Janus' Extraordinary 1999 Powered by Small Group of Favored Stocks

Last year, Janus' 14 stock mutual funds found the sweet spot of a market focused on large-cap growth and technology stocks and rode it to a startling average return of 81.6%.

Seldom has a large fund firm produced such consistent outperformance across its entire product line. All of the firm's stock funds beat the benchmark S&P 500 index's 21% return, most by a wide margin. Only two Janus funds, (JAEIX Quote)Equity Income (38.5%) and (JABAX Quote)Balanced (23.5%) -- which owns stocks and bonds -- returned less than 48%. Meanwhile, five funds posted triple-digit returns.

A Year to Remember
Janus Fund	1999 Return
(JAGTX Quote)Global Technology	211.6%
(JAVTX Quote)Venture	151.9
(JAENX Quote)Enterprise	128.7
(JAMRX Quote)Mercury	105.6
(JAOLX Quote)Olympus	100.1
(JAOSX Quote)Overseas	86.1
(JAVLX Quote)Twenty	64.9
(JAWWX Quote)Worldwide	64.4
(JASSX Quote)Special Situations	64
(JAGLX Quote)Global Life Sciences	61
(JAGIX Quote)Growth & Income	51.2
(JANSX Quote)Janus	48.2
(JAEIX Quote)Equity-Income	38.5
(JABAX Quote)Balanced	23.5
Source: Morningstar

How did Janus do it? It made a broad bet on a relatively narrow band of large-cap growth and technology stocks. It's no accident that Janus funds' average returns resemble the 86% performance of the tech-laden Nasdaq Composite.

But portfolio overlap can be a double-edged sword: It's great on the way up, but it can be painful when those stocks suddenly are leading the market down.

"There's a huge risk. They're making a huge bet on a narrow segment of the market, so their continued success is dependent upon them being equally savvy on finding the next hot sector, and that's hard to do," says Tom Stevens, chief investment officer at Wilshire Asset Management in Santa Monica, Calif.

A hypothetical year-end 1999 portfolio made up of the holdings of all of Janus' stock funds would have more than 31% of its assets invested in tech stocks. That's about 10 percentage points higher than the tech weighting of the S&P 500. And Janus would be underweighted in classic value sectors like utilities and financials.

Janus' Favorite Stocks*
Stock	No. of Janus Funds with Shares
Cisco(CSCO Quote)	9
Nokia(NOK Quote)	10
Tyco(TYC Quote)	9
Time Warner(TWX Quote)	7T
Comcast (CMCSK Quote)	8
Sun Microsystems(SUNW Quote)	7
Microsoft(MSFT Quote)	7
Viacom(VIA.B Quote)	7
Enron (ENE Quote)	8
AT&T Liberty Media(LMG.A Quote)	8
Source: Morningstar; *ranked by percentage of Janus stock fund assets; data as Sept. 30, except for Life Sciences, which is as of April 30.

Cisco (CSCO Quote), the portfolio's top holding, was owned by nine of 14 Janus stock funds at year-end, with bets ranging from a low of 1.3% (Balanced) to a high of 6.4% ((JAVLX Quote)Twenty). By comparison, Fidelity, a large fund firm with a wide variety of investing styles, owns Cisco in less than one-quarter of its funds.

Janus' top 10 also includes Nokia (NOK Quote), owned by 10 Janus funds, as well as Sun Microsystems (SUNW Quote), Microsoft (MSFT Quote) and Viacom(VIA Quote), each owned by seven Janus funds.

"There is overlap. But we've researched those companies and we think they're some of the best companies out there to invest in. When we find companies we like, we make a commitment to them," says Stephen Stieneker, a Janus spokesman.

It's hard to argue, and not many investors have. More than $35 billion gushed into Janus funds last year, according to Boston fund-consultant Financial Research. In the fourth quarter, Janus stock funds took in 23 cents of every dollar invested in stock mutual funds.

Janus started 1999 with about $75 billion in assets and finished with more than $170 billion, thanks to high sales, low redemptions and stellar performance.

It was "quite easily one of the most remarkable sales years for any [fund] group," says Dave Haywood, research director at Financial Research.

Janus had to close the popular Twenty and (JAGTX Quote)Global Technology funds this year due to steep inflows. Those two funds, in addition to (JAMRX Quote)Mercury, (JAWWX Quote)Worldwide and (JANSX Quote)Janus, were among the top-15 best-selling funds last year. They took in more than $26 billion on their own.

Only Vanguard, the $481 billion giant, had better net flows -- sales less redemptions -- than Janus. But considering Vanguard's larger size, Janus' sales are even more impressive, says Haywood.

Gaining on the Giants Janus started 1999 as the tenth-largest fund shop and finished the year as No. 5
Company	1999 Inflows ($ billions)	Total Assets ($ billions)
Fidelity	$20.3	$650.1
Vanguard	45.6	481.2
American Funds	7.1	326.6
Putnam Investments	5.3	240.6
Janus	35.7	171.8
Source: Financial Research

Still, the company has earned its reputation as a growth-stock picker, and there's no guarantee it'll be as successful if value storms back. Given the funds' current bias, it's hard to argue that Janus shareholders won't feel the pain in a tech selloff.

But Janus' Stieneker argues that Janus portfolio managers and analysts pick companies, not sectors, and that process should continue to turn up emerging companies even if the market shifts away from tech stocks.

Interestingly, it looks like even Janus is looking to diversify. Strategic Value -- a foray into all-cap value investing -- will launch March 1. Ironically, Janus recently leap-frogged flagging value shop Franklin-Templeton to finish 1999 as the fifth-largest fund company in the nation.