Old interview......Portfolio manager a 'fighter' who
can't stand to lose money
By The Denver Post
Mar. 26, 2000 - Blaine Rollins took over management of Denver's
$47 billion Janus Fund on Jan. 1. Since then the stock market has
taken him and his investors on a wild ride.
And that's fine with Rollins.
The 33-year-old portfolio manager relishes volatility. He sees big
market swings as opportunities to take profits and buy other
stocks at deep discounts.
Rollins previously served as assistant manager of the Janus Fund -
the country's sixth-largest actively managed mutual fund - under
the direction of star stock picker Jim Craig. The fund has been one
of the nation's fastest-growing and a consistently strong
performer.
When Craig
became director of
research for parent
company Janus
Capital Corp., he
said Rollins was his
clear choice to
take over Janus
Fund.
Craig described
Rollins as "a
fighter, very
creative, but also
very disciplined. He
has a conservative
streak in him that
makes him perfect
- he can't stand to
lose money." Rollins
is a 1989 graduate
of the University of
Colorado with a bachelor's degree in science finance. A
stock-market junkie, he skipped class in 1987 to watch the big
market crash on television.
Rollins recently sat down with Denver Post Business Writer Steve
Raabe to discuss his investment philosophy, his predictions for the
market, and his advice to investors: Post: The stock market has
been crazy for the past couple of months, and you're responsible
for $47 billion of your clients' money. How do you get to sleep at
night?
Rollins: I've been sleeping fine. No problems.
Post: Market volatility doesn't cause you a lot of consternation?
Rollins: Volatility is great because it gives you opportunities to
make portfolio shifts and buy (company) names that are volatile to
the downside, and take some profits in names that are volatile to
the upside.
I love volatility.
But the thing that makes me sleep best at night is knowing that it's
not just me, myself and I running the $47 billion. It's 40 people
helping me out on the floor. I have a tremendous support staff who
help invest every dollar in the fund.
Post: There are a lot of blue-chip stocks out there, companies
reporting good profits, and they're getting hammered in the market.
What's happening?
Rollins: The names that are really getting hammered are those
that are missing their earnings estimates and projections.
Most recently, Procter & Gamble is a great example of a company
that set the bar way too high and has thoroughly missed, by a long
shot, its earnings outlook. (P&G shares plunged 31 percent on
March 7 when the company announced it would not meet earnings
projections.)
Unfortunately for other companies in that same industry that might
be executing extremely well, like Colgate for instance - which we
own in the Janus Fund - their share price gets dragged down
likewise. The whole group gets whacked.
In the near term, that's a disdavantage to the performance of
Janus Fund share holders, but then again, it's an opportunity
because I know what the fundamentals look like at Colgate. I feel
very good about the longer-term prospects of the company, and I'll
use the weaker share price to add more shares to our portfolio.
Post: Have you bought more Colgate in the wake of the P&G
disaster?
Rollins: Yes, definitely.
Post: What kind of discount did you get?
Rollins: From initial purchase prices six months ago, we bought
Colgate on sale, about 30 percent off.
Post: Everybody seems to be flocking to technology stocks. Is it a
herd mentality, or are there sound fundamentals behind it?
Rollins: I'd say right now you'd find some of the best fundamentals
in the hightech sector. That's not to say that every high-tech
company is undervalued. There are quite a few that I don't
understand the valuations. But there are some tremendous
companies out there benefitting from growth trends in the wireless
market, the networking market, the storage market.
Post: Your careful buying method aside, is there indiscriminate
investing go ing on in technology?
Rollins: Given that there are some valuations that I definitely do
not understand, I'd have to say yes. I don't know why investors
are buying some of these technology or Internet names that have
these valuations on them. I don't know if they'll make any money in
the next five years. Maybe a lot of them won't be in business in
three to four years anyway.
Post: How much of your Janus Fund is in technology?
Rollins: About 32 or 33 percent of the portfolio.
Post: Is that an increase in your tech allocation from, say, a few
months ago?
Rollins: If there has been an increase, it's only been due to
appreciation, not really from purchases. A lot of the dollars that
are being moved around in the fund are coming out of technology
and going to buy more McDonald's, more Colgate, more GE, stuff
that has pulled back nicely with this huge Dow correction.
Post: Fed Chairman Alan Greenspan seems intent on slowing down
the economy with higher interest rates. What effect is that going
to have on the stock market?
Rollins: In the near term, putting pressure on short-term rates is
going to slow down the economy, which is going to have an effect
both on the consumer as well as the business sector. You might
have less buying of the bigger-ticket purchases. Shorter-term
rates will have an influence on auto loans, home-equity loans, even
on mortgages. Any slowdown in consumer purchases is obviously
going to affect fundamentals of the companies, which will affect
their valuations in the marketplace.
Also, the short-term rise in rates is not real positive for a lot of
stocks in the financial services industry. We've seen a huge
correction in financial services stocks, and that's a very large part
of the market.
Post: How do you compensate for that in your portfolio?
Rollins: Well, you just make sure, one, that you didn't own
financial services stocks, especially those that had exposure to
short-term funding. Luckily, I've been pretty negative on most
lending financials since 1997, so we really didn't have exposure to
the direct banking and finance industry.
The financial services names we do own in the portfolio are
benefitting from other secular growth stories that are going on
within their company, like maybe Northern Trust, which is doing an
extremely good job at private banking for consumers, as well as
securities processing. Or, say, a Charles Schwab, which benefits
from the asset-gathering nature of individuals that's going on very
strong right now in the economy.
Our analysts have done a great job keeping us away from a lot of
the big financial services stock hits.
Post: If the economy slows and consumer spending drops, will that
have an effect on tech stocks, or will it only hit the socalled
"old-economy" companies.
Rollins: We're seeing a lot of the consumer purchases on the tech
end right now in the newer, emerging technologies like wireless.
In many cases, a cell phone doesn't really cost a lot of money, and
quite often it's subsidized by the service provider, anyway. So if
you have people upgrading their analog phones to a digital phone,
or maybe even to a digital phone that you can access the Internet
on, those are consumer purchases that are benefitting this
tech-market explosion.
That kind of consumer spending won't be as influenced by a minor
slowdown in the economy. Granted, if there's a major slowdown,
consumer purchases, as well as business purchases, might have a
big effect on some parts of this tech economy.
But people like to have their new toys, whether it's a cablemodem
box, or a wireless phone, or that new DVD player. It's just
transferring one form of entertainment or personal value from one
area to another.
Post: Will higher interest rates cause you to increase your cash or
fixed-income allocation?
Rollins: I don't let interest rates drive what I'm doing with
individual positions in the fund. I will first pick the individual stocks
based upon their own valuations. At a certain point, if I just can't
find anything else great to buy with tremendous upside for the
shareholders, then the cash will build up in the portfolio.
Cash is just that residual bucket within the portfolio.
Post: So you don't use cash as a risk-avoidance tool?
Rollins: No, I don't do any sort of asset allocation. I don't wake up
in the morning and look at interest rates and decide how much in
equities, bonds and cash I want to have. I always focus first and
foremost on company by company fundamentals.
If there are going to be three more rate hikes, those are priced
into many of my names already.
Post: Over the years, Janus Fund has outperformed the S&P 500,
but not by much. Then came 1999, when your fund returned 47
percent vs. the S&P's 21 percent. How'd you do it?
Rollins: It was really just excellent research by the whole team.
We had some great companies that we were doing work on and put
into the portfolio. It was a tremendous team effort.
Post: What were some of your star performers?
Rollins: Looking at the best names, you'd have to start with some
of the companies that had exposure to the wireless technologies
area. So you'd look at Nokia, the handset provider. You'd look at
VoiceStream and Nextel, the service providers. Some of the
component manufacturers into wireless - Texas Instruments, Linear
Technologies, Maxim Integrated.
Post: So wireless was the big impetus?
Rollins: Yeah, that was one area. Networking also had a very
positive impact on the market, and we got help there from our
large position in Cisco.
Cable definitely did not help us last year. That will be this year's
story.
General Electric was a star performer. Viacom and Liberty - some
of our media holdings - did very well. Sun Microsystems would fit
into that.
And our two retail names, Costco and Home Depot, were great
performers in what was not the greatest sector in the world, but
they were among the two best in retail. We owned the winners in
what was a tough sector.
Post: Does the recent volatility mean that we're in a stock-pickers
market?
Rollins: I like to think we're always in a stock-pickers market, but
now more than ever. Especially with regard to my cautionary
comments about some of the high valuations in the technology
sector. You really have to know your winners, otherwise you could
be looking at some severe price declines if you're not in the right
names.
Post: You've got 11 percent of your portfolio in foreign stocks. Are
you planning any changes in that allocation?
Rollins: No. My selection is simply company by company specific.
It just so happens I've found places to invest 11 percent of the
portfolio overseas. There are other companies that I'm currently
building positions in that are foreign, so that number will go up, just
because they're great opportunities. But it's not due to the fact
that I want to run away from the U.S. market.
Post: What about individuals who want to invest in mutual funds
because they're not stock pickers. Should they be looking at
allocating a certain percentage to international funds?
Rollins: I always encourage friends and relatives to have a part of
their portfolio invested with great international investors. It's
another way to diversify your portfolio, to lower the risk profile by
having these non-dollar investments. In many cases, there are
much better opportunities overseas in some of the rapidly growing
emerging markets.
Post: What's your biggest single stock in the Janus Fund?
Rollins: That would be AOLTime Warner - a 7 percent Time Warner
position and 1 percent America Online. That is a clear sign of our
conviction in the merger of these two companies. We feel that
with the current level of earnings and the (potential) earnings
growth over the next four or five years, this is going to be a
cash-flow juggernaut. It's not being priced like that in the market.
Our relative basis in Time Warner and AOL looks hugely attractive
to me.
The synergies from the ability to take the No. 1 content provider in
the world and merge it with the No. 1 Internet provider in the world
to that 22 million customer base that AOL has is just going to be
one of the greatest opportunities we've ever seen in our lifetime.
I am extremely excited and have spent an unbelievable amount of
time on the road with both companies, as well as with a lot of their
competitors. This is one that can't be beat.
Post: Mutual-fund investors are pulling their hair out, wondering
what to do in this volatile market. Tech funds? Blue-chip funds?
Small cap? International? What kind of advice can pros give to the
amateurs?
Rollins: The advice I always offer is, first, you're doing this for the
long term. The best thing to do is not put all your eggs in one
basket, but to put together a diversified mutual-fund portfolio with
U.S.-based funds in largecap, small-cap or mid-cap, as well as add
that international flavor.
Typically, I'll suggest putting at least 25 percent of the portfolio
into foreign investments, and then always have up to 25 percent in
some higher-risk domestic segments, either being small cap, or
pure high tech, or pure health care-related. That puts together a
nice little pie for somebody to start out investing.
Post: What about the other 50 percent?
Rollins: In larger cap areas.
Post: Are investors getting conditioned to higher returns than they
should be?
Rollins: There definitely was a sense of complacency among
investors. You can see it every time the market pulls back; the
investors have been quick to add more money to the market,
expecting a snapback.
With this current pullback, this might be one where investors are
scratching their heads a little more about why some perenially very
high valued stocks like a Procter & Gamble were trading at those
types of valuations.
Hopefully investors now are allocating the capital toward those
companies or mutual funds that are trying to find growth rates that
are more sustainable and justified.
Copyright 2000 The Denver Post. All rights reserved.
This material may not be published, broadcast, rewritten or redistributed.
Return to top |
