Janus Skippers Acknowledge Mistakes, Stick to Investing Guns

DENVER -- With most of their tech- and telecom-heavy funds underwater and trailing their peers on the year, Janus fund managers went public to say they're sticking to their high-octane style. At the same time, they acknowledged that that style led to some mistakes this year.

Janus Speaks!

Janus: Where It's Been, Where It's Headed

A Roundup From the Janus Conference.

A Q&A With Janus Global Technology's Mike Lu.

Meet the Family: A Look at Janus Offerings.

A Meet the Family Q&A With Janus Mercury's Warren Lammert.

At a Thursday year-end review with the media, a chummy gaggle of Janus stock pickers -- who rarely speak with the press and don't discuss individual stocks -- lamented this year's losses but said they won't change their stripes after one down year. Janus Chief Executive Tom Bailey likened his firm to shortstop Alex "A-Rod" Rodriguez, who just inked the largest contract in baseball history at $252 million over 10 years.

"A-Rod might be the $250 million man, but he doesn't get a hit every time. This is a tough year, but we're still doing the same thing we always did," he said.

Among the big misses that Janus skippers admitted: Not recognizing that valuations had gotten overextended, and failing to realize how their heavy overweightings in tech and telecom hammered them when the sectors saw across-the-board declines.

"I think valuations extended too far. I think we knew it had become an issue and some of us took money off the table, but it would've helped if we did it more quickly," said Warren Lammert, manager of the (JAMRX Quote)Janus Mercury fund, down 16.3% this year.

Janus vs. the S&P 500
	Tech Weighting	P/E Ratio
Janus Fund Family (average of its funds)*	35.7%	48
S&P 500**	26%	24
Sources: Morningstar, Baseline, Lehman Brothers *As of 10/31 **As of 12/6

Janus fund managers are known for their willingness to swing for the fences, making big bets -- often in unison -- on companies where they see boffo earnings growth now and down the road. In recent years that led them to fat stakes in pricey tech and telecom shops. In 1999 the firm's tech/telecom tastes pushed the average Janus fund to a stunning 81% return, leading to steep in-flows and an unprecedented spate of fund closings.

But this year the steep selloff in the tech-stuffed Nasdaq Composite Index has left many Janus funds battered. (JAGLX Quote)Janus Global Life Sciences fund, up 31% and closed to new investors, is the only Janus stock fund that's above-water on the year. This drubbing stands in stark contrast to the Janus stock funds' generally stellar long-term track records.

"Did we make mistakes? Yes, of course. Could we have done better? Yes. But I still think our long-term record proves that the Janus model works," said Scott Schoelzel, manager of the (JAVLX Quote)Janus Twenty fund, down 23.5% and closed to new investors.

That model involves a much-ballyhooed obsessive study of fast-growing companies. Beyond studying their books and management, Janus managers and ads frequently tout the group's method of judging companies from several angles, talking to their competitors and customers, for instance. Given the group's focus on high-priced growth stocks, they say there was simply nowhere to hide from the market's drubbing.

"I think, given our style, there will be years when we'll be behind our peer group," said Lammert. "We'll look back and wonder if we should have been as valuation insensitive as we were at the start of the year. We're always tweaking our model, but the basic process won't change."

When pressed, he conceded the firm's approach will probably lead to a continued leaning toward the tech sector, though the firm resists the "tech shop" label some give it.

"Tech is a core competency. The industries and companies [in the funds] may change, but it's likely tech will continue to be a big part of our focus," he said. "I think one thing we've done is focus on areas with the highest earnings growth. And over the next five- or 10-year period, that's clearly where it will be."

Recent filings of the firm's holdings bear that out. Tech and telecom stocks like Nokia(NOK Quote), Sun Microsystems(SUNW Quote), Cisco Systems(CSCO Quote) and EMC(EMC Quote) were among Janus' top 10 firmwide holdings on Sept. 30. And those same sectors and stocks figured prominently in Janus funds' portfolios on Oct. 31, according to the firm's latest shareholder report.

Janus' Biggest Bets These stocks make up the biggest portions of the Janus Family holdings
Company Name	% of Total Portfolio Holdings	Year-to-Date Return
Nokia(NOK Quote)	6.4%	1%
Sun Microsystems(SUNW Quote)	5.6	-18
Cisco Systems(CSCO Quote)	4.7	-4.6
Time Warner(TWX Quote)	4.3	0.6
General Electric(GE Quote)	3.1	3.6
EMC(EMC Quote)	3.0	42.6
Comcast(CMCSK Quote)	2.3	-23.7
Enron(ENE Quote)	1.8	69.1
America Online(AOL Quote)	1.7	-36.1
American Express(AXP Quote)	1.7	2.6
Source: BigDough and Morningstar

Shareholders of Janus funds have seen both the positives and the negatives of fishing in the pricey and volatile tech-stock pool over the past couple of years. Lammert says not being sensitive enough to thin-air valuations hurt the funds this year.

Still, several Janus funds are keeping large amounts of cash on the sidelines these days. The average stock fund has about 5% or 6% of its assets in cash, according to liquidity tracker TrimTabs.com. But six Janus funds have double-digit cash stakes. The Janus Mercury and Janus Olympus funds had 14.2% and 14.3% cash stakes, respectively, on Oct. 31 according the funds' shareholder report. The Janus Overseas fund had a 13.2% cash position as well.

While they refuse to name names, many Janus managers indicate they may use this cash to snap up shares of oversold companies they like.

"A lot of the portfolio managers have substantial cash positions. Yes, they help us sleep at night, but they also let [us] take advantage of opportunities," said Bailey.

Aside from the investment issues, Bailey and the portfolio managers adamantly denied any plans to reopen any of the eight Janus funds that are currently closed to new investors. But Bailey did coyly indicate that he "wouldn't be surprised" if the firm eventually rolled out more value-oriented funds for Janus Strategic Value manager David Decker to run.