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Janus Capital Group on the Mend

NEW YORK (TheStreet) -- After stumbling badly in the market downturn that began in 2000, Janus Capital Group (JNS) has been on the mend.

The company revised its research process, and the results have been encouraging lately. Janus now has 10 funds that have finished in the top 10% of their Morningstar categories during the past five years. Winners include Janus Balanced (JDBAX), Janus Overseas (JDIAX) and Janus Triton (JGMAX).

Among the most notable outperformers is Janus Research (JRAAX), which returned 6.1% annually during the past five years, outdoing 90% of large growth funds, according to Morningstar.

Another standout is Janus Global Research (JRGAX), which returned 6.8% annually and topped 95% of world stock funds. The two research funds are run by analysts -- not portfolio managers -- and the strong showing is a testament to the changes made in the Janus investment process during the past decade.

In the bull market of the late 1990s, Janus ranked as the hottest fund family. Delivering top returns, Janus Twenty (JAVLX) and other funds attracted huge inflows. The portfolio managers focused on paying top prices for fast-growing technology and health stocks. Many Janus funds owned the same names. Popular holdings included tech leaders Dell (DELL), Cisco (CSCO), and EMC (EMC). When the crash finally came, Janus funds collapsed.

The job of picking up the pieces fell partly to Jim Goff, a Janus portfolio manager, who was promoted to research director in 2002. Goff's first task was to rebuild the analyst staff. In the 1990s, most Janus researchers were young people who had been hired straight out of college. But Goff began recruiting experienced analysts who had been through market cycles and would not be caught up in the frenzy of bull markets. "When I became research director, the average analyst had three years experience," says Goff. "Now the average analyst has 11 years experience."

Goff insisted on a more cautious approach that sought to avoid overpaying for stocks. Analysts began putting considerable time into estimating the fair values of stocks based on their expected future cash flows.

Under the new system analysts can only recommend stocks that sell for less than their intrinsic values. When stocks become overvalued, portfolio managers must sell. Janus also installed a risk committee that reviews holdings and makes sure that the different fund portfolios don't all focus on the same handful of names.

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