You might not know Sandy Rufenacht's name, but he's solid example of the New Economy's reversal of fortune.
Janus Guys Stick to Their Guns
Don't Blame Enron for Janus' Woes
Janus Faces the Music
bubble inflated, Janus' tech-heavy growth funds took off, drawing oceans of ink and money. All the while, Rufenacht quietly beat his peers each year since the
Janus High Yield fund launched in 1996. While his average peer is in the red over the past three years, he has steered clear of the telecom and
bombshells/blowups that hurt many of his stock-picking peers.
With a gaggle of Janus stock fund managers in town for a news conference in midtown Manhattan tomorrow, here's how the firm's style looks through the lens of a bond investor who has beaten them over the past year. The entire interview will appear on TheStreet.com on Monday morning.
Where is he investing today? Is there value in telecom now, and when does he think the economy pick up? Read on.
1. What's the case for investing in high-yield bonds today?
I think high yield is very attractive for a couple of reasons. One, we're in a very low interest-rate environment not only here in America but in the world. Two, you have a stock market that has been extremely volatile, and I think right now is trading at 26 times the next 12 months' earnings. The jury is out as to whether that's overvalued or appropriately valued. And to say that it's appropriately valued, you'd have to expect an extreme, V-shaped economic recovery. High yield isn't for everybody, but if you're confused as an investor, meaning interest rates are too low and you can't hack
low 2% and 3% interest rates, and yet the volatility of the stock market turns your stomach, then maybe high yield is a category that you should look at.
2. Where are you investing today?
Earlier in the year we made a play on the homebuilders, because we thought either lower interest rates would keep the home sales going strong or that a recovering economy wouldn't raise rates too much for homebuyers. When it finally looked like maybe the economy was going to stall for longer than we'd anticipated, we took some chips off the table. Right now we have about a 5% weighting when we were closer to 8.5% earlier.
Assets: $407.5 billion
1-Year Return: 7.2%/Beats 67% of Peers
5-Year Return: 6%/Beats 95% of Peers
Sales Charge: None
Expense Ratio: 1.03% vs. 1.28% category avg.
Top Sectors:Cable TV
Sources: Morningstar. Returns through Dec. 3.
Energy is also a new focus for us. Historically, we thought their capital expenditures were so great that you never see them de-lever
de-leverage or pay off their debt. But many hedged their gas production at much higher levels, so they actually started de-leveraging. Also, health care seems to have finally recovered. It seems that the Bush administration is a little more health care-friendly. It has been a very good area, and we were into it early.
We've put some emphasis on the wireless market, companies like
, which was just bought by
. We own
. We just feel these companies have solid cash flows and their subscriber rates are going up. They're not necessarily de-leveraging, but they are some of the safer areas in telecommunications.
And of course the portfolio has been built around gaming since its inception. The weak of the weakest have fallen by the wayside, and you're left with some very worthy participants --
-- with ample coverage, great asset coverage and leverage that's tolerable. At the end of the day you have an asset, whether it's a license or a location. And more importantly, they're cash-flow machines.
3. We've seen value managers like Bill Miller sniffing around telecom companies, but buying the bonds in some cases, since they'll offer appreciation and a lot of income if these companies get back on their feet. You mostly stayed out of telecom. Is there value there now?
I think you buy the bonds, not the equity. I grew up under
former Janus chief investment officer Jim Craig, and he said, "If it's unanalyzable, it's not to be bought." I think there probably is value in telecom, but it's unanalyzable because we don't focus on bankruptcy breakups. It's not our type of analysis. So I assume that there is value, but I can't analyze it.
I can go to a casino in Las Vegas or Blackhawk
Colo. and analyze it. I can analyze it in five minutes based on the side of the highway it's on, whether there's a stoplight, how many cars are in the parking lot, why people like to come, what the buffet is like, who manages the casino and how much equity do they own. I can analyze all that, but I can't analyze these telecommunications companies.
Do you think some of your colleagues wish they took your advice on the telecom area?
In most cases they did take our advice, and we took their advice in most cases as well. At the end of the day, we have different mandates. I said I wanted to be a little bit more conservative, and these aggressive growth funds were aggressive.
Source: Morningstar. Returns through Dec. 3.
4. When do you see the economy improving?
The best-case scenario is that you come through a stronger Christmas than Wall Street expects. My sense is that it's not going to happen. At the same time, you're seeing a lot of homes move off the market due to lower prices and lower interest rates. That tells me that America's America: Show Americans a good enough deal, they'll take advantage of it. The problem for Wall Street is that there's no profit in a lot of these deals. So you have to wait until the middle of next year for some recovery. And recovery doesn't mean we have to go back to 6%, 7% or 8% GDP growth. If we could get back to 2.5% or 3%, we'd all be happy. My concern is that the equity markets think that we possibly have to get back to where we were.
Yeah. I don't know if that's in the cards.
10 Questions Archive
Oakmark's Bill Nygren
Berger Tech Pro Bill Schaff
Invesco Telecom Pro Brian Hayward
Tech-Critic Robert Sanborn
Dividend Disciple John Snyder
Fidelity Expert Jim Lowell
Janus Growth & Income's David Corkins
Firsthand Funds' Kevin Landis
5. Did you own any Enron bonds, and was there a way to see this horrible situation coming?
I don't know that I ever could have seen it coming because it wasn't in my market long enough. I never owned it and I never even looked at it. I got interested because of the name when it suddenly started trading on a high yield basis but still had an investment-grade rating. I've just found that these
troubled companies are unanalyzable. I've also found that, as an analyst, companies in crisis-management mode don't want to talk to bondholders or stockholders. That doesn't sit well with me. Falling angels fall fast, whether it's
, Enron or
. The risk/reward parameters relative to the amount of time that I'm going to devote to the research don't stack up for me.
The market overall misjudged the amount of debt that Enron had, and that's something as a bondholder that we're always cognizant of. We'd also look at its asset base. If you do default, what is it that I have claim to? And in this case, it doesn't look like much after the banks are all paid out.
Ian McDonald writes daily for TheStreet.com. In keeping with TSC's editorial policy, he doesn't own or short individual stocks. He also doesn't invest in hedge funds or other private investment partnerships. He invites you to send your feedback to
email@example.com, but he cannot give specific financial advice.