As Assets Bulge, Returns Slip for Janus' Foreign Funds

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Janus must be taking a cold hard stare into 1999.

The company's two mega-sized foreign-focused funds --

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Worldwide and

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Overseas, both managed by Helen Young Hayes -- have slipped recently.

Overseas, a $4.1 billion international fund that was closed to new investors in April, returned 14.9% from the beginning of the year through Dec. 24, according to

Lipper

. Its year-to-date return ranks 160th among 509 international funds. Not bad. But in July, just before equity markets around the world went into a free fall, Overseas was ranked in the top 10%. Now the fund's return lags its benchmark, the

Morgan Stanley EAFE Index

, which has returned 16.7% year to date.

The $15 billion Worldwide fund hasn't dropped back as much. It is ranked 33rd of 216 global funds with a 24.6% year-to-date return. But in mid-July, it was No. 14.

This may be nothing more than a small speck of dust on Hayes' otherwise spectacular record. Overseas has returned an annual average of 20.7% over the past three years, third best in its peer group. Worldwide's returns over the same period have averaged 24.2% -- fourth best among its peers.

But if the funds' returns remain lackluster, it could open Hayes up to criticism that she has spread herself too thin or that her funds have gotten too large.

The Janus press office declined to make Hayes available for comment, saying she is too busy and has not given interviews in many months.

That's a shame. It would've been useful to hear Hayes respond to criticism that she has taken on too many funds. In addition to Overseas and Worldwide, Hayes also helps manage the $93 million

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Masters Select International and the $103 million

(NEFDX)

New England Star Worldwide fund, and she is the sole manager of the $323 million

(IGLBX)

Idex Global fund.

In addition, she could explain why Janus closed Overseas at under $4 billion while Worldwide has been allowed to swell to more than $15 billion. The only difference between the funds is that the latter invests in the U.S. The question has to be asked: Could Hayes be another example of a manager losing her touch once her funds get too big?

Asset Magnets

It's difficult to underestimate just how crucial Hayes is to Janus. Her funds have attracted an estimated $9.6 billion in net inflows over the past two years, more than double the total estimated net inflows into all other Janus general equity funds during the period, according to Lipper.

From the public information about the funds, it's possible to make some deductions about Hayes' recent performance.

It's fair to say that her funds' fall came in July and September, when many expensive-looking growth stocks in Europe plummeted. In its semiannual reports for the funds, published earlier this month, Janus admits that it was hit badly when two of its biggest holdings -- Swiss financial services giant

UBS

and

Alcatel

(ALA)

, a French telecom-equipment vendor -- sold off heavily.

Since the end of September, the funds also dropped back against their peers because they have a relatively small proportion of their assets in Asia, where markets have jumped 23.7%, according to the

Morgan Stanley Capital International Far East Index

. By contrast, Europe, where Hayes has the lion's share of her overseas assets, is up 17% since the end of September.

Worldwide had only 6.8% of its assets in Asia at the end of October, with almost all of that in Japan, according to the fund's

Securities and Exchange Commission

filings. Overseas had 9.8% in Asia, again mostly in Japan.

Compare Janus' Asia weighting with, for instance,

Templeton

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Growth, a large global fund that had 19% in the region at the end of September. For Templeton

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Foreign, the weighting is an even higher 28.3%.

So what has to happen for Janus to get back near the top?

Recipe for Recovery

First off, the recovery in European equity markets has to continue. Overseas had 70% of its assets in the region at the end of October while Worldwide had 52% there.

A European rally may well happen. Key European interest rates have been cut, and investors are excited by the introduction of the single currency and the fact that many European companies are managing themselves more effectively.

On the other hand, economic growth in the region is set to slow next year, meaning profits could fall and make already pricey markets -- the

Financial Times/S&P Europe Index

trades at a hefty 21 times earnings -- look still more expensive. If that happens, they'd be extra vulnerable to another sharp selloff.

And Asia remains a big question mark for Janus. The region's recent rally may be no more than a bear-market bounce that will go nowhere, in which case Hayes is right to have a low exposure. But if the region's economies show signs of growth, Hayes may have to ask whether it's time to get back in. She may miss much of the upside by the time her large funds maneuver into Asian markets.

In short, 1999 will be a testing year for Hayes.

At the time of publication, Eavis held shares in Janus Worldwide.