From the July 2007 issue of Research Magazine • Subscribe!

July 1, 2007

Janus' Core Inflows Nearly Back in the 'Black'

In the first quarter, fund flows into Janus Capital Group's traditional fund family broke even for the first time in five years, says Janus CEO Gary Black, with growth and value funds "coming in neck and neck." And in the second quarter? "Janus can capitalize on this," explains Black, 47.

Black, who spoke recently with Research, and Janus CFO Greg Frost shared their confidence with investors during the company's first quarter earnings presentation held April 26. In that talk, the executives emphasized the breakeven results of Janus funds, excluding those run by Intech, the fund company's quantitative-focused unit -- started in 1987 by Robert Fernholz with operations in Palm Beach Gardens, Fla., and Princeton N.J. With Intech's net flows, Janus had net inflows of $3.1 billion earlier this year, just slightly below the results of the first quarter in 2006.

According to fund statistics compiled by the Financial Research Corporation, the Denver-based company ranks 16th out of the top 25 largest fund groups in the country as of April 2007. This puts it right below BlackRock, Dimensional Fund Advisors and Putnam, which are a bit larger in terms of AUM, and right above Van Kampen, AllianceBernstein and MFS Investment Management, which are slightly lower.

Janus Capital Group's total assets, net of proprietary fund of funds and money markets, top $85 billion, up about $10 billion from a year ago, FRC says. Year-to-date net flows through April stand at $1.8 billion vs. $54 million in April 2006. This April, net flows were $647 million for the month, whereas FRC tracked net outflows of $8 million in the same period of 2006.

Sales via financial advisors in the United States, referred to by Janus as its domestic-intermediary business, account for 26 percent of total assets under management, or about $47 billion out of $175 billion. (See chart.) And the fund family has been working aggressively to boost the results of this segment.

"We've made a significant commitment to grow this business," says Black. The number of external wholesalers is up to 43 from 23 two years ago, and that figure should hit 50 by the end of the year. "We're adding internal wholesalers, too," notes Black.

This investment is "bearing fruit," according to the CEO. In terms of managed-product sales via broker-dealers, the first quarter of 2007 included $1.2 billion of net flows -- a sharp improvement over the results of a few years ago. "We're pleased with the program," Black says.

The size of stocks covered by Janus' portfolio management and analyst team has grown to 1,400, up from 500 in 2000. And the average portfolio manager has more than 10 years of experience, while analysts average five years. The team "is much more seasoned and stable," the CEO explains. Jason Yee, portfolio manager of the Janus Adviser Worldwide Fund, for instance, spoke at the June 2007 Morningstar Investment Conference in Chicago; Yee worked for Janus from '92-'96 and rejoined the firm in 2000.

A large part of the recent traction Janus is getting with broker-dealers is the depth of Janus' traditional fund family and the performance of these funds in the past six years or so. In terms of its Lipper rankings, at least 70 percent of the equity funds in Janus' primary retail fund family were in the top Lipper quartile in the first quarter based on one- and three-year returns. More than 50 percent were in the top quartile on a five-year return basis. And some 60 percent of Janus funds have four or five stars from Morningstar as of March 31, in terms of risk-adjusted returns.

And Janus added to its broader product line in May with the introduction of two funds: the Janus Adviser Floating Rate High Income Fund and Janus Adviser Intech Risk-Managed International Fund. The investment minimums for these funds are $2,500 for non-retirement accounts and $500 for certain tax-deferred accounts or UGMA/UTMA accounts, the company says.

"But you can't just have great performance and get invited to the dance," explains Black. "You have to be a value-added partner." The cultivation of this role falls to Janus Labs, which functions as the fund family's think tank and wholesaler support system, he says. "We are getting traction from it."

Set up in November 2005, Janus Labs runs a series of product-neutral workshops and training programs and also turns out white papers to help advisors improve their practice management. It emphasizes advanced investment strategies that rely on financial engineering, as well as ways for advisors to raise their quality of life via solutions found in the life sciences.

Janus Labs' new website is just a few months old and should boost its content to include some just-in-time information for FAs over the next year or so. "We would like our market penetration, via the website, to get up to 25 percent this summer and then 50 percent to 75 percent in the future," says Janus Labs Executive Director Dana Klein.

"It's a way to build trust in our relationships," Klein explains. "It's there to help the wholesaler meet and get to know financial advisors" with information that is highly targeted but also product neutral, he says. "The website materials are designed to get people engaged with 'quiz shows,' for instance."

For this content, Janus is working with the Human Performance Institute so it can share lifestyle information gleaned from top athletes. "We found out through focus groups with FAs that what matters to them is their work-life balance, so we jumped on it," shares Klein. "To be ahead of the curve, you have to be willing to be controversial."

And like Janus' support of the Ironman North America triathlon events and the associated Janus Charity Challenge fund-raising program (which raised $6.5 million for charities in 2006), Janus Labs is surpassing the company's expectations, according to Klein.

For Black, who joined Janus three years ago from Goldman Sachs, there's still one more summit to conquer: positive net fund flows for Janus' core fund family. "In the second quarter, we must show positive flows to truly say that we've turned the corner."

With the strong stock market in 2007 and Janus funds' performance, the situation is looking good, he points out. "As a company, we are sorry about the market-timing issues of the past and proud of our performance since then," explains Black. "We have taken steps and responded with a shift toward more of a culture of accountability and competency. I believe people will give us the benefit of the doubt."

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Janet Levaux is the managing editor of Research; reach her at jlevaux@researchmag.com.

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