Between the Lines at the Janus Conference

Janus, the fund world's high priest of growth investing, hasn't lost its religion after this brutal year. But that's no reason to ante up when the collection plate comes your way.

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.

Last week, Janus' usually mum managers brought reporters into their Denver offices to reflect on their white-hot 1999 -- when the average Janus stock fund gained more than 80% -- and their collective tumble this year -- when all but one of their tech- and telecom-stuffed funds are down more than 20% since the Nasdaq Composite Index's March 10 peak. Sounding a lot like value managers in past years whose tech-light style left their funds miserably battered, they emphatically denied any plans to change their high-octane investment style that focuses on stocks of fast-growing companies just because that method fell from favor this year.

This unrepentant "sticking-to-our-guns" message, which coincides with the subscription period for the new Janus 2 fund, might be appealing at face value, and this type of cheerleading makes for good copy.

But for investors this year and next, Janus' stand leaves us with two takeaways. The first is pragmatic and immediately applicable: Run-ups like 1999 and meltdowns like this year will probably come again for Janus' funds, though maybe in smaller doses. So only aggressive investors who don't need the money for at least 10 years that they've invested should put up to 25% of their portfolio in Janus funds -- the usual allowance most candy-colored asset allocation pies prescribe for big-cap growth stocks.

The second takeaway is a little harder to quantify, but may have long-term investing implications, nonetheless: Listening to Janus' pros rest on their laurels, refusing to make major adjustments to their style, they seemed like an aging slugger (Jose Canseco) or entertainer (MC Hammer) regaling reporters with their past glories, speaking of themselves in the third person. That may not be fair, but that was the feeling I got listening to these smart folks talk.

At this point, we all know Janus' route to becoming a poster child for 1999's irrational exuberance. The firm's chummy stock pickers own many of the same tech/telecom favorites, like cell phone titan Nokia(NOK), networking dynamo Cisco Systems(CSCO) and server kingpin Sun Microsystems(SUNW).

In a year when the market wrapped its arms around all things tech, those kinds of stocks put their funds in the sweet spot. As the firm rode these and other faves to boffo returns and thin-air valuations, a gush of new cash helped raise the firm's assets from some $75 billion to more than $170 billion in 1999. Janus then shuttered eight of its top selling funds to new investors -- though some 4 million investors own shares of a Janus fund.

The End of a Hot Streak

Source: Morningstar. Returns through Dec. 18

But now the world feels pretty different. If you've got a tech-heavy portfolio, not only are you not in Kansas anymore, you're wondering if that's the house that landed on you. Janus' direct-sold stock funds are down almost 35% on average since the tech-laden Nasdaq Composite's March peak. As might be expected given the spate of closures, Janus funds are now seeing modest outflows.

Turns out that no matter how dogged your research, there's nowhere to hide when you have a fat allocation to one or two sectors that get taken to the woodshed.

What Went Up, Has Come Down Since the Nasdaq Composite's March 10 peak, Janus funds have fallen hard
Janus fund	Since Nasdaq Peak	1999 Return
(JABAX)Balanced	-12.9%	23.5%
(JAGLX)Global Life Sciences*	-21.4	61
(JAGIX)Growth & Income	-21.4	51.2
(JAEIX)Equity Income	-22.2	38.5
(JANSX)Janus*	-27	47.1
(JASSX)Special Situations	-30.7	52.5
(JAWWX)Worldwide*	-34.5	64.4
(JAVLX) Twenty*	-34.6	64.9
(JAOLX)Olympus*	-37.8	100.1
(JAMRX)Mercury	-41	96.2
(JAOSX)Overseas*	-42.3	86.1
(JAENX)Enterprise	-46.1	121.9
(JAGTX)Global Technology*	-48.4	211.6
(JAVTX)Venture*	-68.7	140.7
S&P 500	-5.2	21
Nasdaq Composite	-48	85.6
Source: Morningstar and Baseline. Returns through Dec. 18. *Closed to new investors.

In response to the tumble, Janus managers like Scott Schoelzel ((JAVLX)Janus Twenty), Warren Lammert ((JAMRX)Janus Mercury) and Laurence Chang ((JAOSX)Janus Overseas/(JAWWX)Janus Worldwide) say their mistake was focusing too much money in the tech/telecom sectors and paying too little attention to those areas' precariously steep valuations.

But in the next breath, the stock-pickers, not ones to underestimate their past accomplishments or refrain from parroting their own marketing slogans in a dreary year, say their models and strategies aren't going to change.

Certainly a little hubris is understandable here. After all, of the 12 direct-sold Janus funds with three-year records, only (JASSX)Janus Special Situations lagged its average peer over that time period through Nov. 30, according to Morningstar. In the meeting, managers referred to this year's returns as "un-Janus like." And investors who bought shares of Janus funds prior to November 1999 are generally still in the black.

The firm's past success led many investors to view the Janus brand as a type of magic that leads to stellar results. But the peaks and valleys of the past two years actually prove that Janus funds are as style-dependent as others, only more so due to their overlap. Though managers like (JAOSX)Janus Olympus' Claire Young eschewed overlap concerns, the funds' dip this year should show most investors the downside of an aggressive approach.

In other words, though Janus managers called this year's losses "un-Janus like," they actually are completely Janus-like because they're the result of a strategy they're keeping in place. Given that strategy, it was nearly impossible for most Janus funds to stay above water this year -- only the (JAGLX)Janus Global Life Sciences fund is up since Jan. 1.

Janus fans were clearly happy with that aggressive strategy's upside last year, but many probably aren't too happy with the downside they saw this year. Rather than panic and pull your money out of Janus funds or drink the firm's Kool-Aid and commit more money, the appropriate response is probably to see the firm's funds as home-run swings that deserve a place -- if modest -- in your portfolio. Translation: If you're rattled by this year's losses, your Janus stake is too high.

Keep in mind that at some point, we all become short-term investors when we need to cash in our fund shares and send young Frieda to Harvard. Janus' mercurial performance might not help her "get there," to borrow the firm's tag line, depending on the market's prevailing winds.

A Janus-heavy portfolio might not get Frieda to Harvard, but a modest Janus stake blended with solid funds that spread their money in the value and smaller-cap ranks just might do the trick. Tomorrow this column will look at some funds that might fit that bill.

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