Fixed Income

Fixed-income saves the day at Janus

Janus' lesser known bond funds played a big role in a Japanese life insurer's decision to buy a stake in the firm.

Janus Capital Group Inc. may be best known as a growth equity shop, but it was the firm’s less popular fixed-income funds that attracted a Japanese insurer and sent its stock price soaring to its biggest one day gain in more than two years.

Dai-ichi Life Insurance Co. Inc., the second largest life insurance company in Japan, announced last week that it would purchase up to a 20% stake in Janus. In addition, Dai-ichi will invest $2 billion into Janus funds and help distribute Janus funds in Asia, a long sought after area of expansion for the Denver, Colo.-based firm.

News of the deal sent Janus’ stock price up 10% to $8.43 on Friday and was still trading around that level midday on Wednesday. Even with the pop, shares of Janus remain down more than 60% from its pre-financial crisis level of $32.

Janus has been hammered by constant investor withdrawals, now at 12 straight quarters and counting, thanks in large part to the poor performance of its equity mutual funds, which make up 57% of Janus’ $152 billion in assets under management as of June 30. Only 18% of the assets in Janus’ fundamental equity strategies have beat their Lipper Inc. peers over the three-year period ending in the second quarter, according to Janus’ second quarter financial results.

With that in mind, it didn’t surprise anyone when Richard Weil, ceo of Janus told Bloomberg News a “significant portion” of the $2 billion Dai-ichi was investing would go toward Janus fixed-income strategies, which are among the best kept secrets in all of mutual funds. For an insurance company, future income streams, and their reliability, are obviously a key concern.

Since Gibson Smith was named co-chief investment officer in 2006, Janus’ fixed-income funds have consistently been among the top performers, though you wouldn’t know it by the amount of assets they’ve accumulated. Combined, Janus’ fixed-income strategies hold $23 billion in assets, 16% of Janus’ total assets.

Mr. Gibson uses a relatively simple approach to fixed-income investing, said Michelle Canavan, mutual fund analyst at Morningstar Inc. He makes top down calls on whether the funds should be overweight corporate credits or government bonds and relies on his team of analysts to mitigate the default risk by looking at fundamentals. “They’ve made some good calls,” she said.

The Janus Flexible Bond Fund ticker:(JANFX), for example, has an annualized return of 8.6% since Mr. Smith began co-managing in June of 2007 along with Darrell Watters, which ranks in the top sixth percentile of all intermediate-term bond funds and is nearly identical of Pimco Total Return ticker:(PTTAX), the world’s largest mutual fund.

The Janus High-Yield Fund ticker:(JNHYX) and the Janus Short-Term Bond Fund ticker:(JNSTX), which are both also managed by Mr. Smith and Mr. Watters, each rank among the top quartile of their respective Morningstar categories over five-years too. Janus’ only other fixed-income fund, the Janus Global Bond Fund ticker:(JGBDX), was launched in 2010 and has trumped its category average in both 2011 and year-to-date.

The performance hasn’t translated into big inflows however. Sure, the fixed-income funds have taken in $4.6 billion of net inflows since 2010, but that’s the kind of inflows star bond managers like Jeffrey Gundlach and Bill Gross receive in three months, not almost three years.

The Dai-ichi deal should give the entire fixed-income lineup a boost however. Approximately $120 million of the $2 billion of the investment will be used to seed new Janus products, said Jane Ingalls, spokeswoman.

Ms. Ingalls said the seed capital will be used for a mix of equity and fixed-income products, but given Mr. Weil’s past indications that he’d like to diversify Janus’ product lineup, it’s a safe bet that the seed capital will lead to more fixed-income products. Janus only offers four fixed-income funds today, with a fifth due in October, while offering nearly 30 equity funds.

The partnership will also help increase Janus’ footprint in the Asia Pacific region, including Japan, where the demographics are heavily skewed toward older, more conservative investors.