Janus' Extraordinary 1999 Powered by Small Group of Favored Stocks

The average Janus fund gained 81.6%, thanks to an appetite for large-cap growth and tech stocks.
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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)

Equity Income (38.5%) and

(JABAX) - Get Report

Balanced (23.5%) -- which owns stocks and bonds -- returned less than 48%. Meanwhile, five funds posted triple-digit returns.

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.

Cisco

(CSCO) - Get Report

, 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)

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) - Get Report

, owned by 10 Janus funds, as well as

Sun Microsystems

(SUNW) - Get Report

,

Microsoft

(MSFT) - Get Report

and

Viacom

(VIA) - Get Report

, 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) - Get Report

Global Technology funds this year due to steep inflows. Those two funds, in addition to

(JAMRX) - Get Report

Mercury,

(JAWWX) - Get Report

Worldwide and

(JANSX)

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.

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.