*New Feature* The Janus Question: To Hold or to Sell?

What should you do with your sagging Janus funds?

As the 4 million Janus fund shareholders study the third-quarter account statements they just got in the mail -- largely a tale of woe -- many are asking that same question.

Fund Junkie

This is the inaugural Fund Junkie, a twice-weekly column from fund marketer-turned-obsessive fund commentator Ian McDonald. Every Monday and Wednesday, Ian takes a hard and inside look at the mutual fund world. Tune in.

Investors gulped down shares of Janus' tech and telecom-heavy growth funds at a record pace over the past two years, more than tripling the Denver firm's assets and forcing them to close eight stock funds to new investors. Hot performance spurred the cash geyser and helped the funds grow into big holdings in many portfolios. But this year most of Janus' aggressive stock funds are underwater and trailing their peers -- potentially giving investors a brutal Janus hangover.

Here's the short answer: Most Janus funds fall into the large-cap growth category and most asset-allocation models typically prescribe a 25% position in that area. So, most investors should consider using that as a ceiling for their Janus funds exposure, spreading the rest of their money among small-cap stocks, mid-cap stocks, bonds and cash.

And many investors are already ratcheting down their weighting in Janus funds. For the first time in years, Janus stock funds' monthly redemptions outweighed their investments to the tune of $122.5 million in September, according to the latest data from Janus. Given the record $12.1 billion in estimated outflows from U.S. stock funds in the week ending last Thursday, according to liquidity tracker Trim Tabs, it's safe to say that investors are still dumping their Janus shares.

But the long answer is, there are good reasons to sell and good reasons to hold on. Let's look them over, starting with reasons to sell.

Weak Relative Performance

It has been a tough year for most big-cap growth managers, with large-cap growth funds down more than 4% on average, according to Morningstar. But Janus managers have done even worse than their peers. Of the firm's 14 direct-sold stock funds started before Jan. 1, only three are beating their average peers this year. Popular funds like the large-cap growth (JAVLX Quote)Janus Twenty fund, closed to new investors, and the mid-cap growth (JAENX Quote)Janus Enterprise fund, which I own in TheStreet.com's 401(k) plan, are trailing more than 85% of their peers, down 15.3% and 9.8%, respectively.

Get There? Only three of Janus' 14 direct-sold funds launched before Jan. 1 are beating their average peer this year. Over the past three years all but one of the firm's stock funds still beats similar funds.
Janus Fund	YTD Return	Rank vs. Peers (1=best, 100=worst)
(JAGLX Quote)Global Life Sciences	30.2%	75%
(JABAX Quote)Balanced	-2.1	77
(JANSX Quote)Janus	-3	39
(JAGIX Quote)Growth & Income	-4.8	51
(JAEIX Quote)Equity Income	-6.1	56
(JAOLX Quote)Olympus	-6.4	58
(JAWWX Quote)Worldwide	-8.3	40
(JAGTX Quote)Global Technology	-8.7	55
(JASSX Quote)Special Situations	-9.1	84
(JAENX Quote)Enterprise	-9.8	87
(JAMRX Quote)Mercury	-10.1	77
(JAOSX Quote)Overseas	-11.6	26
(JAVLX Quote)Twenty	-15.3	95
(JAVTX Quote)Venture	-31.9	100
Source: Morningstar. Performance figures through Oct. 13.

An Overdose of Large-Cap Growth, Tech and Telecom Stocks

Due to their size, most Janus funds launched more than a year ago tend to focus on highly liquid, big-cap stocks. Janus managers have also focused on the tech and telecom sectors in recent years -- a combined portfolio of the Janus' direct-sold stock funds would have some 70% of its assets in pricey tech and telecommunications stocks. The portfolio's average 48.8 price-to-earnings ratio is well above the S&P 500's 24.9, according to Morningstar.

Because many investors have bought tech-sector funds and the average growth fund has more than 40% of its assets in tech stocks, these funds might be compounding a lack of diversification in many portfolios.

"I think there are a lot of people out there sitting with Janus funds that are overconcentrated in growth and tech stocks. If you'd stayed diversified, you would be doing fairly well this year," says Ron Roge, a financial adviser based in Bohemia, N.Y.

"You need value exposure, in addition to small-cap and mid-cap exposure, which you just can't get [with Janus]," says Morningstar senior fund analyst Scott Cooley.

Under the Hood A cumulative portfolio of Janus' direct-sold stock funds highlights a bias toward big-cap tech/telecom stocks.
Capitalization Weightings	Large-Cap: 69%
	Mid-Cap: 20%
	Small-Cap: 10%
Top-Three Sectors	Technology: 39.5%
	Services (telecom): 32.2%
	Health Care: 9.5%
Source: Morningstar's Principia database. Holdings as of most recent portfolio reports

Too Much Overlap

We're told Janus managers all work on one floor and that they are an inordinately chummy bunch. But they might be a bit too chummy for their investors' good. Janus funds are notorious for their overlap -- at the end of April Nokia(NOK Quote) was the top holding in seven of Janus' direct-sold stock funds and was a top-10 holding in 10 of the funds. The stock is down more than 30% this year through Friday's close.

This overlap -- or "idea-sharing" as fund marketers call it -- is one reason why the firm's funds, tend to rise and fall together. Many of these bets are so big that Janus managers can't quickly exit sagging stocks, and since many of the funds make the same bets, it's not clear why many investors would need to own more than one or two Janus funds.

Will the Managers Stay?

Earlier this year, Janus managers voiced their displeasure with Janus Capital's recent spinoff from Kansas City Southern, which left them with what they consider lesser shops Berger Funds and record-keeper DST Systems as part of Stilwell Financial (SV Quote).

Janus officials adamantly deny a slip in morale, but chief investment officer Jim Craig, architect of the firm's investment style and a former manager, retired, and the firm's chief financial officer Steve Goodbarn has quit, too. Some Janus watchers believe stock pickers will follow them out the door and that the distractions could explain the funds' recent stumble.

"It's just a matter of time before you see more movement," says Roge. "We have a rule of thumb that once we get wind that managers are unhappy we sell. They're probably not working as enthusiastically as they used to, so we move on."

Of course, there are reasons to hold your Janus shares, too.

They've Made You a Lot of Money

While Janus managers' picks aren't looking good these days, 11 of their 12 direct-sold stock funds with a three-year record have beaten their average peer over that time period. Four of the firm's funds posted a triple-digit return in 1999.

"Any style consistently applied will occasionally lead to underperformance," says Morningstar's Cooley.

And the firm's closed (JAOSX Quote)Overseas and (JAWWX Quote)Worldwide funds, steered by Helen Young Hayes and Laurence Chang, are continuing to beat their peers, even though they're down 8.35 and 11.6% respectively since Jan. 1.

Taxes

Tax implications shouldn't drive your investment decisions, but you do have to consider them. If you've been in your Janus fund for more than a few months, chances are you've racked up pretty sizable taxable gains. If you sell, you may be looking at a tough April.

"You may have some huge cap gains in those funds. If you have losses elsewhere, I'd take those to cancel them out. It takes some planning," says Roge.

This doesn't mean hanging on is going to painless. Funds with big gains tend to make big capital-gains distributions. Janus plans to release cap gains information next month, and you're likely to be hit with a tax bill at that time.

Of course, if you own your Janus funds through a tax-deferred account such as a 401(k), taxes aren't a concern.

A Broadened Focus?

With its new (JSVAX Quote)Strategic Value fund -- launched at the end of February and down 8.6% over the past three months, lagging most large-cap value funds -- the firm is trying to move beyond strictly growth fare.

"It's the rest of the world that has painted us as growth managers," says Janus spokeswoman Shelley Peterson.

She acknowledges that Janus managers might be trolling value sectors these days, but says that their style remains the same. Wall Street traders have said that Janus managers have bought up big blocks of less tech-oriented stocks like General Electric(GE Quote) and Boeing(BA Quote) this quarter. Given the firm's track record, it will be interesting to see if they can morph their focus a bit to succeed in a less frothy market.

So there you have it, a bevy of issues you might chew over as you mull what to do with your once-hot Janus funds. The upshot: It would be tough to write these folks off, but it's equally hard to justify a fat Janus stake, even if you're a believer.

If you are planning to shift some money out of stocks and into bonds, you don't necessarily have to leave Janus. (JAFIX Quote)Janus Flexible Income, a multisector bond fund spreading its assets among U.S. and foreign bonds, tops its peers over the past one-, three-, five-, and 10-year periods, according to Morningstar. And yes, I own that fund.

For what it's worth, I'm shaken but not stirred to action. I'm holding on to the two Janus funds I own.