With David Corkins of Janus Capital Group Inc.

David Corkins remembers a day early in his tenure as a Janus portfolio manager when stocks were falling, and he was staring at his computer screen trying to figure out what to do. The Denver-based fund company’s founder, Thomas Bailey, came by and clicked the young portfolio manager’s screen off.
“He said, ‘What are you doing, trying to levitate the market back?’” Mr. Corkins recalled recently. “He said, ‘Get out on the road. Find a good company.’”
That’s advice Mr. Corkins took to heart, he said, and it appears to have paid off.
During his tenure as manager of Janus Growth and Income Fund (August 1997 to December 2003), the fund returned 7.9%, soundly beating the 4.9% return of its benchmark, the Standard & Poor’s 500 stock index.
While Mr. Corkins managed the Janus Mercury Fund (February 2003 to January 2006), now called Janus Research Fund, it returned 19.1%, compared with 15.4% for the Russell 1000 Growth Index.
In February 2006, Mr. Corkins took the helm of Janus Capital Group Inc.’s $11.9 billion flagship fund, which Mr. Bailey himself launched just three or four years after the 40-year-old current manager was born.
Year-to-date through last Thursday, the Janus Fund had returned 9.99%, beating the S&P 500 by 2.57 percentage points.
“[Mr. Corkins] is absolutely the right man for the job,” said Karen Dolan, a mutual fund analyst at Chicago-based Morningstar Inc., who said that poor performance during the bear market that ended October 2002 wasn’t solely the fault of previous manager Blaine Rollins. However, she added, it was indicative of “some real fundamental problems” in the research department at Janus.
The firm has taken steps since to address those problems, including hiring more-experienced analysts and broadening coverage, Ms. Dolan said. Those improvements have helped to augment Mr. Corkins’ already considerable stock-picking skills, she said. Another key strength is the manager’s ability to assess risk, Ms. Dolan said.
“This fund is not going to take big bets like Janus Contrarian [Fund], Janus Twenty [Fund] or Janus Overseas [Fund],” said the analyst, who called the Janus Fund “probably Janus’ best core offering.”
Mr. Corkins doesn’t always get it right, though. He admits to being disappointed by United Parcel Service Inc. (UPS) of Atlanta, a stock he no longer owns. By contrast, NRG Energy Inc. (NRG) of Princeton, N.J., up 49.6% this year through last Thursday, has been a winner. NRG ranked as the fund’s seventh-largest holding as of March 31.

Q. Has NRG Energy been a good stock for you?
A.That’s one of our favorite investments. There are a couple investments in the fund that we’ve made that maybe [the stocks] aren’t as typical that you’d see in many growth portfolios. Some of them are NRG or TXU [Corp. of Dallas (TXU)], both utilities stocks. And when you initially think of utilities stocks, it doesn’t scream out, “Hey, this is on the top of the list for a growth investor,” but it has a lot of what we look for in a business.
We were looking at that sector when it was out of favor. I initially got interested when you see people like Warren Buffett — I’m a big shareholder of Berkshire Hathaway [Inc. of Omaha, Neb. (BRK-B)], it’s also in the fund — and his MidAmerican [Energy Holdings Co. in Des Moines, Iowa] subsidiary is making big investments in the utility space.
Supply is limited, but demand keeps increasing. We found a couple of unregulated players in a regulated industry. NRG — we think very highly of [its] management.
Q. What do you like about management?
A. The chief executive, David Crane, really understands shareholder value, but he also can operate and really execute. The business is complex, so it’s fun for me to kind of break down the complexity and analyze how they make money.
I look at free-cash-flow yield as one of the biggest indicators, and it probably had a 12% or 15% free-cash-flow yield, and we thought that could grow sustainably in the double-digit range.
What we’re really looking for is real high-quality businesses with high-quality management teams that maybe [are] a little bit off the beaten track. So I think the portfolio is kind of in two areas.
Eighty percent of it is probably traditional-growth companies that you and I both know well, like a Procter & Gamble [Co. of Cincinnati (PG)] or General Electric [Co. of Fairfield, Conn. (GE)], high-quality businesses with strong management teams. [They are] very predictable, and I tend to own them for three to five years, so quite some time.
The other 20% tends to be more opportunistic areas where [there’s] certainly growth, but [it is] maybe a little misunderstood, a little more complex, a little bit more of a short-term catalyst, and we tend to own those for 18 months to two years.
Q. Can you give me an example of what that would be?
A. NRG was one example there. JPMorgan [Chase & Co. of New York] was another example where we bought that on the merger of Bank One [Corp. of Chicago] and J.P. Morgan. [We] had a relationship with Jamie Dimon before and were very optimistic about his ability not only to cut costs at the bank but really to redeploy capital.
And that’s another thing we really look at, is return of invested capital, and he’s really restructured the balance sheet of that company.
Most people focus on the $3 billion in cost savings that he did.
We’re certainly appreciative of that, but we really look at what he’s done with the balance sheet.
Q. Do you like going on the road?
A. That’s when I’m most happy is on the road meeting those companies. I travel every week, usually maybe for at least a day or two, and it’s not just meeting with CEOs, because I have yet to have a CEO tell me “Hey, my [company] stinks, I’m about to go in the toilet,” the reverse [is true], if anything. It’s talking to lower-level people at companies, talking to their competitors and really trying to understand what makes the businesses tick.
Q. Do you have good access to people other than in the executive suite?
A. You build up a network. For example, I can’t say that I talk to Jeff Immelt all the time, but he’s the CEO of GE now. Ten years ago, he and I were driving in his car in Milwaukee, going to visit some of the GE medical businesses in [a] Milwaukee hospital. So you start meeting these people when they’re vice presidents, and, you know, three years later, five years later, 10 years later, they’ve gone to different companies. They’ve moved up, and you have this network of people that you can communicate with.
Q. How do you incorporate that into your stock picking?
A. I try and get into a virtuous circle where I build a really detailed model. The detailed model lets you ask good questions of management, or a competitor or a supplier, and if you can use numbers, they’ll tend to give you good answers. It helps you build a better model, which helps you ask better questions. You get in this virtuous circle.
Q. Is there a mistake you’ve made?
A. One business we were disappointed in, on that return-on-capital front, that hurt the portfolio in the last year was UPS. We were mostly disappointed on the capital front, where the business is very underlevered.
The stock was attractively valued, and the business would benefit from increased leverage, and a repurchase and restructuring of the balance sheet. Management hasn’t really been able to do that.
I think that’s one thing that’s really hurt the business. That’s been one of the stocks that have hurt the portfolio.