Funds Notebook: Janus Eyes Value Investing

Don't be surprised if next year you see a new value fund from Janus, the no-load heavyweight that has made its name and money in growth stocks.

"Expect to see us attack new areas of the market with new products," (JANSX)Janus fund manager Jim Craig said Tuesday during a conference call announcing his promotion to research director of Janus funds.

In his new position, Craig said he'd make sure managers didn't overlook opportunities in sectors the growth shop has typically ignored, naming three value sectors: consumer durables, consumer nondurables and finance companies. Then he took his statement one intriguing step further.

"You will see new products from Janus next year."

Janus spokeswoman Shelley Grice says there are no definite plans, filings or timetables. But the firm realizes it will have to look beyond growth stocks, she says. "Styles go in and out of favor. To provide good performance for our shareholders, we need to look in all directions. You must always reinvent yourself."

Fund industry observers agree.

"I wouldn't be surprised at all to see Janus value funds. They've been very successful focusing on a relatively small segment of the market. It makes sense that now they want to replicate that success elsewhere," says Philadelphia-based fund consultant Burt Greenwald.

But launching value funds that rival the firm's growth funds' success will be a daunting challenge. Janus has 11 stock funds with three-year records and all have top four- and five-star ratings from Morningstar.

The fund family is hardly diversified, though. All but one of the firm's stock funds is defined as a growth fund by Morningstar. This means the funds tend to focus on highflying stocks with high price-to-earnings ratios that can experience bursts of strong performance, but can fall just as fast in a market downturn. Consider that Janus fund -- not the firm's most risky offering -- lost 11% in 1998's third quarter.

The Price of Growth Janus is not afraid of high-priced stocks.
Fund	Average price-to-earnings ratio
(JAGTX)Global Technology	55
(JAVLX)Twenty	51.2
(JAENX)Enterprise	50
(JAMRX)Mercury	47
(JAOLX)Olympus	46.1
(JANSX)Janus	44.5
(JAGIX)Growth & Income	43.9
(JAWWX)Worldwide	42.9
S&P 500	36
Figures through Sept. 30. Source: Morningstar.

The stakes have been raised by Janus' ballooning assets level -- $167 billion today, up from less than $3 billion 10 years ago.

But can a growth shop specializing in tech stocks simply shift gears and shoot the lights out picking among value stocks?

Don't bet against it, Greenwald says. "I wouldn't be surprised if some big name value managers started going there, and they also have a very deep bench themselves."

-- Ian McDonald

Regional Flavor

Maybe more is better. Or at least that's what Fidelity Investments wants shareholders to believe when it comes to three of its sector funds.

Fidelity is asking shareholders of three of its sector funds, (FNORX)Nordic, (FLATX)Latin America and (FHKCX)Hong Kong and China , to approve a measure that will allow the funds to invest up to 35% of their assets in a single industry. Fidelity says it needs to do so because increasingly, single industries are making up a larger portion of the markets in those regions.

For Fidelity's "We come from the land of the ice and snow" Nordic fund, the name of the game is communications companies. They make up 36.8% of the FT/S&P Actuaries World Nordic Index. (Jimmy Page and Robert Plant couldn't have said it better.) Earlier this year, the Finnish mobile-phone maker Nokia (NOK) and Swedish telecom manufacturer Ericsson (ERICY) the fund's top two holdings, accounted for nearly 25% of its assets, according to Morningstar.

In Fidelity's Latin America fund, which has the ticker (FLATX)FLATX and a chart that's been anything but, telephone companies are a major concentration. Telefonos de Mexico (TMX), Mexico's dominant local carrier, was the fund's largest holding, at 12.5% of assets last spring.

Lastly, banks account for approximately 35.4% of the Hang Seng Index, the yardstick by which the Hong Kong and China fund measures itself. The fund's top holding, HSBC Holdings (HBC), accounted for 10.9% of its assets in April.

Fidelity's proposal would allow the funds to invest up to 35% of their assets in a single industry only when that industry accounts for 20% or more of the local market index. Currently, funds can only invest 25% of their assets in a single industry.

But higher concentration could mean slicing these region funds into even more thinly focused sector funds. For instance, in addition to the banks' dominance in Hong Kong, real estate companies make up 19.5% of the Hang Seng Index. If those companies grow to make up more than 20% of the index in the future, Fidelity's fund could theoretically have 70% of its assets in just banks and real estate.

But just because funds would be allowed to make such big bets doesn't mean they necessarily will, says Fidelity spokeswoman Jessica Catino.

"Obviously, it will depend on the attractiveness of the investment opportunities," she says.

All three funds are doing well this year. Hong Kong & China is up 30.9%, Nordic is returning 13% and Latin America is up 8%.

Fidelity is currently mailing proxies to shareholders and will hold a vote on the issue on Dec. 15.

-- Joe Bousquin

Merger Fund Closes

The (MERFX)Merger fund -- one of the few funds heading north lately in a southbound market -- is one of the most unique and risk-averse funds out there. In a twist that only a Red Sox fan could appreciate, it's also closed to new investors.

The fund tries to profit from merger-arbitrage situations. When a merger is announced, the stock of the target company typically rises while the acquiring company's stock often falls. So the fund buys the target company's stock and shorts the acquirer's stock. The fund ranks ninth out of 123 funds in Lipper's capital-appreciation category over the past 13 weeks.

But unless your financial planner invests through a fund supermarket or you're already in the fund, you can't buy shares. It closed to new investors on Aug. 6 due to a rising asset base. Previously, the fund, which started in 1989, closed between June 1996 and October 1998 at around $600 million. Co-portfolio manager Frederick Green says when the fund reopened last October, redemptions had reduced it to just over $350 million. But it didn't take long to get back to $600 million again.

Ironically, the fund's main selling point is typically not its performance, but its risk profile. Over the past five years, the fund has outpaced its 10% annual return targets, but more eye-popping is its minuscule 0.15% beta when measured against the S&P 500. That means its performance is barely correlated to the broader market, making the fund an excellent hedge. The fund ranks in the top 1% of all stock funds for bear market performance, according to Morningstar.

-- Ian McDonald

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