-ahead could allow Janus to offer a broad range of ETFs without seeking future approval from securities regulators.
Mr. Weil has said ETFs will be crucial to winning the business of financial advisers, who, along with other intermediaries such as brokers, account for 60% of the assets Janus manages.
“We have been unable to serve those folks in the way they wanted to be served, with that kind of vehicle,” he said.