A Fund Family on Fire - Janus Capital Corp - Company Profile

Kiplinger's Personal Finance Magazine, August, 1999 by Fred W. Frailey

Is there a problem here?

Welcome to the Janus Catalog Showroom for convenient one-stop shopping from our wide variety of mutual funds. Over here is our flagship Janus fund, up 39% last year, powered by big holdings in Cisco Systems, Comcast, Microsoft, Pfizer, Time Warner and Tyco International. Beside it we have Janus Twenty, up 73% in 1998, with big bets on Cisco Systems, Microsoft, Time Warner and Pfizer. Among our newer funds is Janus Olympus, just turned age four, with a 57% performance in 1998 and big stakes in the likes of Cisco Systems, Microsoft and Time Warner. Or perhaps you prefer a global fund, such as Janus Worldwide. It returend 26% last year on the strength of bets on Cisco Systems, Microsoft, Time Warner Tyco International. Want a really conservative fund? Try Janus Balanced. Even with three-fifths of assets in bonds, it still returned 31% in 1998 due to big holdings in ... Cisco Systems, Comcast and Microsoft. Hmmm.

Jim Craig, chief investment officer of Denver's Janus Capital fund family and manager of the $29-billion Janus fund, listens to this recitation with some amusement. If there's a problem, he doesn't see it.

"Look," says the wiry, 43-year-old Alabaman, leaning across his desk to poke a finger toward his visitor, "if we're all investing in the same stocks--if Janus funds are a dozen of the same thing--then why was my fund up 39% last year and Janus Twenty up 73%? You're right--there is a lot of cross-ownership. But in this economy there are huge dynamics going on that you can't ignore." He means the ascendance of a constellation you could categorize as "new economy" stocks: Internet-driven companies that either supply new technology or thrive on its applications by driving down costs or driving up productivity.

Now Craig is really warming up. "Cisco has grown to be the dominant player in networking infrastructure," he says. "For me to tell Helen [Hayes] she can't own Cisco in Worldwide because Scott [Schoelzel] owns it in Twenty and I own it is like telling her she can't run Worldwide in the best interests of her shareholders." His voice rises with incredulity: "Here's a stock with extreme upside potential, but Helen can't own it because it interferes with Janus Capital's diversification among its funds and poses a risk to Janus Capital's shareholders?" His hand slaps down on the desktop: "Well, forget that! Helen can buy Cisco if it fits her portfolio--end of story." (And she has: Cisco is Worldwide's biggest holding.)

Amazing things are occurring at Janus these days. The funds are on fire. Last year all dozen stock funds did better than the average fund in their categories, and eight blasted past the 29% return of Standard & Poor's 500-stock index. Approaching the middle of 1999, 13 of the 14 stock funds (two were added at the start of 1999) were besting the S&P 500 this year as well. John Rekenthaler, Morningstar's research director, likens Janus today to Fidelity in 1991-93, when it seemed as if that family's smart, personable fund managers could do no wrong. As it is with Janus today, Fidelity's credo was bottom-up research (focusing on individual companies rather than economic trends), homegrown talent and cross-fertilization of ideas.

Implicit in the comparison is the suggestion that Janus funds will end up as Fidelity's did during 1994-95--in a flameout. Says Rekenthaler: "What goes up all at once probably goes down all at once. I'd be surprised if 12 months from now there isn't a little backlash."

Maybe. But that ignores one big difference between Fidelity then and Janus now: The Janus people embrace a shared belief in the new Internet-centered, technology-based economy, which didn't even exist at the start of the decade, To them, this is a once-in-a-lifetime chance to go with young and suddenly huge companies whose profits seem to rise exponentially from here to infinity. These young fund managers, to a man and woman, aren't about to pass up the chance to ride the big wave, even if it means loading supposedly conservative, income-oriented funds with the likes of Cisco (with a trailing price-earnings ratio of 95), Dell Computer (59) and Microsoft (62).

Moreover, the research-driven culture at Janus today is even more intense than it ever was at Fidelity. Says analyst Ron Sachs of his associate, Janus Enterprise manager Jim Goff: "`What color underwear is management wearing today?' That's the level of detail Jim wants about a company." This desire to know all there is to know serves the Janus funds well just now.

The results cannot help but gratify founder and chairman Tom Bailey. He once wrote an essay lambasting technology stocks titled, "If You Can't Wear It & Can't Eat It, Don't Buy It." But what's his Plan B today? What happens when the new-economy stocks sputter?

"Hopefully, the managers will change horses," replies the loquacious, laid-back Bailey. "I don't hire dummies. If the investment climate changes, their job is to construct the best possible portfolios." Easy for him to say.