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Janus Funds are bulletproof

edited June 2011 in Fund Discussions
I continue to be in-and-out of various Janus Funds, as I have for years, even through their more overt legal problems. You have to manage your crooks, keep an eye on them, and don't let mutual fund advertising mislead you into believing their self-serving crap.

http://www.cnbc.com/id/43381838

excerpt: "This is going to open the eyes of those not in the funds industry who are going to say: 'Wow, those guys are bulletproof'"

Comments

  • Janus does have a few good funds - Balanced, the Perkins Funds, Overseas and a couple of others (it remains to be seen what will happen with Contrarian with a new manager) - but the company has never moved past its past (at least successfully.)
  • Janus funds have always freaked me out a little bit. Aside from their legal issues, wasn't there a period where something like 80% of their funds were basically all the same portfolio?

    I've looked at their offerings from time to time, but could never get past Janus' past.
  • A number of their funds still share quite a few similarities.
  • The ruling has little to do with how good Janus funds are - whether one ought to be investing with them. Rather, it has to do with accountability. With this 5-4 ruling, we have another blow against accountability - management companies (the people who actually run the funds) can say whatever they want, they can lie to the investors.

    The lackeys - the board of the funds ("independent, separate" companies) - publish the managers' statements in the prospectuses. (I refuse to say that the board "makes" the statements originated by the managers, as the majority of the Supreme Court did.) Statements like promising that the fund will monitor market timers. And because of this technicality (that the managers are supposedly not the ones making the statements), the managers cannot be held accountable.

    Sure you can sue the registered investment company (the mutual fund), but then you're just suing yourself - since there are no assets in that company other than your own shares and those of fellow investors.

    Keep this in mind when you read that companies like Fidelity (FMR) feel it's just fine and dandy to have lots of "interested" (i.e. FMR controlled) board members, including the chair.

    As far as Janus is concerned, it has done a lot to clean up its act. On the other hand, there are still a number of trustee holdovers from the 2003 era. See M*: http://news.morningstar.com/articlenet/HtmlTemplate/PrintArticle.htm?time=162829454
  • Doesn't this just mean that you shouldn't expect to be increasing diversification by investing in multiple Janus funds? I think that's a common problem with boutiques.
  • I suppose this would be a problem with holding any mutual fund from the same shop. I own two Oakmark funds, however (OAKEX and OAKBX), while holding OAKGX in taxable. I did a quick look about 6-9 months ago and found only about a 15%-20% overlap in portfolio holdings. I believe in the case of Janus, however, it was reported that several of their funds were virtually identical but were given different names for various nefarious reasons.
  • You raise a lot of different points, so this response will be a bit long.

    1. Same shop isn't the problem - it is (a) same analysts and (b) same space.
    a) Same analysts - Fund families like Vanguard and Harbor outsource many of their funds to different submanagement companies. So there's going to be little overlap, even though the legal manager (e.g. Vanguard Group) is the same across the family. And even if all the management is in-house, if different managers pull ideas from different sets of analysts, then there is going to be relatively little overlap. But if the same pool of analysts is used by all the managers, then significant overlap is expected. There is also a matter of common culture that affects managers. This happens much more in boutiques.

    For example, in Sept. 2002, Kiplinger wrote about Wasatch: "[The managers of Small Cap Growth, Ultra Growth, and Micro Cap] share investing ideas freely, and portfolios overlap. ... The managers make no apologies for their similar tastes. After all, they are looking for the same basic characteristics in a company." In 2003, Jaffe wrote: "Wasatch is hardly a perfect fund group. Four of those five closed funds fall into the 'small growth' category at M*, and a quick check using Overlap software shows that the funds have significant crossover, meaning there is limited diversification benefit from owning more than one fund in the family." Emphasis added.
    http://www.marketwatch.com/story/wasatch-micro-cap-value-is-a-hot-ticket

    b) Same space - one wouldn't expect an international small cap fund (say, OAKEX) and an international/global large cap fund (say, OAKGX) to overlap, since they are required to pull stocks from different pools. Janus offered (and offers) a lot of funds that operate in the same space, so they are more likely to overlap for that reason alone. (See Jaffe's comment about Wasatch funds in the same space.)

    2. Overlap of OAKBX and OAKGX is much higher than you may think, once you restrict your attention to the portions that one expects to overlap. For example, even if one manager were running both funds and in identical manners, OAKBX would have bonds, while OAKGX would not - this would force overlap below 70%. I used M*'s stock intersection to look at OAKGX's stock portfolio vis a vis OAKBX's. Of the somewhat less than half that's domestic, 40% of the stocks in OAKGX are in OAKBX. Not enough to fret over, but enough to feel that they're sharing a good number of ideas.

    3. The overlap of Janus funds, given that they were fishing in the same pool, was not necessarily higher than one might expect of any boutique. In 1998, there was a 38% overlap between Janus Fund and Janus Equity Income fund (about the same overlap as you have in the Oakmark funds, when looking at the portion of funds that could overlap.
    http://articles.chicagotribune.com/1998-09-27/business/9809270050_1_janus-worldwide-fund-overlap-growth-stock-fund

    Janus did have an accelerating problem of getting too much money too fast, and that did cause all the funds to dump the money into the same stocks they knew the most about.
    http://advisor.morningstar.com/articles/fcarticle.asp?docId=12900

    4. "Various nefarious [nice rhyme] reasons" cries out for specificity. What nefarious reasons? See M* article above. Nothing nefarious, just overloaded.
    Janus was advertising its research skills at the time. Was that anything different from what every family claims - that it can seek out the best companies?

    I have issues with Janus concerning their back room (and improper) deals with special investors. But high overlap? The fund portfolios were disclosed every few months. If people didn't see what Janus was doing, and thought they were getting diversification with these funds, they had only themselves to blame. Just as they had only themselves to blame for listening to Janus' hype and not reading the data in black and white, and pouring money in at the peak of the market. (Again, see M* article.)
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  • Not sure what you're saying here.

    If your objection is ethical (legal/moral improprieties), then I might expect you to admonish others not to invest with Janus. (As I repeatedly comment on Heartland - I will not invest so long as William Nasgovitz remains the majority owner, and I will point out his improprieties whenever Heartland comes up, regardless of how well their equity funds have performed. I won't put money into his personal pocket.)
    http://www.kiplinger.com/columns/value/archive/2007/va0130.htm
    Here's a thread from the dear departed fundalarm on Heartland:
    http://messages.finance.yahoo.com/Mutual_Funds_(A_to_Z)/Mutual_Funds_H/threadview?m=te&bn=44269

    But I digress.

    If your objection is one of performance, then multiple chances are not needed. Just look at Janus funds' performance over the past decade (remembering that they imploded in 2000-2002, so this period includes a good chunk of that implosion). Almost all their funds with ten year records are in the top half of their categories, most significantly better than middling. The two blatant exceptions are Janus and Worldwide.

    If your objection is that Janus used to run all its funds similarly, so what? If people thought they were diversifying by owning multiple funds, then they didn't read the SEC filings (annual, semiannual statements), and have themselves to blame. (Fool them once, shame on them.)

    Also, the worst overlap offenders in 1998 (see article I cited, above), were Overseas and Worldwide. No better proof that Janus doesn't overlap these days - Worldwide has the worst percentile peer ranking (M*) over the past decade - 96th, and Overseas has Janus' best - 1st percentile.

    The people who lost big with Janus were the ones with the "hot" money. See, e.g. http://www.econ.yale.edu/~shiller/behfin/2005-04/frazzini-lamont.pdf But people who stuck with Janus (investing, say, in 1996, or investing even in 2001) did just fine. Are you saying that Janus can work for other, patient investors (as the numbers show), but not for you? I doubt that's your point.

    Hence my confusion by your statement that Janus is fine for other people,(that they can give Janus another try), but it's not for you.
  • Yep. You're right as usual sir. And I do believe there's too much hot money nowaays. Monkey chasing his tail it seems to me.
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  • edited June 2011
    They were biggest institutional holder of Enron, 'nuff said. Combined with their "we climb down in the manholes" marketing BS, unforgivable.
  • In the 2001-2003 time frame, Janus made deals with Canary Capital to enable them to do late trading and frequent trading (in apparent contradiction to their prospectuses). I am not aware of "multiple" problems "over the past decade". The recent court ruling was just a coda on that same ethical/legal lapse.

    As part of cleaning house, they did indeed change management - getting rid of the direct decision makers for those agreements. (History of Janus Capital Group and Ethical Battles). As the cited paper notes, Janus also changed its procedures and environment so that the company would address ethical questions before it came to crossing a line. This is confirmed by M*, in an article that I've already cited.

    That particular article (from 2007) goes on to say that analysts' average tenure at Janus doubled since 1999. And I did a M* search on Janus funds to discover that the median manager tenure in their current fund is between 4 and 5 years. M* reports that the median tenure industry-wide is 5 years, so I don't see the rapid management turnover that Janus experienced in the early 2000s.

    Do I think Janus is the most trustworthy fund family around? Heck no. And I'm happy to go into why (which has more to do with my belief that there are a few exceptionally trustworthy companies than whether Janus is outside the norm). But I am simply not aware of facts that suggest repeated legal and ethical lapses post 2003, or that suggest a culturally deficient outfit. Enlighten me.

  • edited June 2011
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