Mutual Funds Nov 02, 1999
The Janus Fund You Never Heard Of staff writer: Craig Schneider 11/2/99
When you think of Janus funds, what comes to mind?
Janus Fund (JANSX) , Janus 20 (JAVLX) , Janus Mercury (JAMRX) , right?
How about Janus Venture (JAVTX) ? Never heard of it?
Maybe it's because the fund has been closed to new investors since 1991, so it has grown in the shadows of Janus' larger, brand name funds.
But its shareholders are certainly familiar with its high returns: Up 57% year-to-date, 45 percentage points better than the S&P 500, and a one-year return of 96%, 71 percentage points above the S&P.
Its secret: The $1.6 billion asset fund has been picking up steam ever since the 13-year veteran Janus manager Jim Craig stepped aboard in February of '97 with co-managers Will Bales and Jonathan Coleman in
tow. The team turned the slow-moving, cash-hoarding vehicle into the aggressive machine that mirrors a larger trend these days at Janus and delivers those hefty returns.
Here's the good news: Investors who want to participate in these kinds of gains can now find nearly identical returns in the ASAF Janus Small Cap Growth (NASDAQ:JSCBX) fund, distributed through American Scandia. Keep in mind that although it has “Janus” in its name, the fund can only be bought from Scandia.
ASAF Janus Small Cap Growth B, an open and younger fund that Janus began managing in January, has the same portfolio managers feeding it virtually identical holdings and proven strategy as Venture.
ASAF has a total return of 58% year-to-date, one percentage point betterthan Venture and 46 points ahead of the S&P. Its one-year return is identical to Venture's 96%. (We picked the B shares because its assets were the largest, at $68 million.)
Both the Janus and ASAF funds' assets are heavily weighted in technology, which obviously has helped create the success. But there's clearly a smart stocking picking strategy behind those numbers.
“We like very predictable business models and like the scenario where we have many opportunities to win,” says Coleman.
The strategy is prevalent in Venture's top two holdings, Exodus Communications (EXDS) and Verio Inc. (VRIO) , two Web-hosting companies. “We try to focus on business-to-business opportunities,” he explains, versus trying to pick, for instance which consumer site will garner the highest amount of eyeballs.
The web hosting companies are highly profitable and predictable businesses, Coleman says, pointing to Exodus' approximate 2% attrition rate and subscription-based revenue model.
The Venture fund has also done well with RF Micro Devices (NASDAQ:RFMD - news) and Alpha Industries (AHAA) , which supply semiconductors for communication products like Nokia (NOK) , Ericsson (ERICY) and Motorola (MOT) . “They're positioned to win, regardless of who takes the market share,” Coleman adds. “It's sort of a lower risk way to play rapid technology) growth.”
Venture's third largest holding and ASAF's largest source of assets is Enzon Inc. (ENZN) . Why? Aside from technology and telecoms, the managers like biotech, specifically companies with a patent position that is defensible.
Enzon has an improved formulation of a drug to treat Hepatitis C, which it is marketing with Schering-Plough (SGP) , a company already controlling approximately 70% of that market with its existing product. The new drug will only have to be injected once a week compared to the existing three-times for other products on the market. Coleman expects Schering to file the drug with the Food & Drug Administration before year-end.
ASAF's other top holdings include SDL Inc. (SDLI) and QLT Phototherapeutics (QLTI) .
Both funds have about half of their stocks in technology issues, which might seem a bit risky to some investors but consistent with Janus' aggressive strategy, which put its funds at the top of the performance tables.
Afterall, the average small cap growth fund has about 33% of its assets in tech stocks, according to Christine Benz of Morningstar. However, ASAF's risk is spread throughout a portfolio of typically 100 names, with no one company comprising more than 3.5% of assets.
Now, keep in mind that Jim Craig will be stepping down as manager of the Janus Venture and Small Cap Growth funds at the end of the year. He will focus on his role as Janus' chief investment officer and assume the position of director of research.
Can the fund maintain its strong returns?
Coleman insists that nothing will really change and that other than Craig' s mentorship and help structuring the weighting of the portfolio in the beginning, Craig hasn't been very actively involved in the security selection process for some time.
Morningstar's Benz agrees and says she isn't worried because as director of research, Craig will continue to be a sounding board for Bales and Coleman as they continue to manage the funds.
A few caveats: The ASAF Janus Small Cap Growth fund exists as a sub-advisory deal. This means that it's American Scandia's product but isadvised by Janus, which collects a 90 basis point management fee.
There's also a 1% 12b-1 fee that brings the total expense ratio to 1.9%, says Benz. The category average is 2.2%.
However, Janus Venture has a 0.94% expense ratio, less than half ASAF's. The main reason: Since it is closed to new investors, it doesn't charge that 12b-1 marketing fee.
ASAF also has a 6% deferred sales charge that investors pay when they sell shares. However, Benz says investors could avoid this fee if they hold the fund for at least six years. Then they are transferred to A shares.
Bottom Line:
Investors can benefit from getting into a fund at its earlier stages when the assets are low. |
