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Janus Turns Over the Same Leaf


An odd thing happened on Morningstar's "Janus Junction" Internet message board in July. Once loyal investors of Janus Capital Corp., upset that the mutual-fund company was posting some of the worst returns in its 32-year history, started jamming the site with furious messages. The venom--"Janus sucks" was among the milder attacks--got so intense that fund-tracker Morningstar shut down the online forum for a day to let things cool off.

That's quite a turnabout for fund guru and founder Thomas H. Bailey. For much of the '90s, Denver-based Janus could do no wrong in the eyes of its 4 million adoring investors. Hot tech and telecom stocks picked by Bailey and his troupe of mostly twenty- and thirtysomething managers propelled Janus' Mercury and Twenty funds to the sky, with 96.2% and 64.9% total returns, respectively, in 1999. Such returns drove assets over a $300 billion peak last year from just $31 billion in 1995.

Those high-flying days are over. Some say Bailey may relinquish control by cashing out some of his 6% stake later this year. According to his contract, retaining the stake beyond Dec. 31 would cost him at least $100 million because of the decline in Janus' earnings this year. And others wonder if Bailey's once hot growth shop is just a one-trick pony.

In the last 18 months, Janus has become an emblem of the tech wreck. "They just went overboard with tech and telecom, and that hurt them," says Morningstar analyst Christine Benz. Now, Janus' Mercury and Twenty funds are among the industry's worst performers with year-to-date losses of 28% and 29%, respectively. Overall, the 44 Janus funds Morningstar tracks averaged a loss of 16%, year to date, worse than the 10.8% drop in the Standard & Poor's 500-stock index. And their performance in the past 12 months is even worse (table). A small saving grace: Returns beat the 23.5% loss by the Nasdaq composite index.

Bailey & Co. have been laboring mightily to turn things around. More "value" funds are on the roster. And they've slashed--in some cases, dramatically--tech positions. As of June, holdings of Cisco Systems (CSCO)--Janus' second-biggest holding last year--had fallen to 750,000 shares from 167 million. Managers now own far less EMC (EMC) and Sun Microsystems (SUNW) shares, too, and they've upped positions in Boeing (BA) and Tyco (TYC), along with such blue chips as Citigroup (C), Exxon (XOM), and Pfizer (PFE). "We're so upset at the returns that we're working that much harder--I'm never going to take a vacation again until I improve the performance at my fund," vows Blaine P. Rollins, manager of the $31 billion Janus Fund, the largest of the $200 billion fund group.

RESILIENCE. But many Janus managers are still troublingly reluctant to part with the tech darlings that propelled them to No. 1 for so many investors. According to Morningstar, three of the group's largest funds--Rollins' Janus Fund, the $10 billion Mercury, and the $17 billion Twenty funds--still have more than half of their holdings in tech and telecom stocks, while the typical large-cap growth fund sports a 31% tech weighting. The Janus Fund bought even more Linear Technology (LLTC), Maxim Integrated Products (MXIM), and Nokia (NOK) this year. Janus Mercury reduced Nokia but added Juniper Networks (JNPR), Openwave Systems (OPWV), Symbol Technologies (SBL), and ONI Systems (ONIS), among others. And Janus Twenty added shares of Juniper Networks and Palm (PALM) along with NTT DoCoMo (NTT). The group's all-time favorite stocks continue to be AOL Time Warner (AOL), Nokia, and cable outfit Comcast (CMCSA). Says Scott W. Schoelzel, who runs Janus Twenty, the firm doesn't make sector bets, but "digs deep" to find the best companies.

Janus investors have been remarkably resilient. Some started pulling out in June, 2000, and by December had cashed out $3.2 billion--hardly a dent in the $42 billion the firm attracted for the year. Investors pulled $7.2 billion out through June of this year, more than offsetting $5 billion in new retail money, reports Lipper Inc. Eight of Janus' most popular equity funds are closed to new investors, who might have counteracted outflows. Only 2% of Janus investors have closed their accounts so far. They may still be happy with the 12% gain that Janus funds have averaged over the past 5- and 10-year stretches.

CULTURE CLASH? Perhaps the biggest question now is whether Bailey, Janus' 64-year-old CEO, will wind down his role. He is expected to sell at least some of his remaining 6% stake in Janus because of a contract provision that allows him to sell at 15 times Janus' 2000 earnings by Dec. 31. If he doesn't sell by then, analysts estimate his shares will fall in value by more than $100 million. If he cuts his stake below 5%, he would lose the legal control of the firm. "Historically, portfolio managers and analysts have been very loyal to him, and there's some question over defections if Bailey leaves," says Guy Moszkowski, analyst at Salomon Smith Barney. Bailey declined to comment for this story. He has told investors in the past it's unlikely that he'll leave the top job soon.

Bailey has no obvious successor: The previous candidate, well-regarded Chief Investment Officer James Craig, left last September to start a charity. And some people say Janus' parent, Stilwell Financial Inc., will move in and squash its maverick style. "Invariably, when control shifts to a conglomerate, the focus tends to be on profit generation, which could hurt the culture within Janus," says David Lackey, president of Weiss Ratings Inc. Stilwell declined to comment. By no stretch is Janus down for the count. With diversification, some of its funds could beat the market. But a repeat of 1998 and 1999 isn't likely. Says fund consultant Burton J. Greenwald: "That kind of glory isn't likely to be replicated; I don't think lightning strikes twice." By Pallavi Gogoi in Chicago


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