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Fund Spy: Morningstar Medalist Edition

The Highest-Rated Janus Fund That Owns (Mostly) Equities

Greater than the sum of its parts.

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For years, Morningstar’s analysts have been unexcited about most of Janus’ in-house diversified equity funds--as have investors, if years of significant net outflows are any indication. The performance of those funds has lately improved, and outflows have moderated, but we’re not sold quite yet. Of the 12 Janus equity funds that receive Morningstar Analyst Ratings, nine earn Neutrals while just three ( Janus Enterprise (JAENX),  Janus Aspen Enterprise (JAAGX), and  Janus Global Research (JAWWX)) earn Bronze ratings.

But moderate-allocation offering  Janus Balanced (JABAX) (as well as institutional clone  Janus Aspen Balanced (JABLX)) invests primarily in equities--typically 50%-70% of assets--and still earns a Silver rating. The fund’s prospects are boosted largely by the presence of Janus’ fixed-income team, headed by Gibson Smith, who has managed the fund’s bond portfolio and helped set the fund’s overall asset allocation (along with equity manager Marc Pinto) since 2005. Contrast the ratings of Janus’ equity funds with those of its fixed-income offerings: Two of the three we rate are Morningstar Medalists (Silver-rated  Janus Flexible Bond (JAFIX) and Bronze-rated  Janus High-Yield (JAHYX)), while Neutral-rated  Janus Short-Term Bond's (JASBX) failure to earn a medal is primarily because of its above-average fees.

Smith has built a sizable team since becoming Janus’ fixed-income CIO in mid-2007 and has generated fine total and risk-adjusted returns at the above three funds, largely through a mix of deft security selection (particularly among corporate bonds) and opportunistic adjustments of the funds’ weightings and yield-curve positioning in Treasuries. Janus Flexible Bond, which most closely resembles the bond portfolio of Janus Balanced, has handily beaten both its typical intermediate-term bond peer and the Barclays U.S. Aggregate Bond Index during Smith’s eight-year tenure there. Smith's team, which employs a bottom-up approach, is completely separate from that of Bill Gross, hired by Janus in 2014 to run a macro-oriented strategy out of Newport Beach, California.

Pinto, who has also comanaged Janus Balanced since 2005, hasn’t been nearly as successful as Smith at his stand-alone charges. Although he’s turned in good performance at separate accounts he’s managed since the late 1990s, Neutral-rated  Janus Growth & Income (JAGIX) has been a laggard during his 7.5-year tenure, and Neutral-rated  Janus Twenty (JAVLX) is off to a poor start since he took the helm in June 2013. Nevertheless, he generally manages the bulk of this fund’s assets and has contributed to its fine record, in part because its equity portfolio is somewhat different from those of Janus Growth & Income (a large-blend fund) and the more-growth-oriented Janus Twenty. Winners in recent years comprise a diverse list that includes private equity firm  Blackstone (BX), biotech firm  Shire (SHPG), and  Time Warner Cable (TWC) (which wasn’t held by either Janus Growth & Income or Janus Twenty at the end of March 2015). True, Balanced has gained an advantage from Pinto’s growth tilt here as many moderate-allocation funds sport blend- and value-oriented equity portfolios; the Russell 1000 Growth Index has surpassed the Russell 1000 and the Russell 1000 Value by an annualized 1.0% and 2.1%, respectively, over the past decade through July 27, 2015. But the fund’s performance has been remarkably strong during Pinto and Smith’s tenure, surpassing more than 95% of its moderate-allocation peers on both a total- and risk-adjusted return basis over that 10-year span.

The managers don’t usually veer too far from the fund’s neutral 60/40 stock/bond split. For example, its equity weighting was 57% at the end of June, according to Janus. But Pinto and Smith will make significant shifts on the rare occasions they believe conditions warrant it. In 2008, they allowed the fund’s equity stake to fall below 45% just as the financial crisis deepened. Partially as a result of that move, the fund lost a relatively modest 15% while its typical peer dropped 28%.

A final reason we’re more confident in this fund’s prospects than in most Janus funds’ is continuity. Pinto and Smith passed their 10th anniversary here three months ago. Only one of Janus’ equity fund managers has a longer tenure—Brent Lynn of  Janus Overseas (JAOSX). Much of the rest of the equity fund lineup has been plagued by manager turnover. Indeed, only five of the 12 equity funds we rate have been run by the same manager for more than four years.

This fund may not look quite as good relative to peers if growth stocks underperform for an extended period, but it’s a solid core holding.

For a list of the open-end funds we cover, click here.
For a list of the closed-end funds we cover, click here.
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For information on the Morningstar Analyst Ratings, click here.

Greg Carlson does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.