Janus ( JNS) asks you to invest in "the power of math" with its new fund. This new approach comes after the fund firm's power of stock-picking has been on the wane. The promise of the new ( JRMSX) Janus Risk Managed Stock fund -- unveiled on Feb. 28 to little fanfare, and taking in a mere (for Janus) $20 million so far -- is to use quantitative strategies to consistently deliver lower risk and higher return than the S&P 500. While a quant fund may seem a refuge for a scoundrel, the Risk Managed fund is a sweeping departure -- a more complex and interesting fund than its previous offerings that merits closer inspection. Thanks to Janus Risk Managed Stock fund, Joe Investor can fork over $2,500 and get the type of complex investing strategies generally available to high-net-worth investors and institutions. Whether that's a good idea requires knowing what this fund does and how it should perform, something that's more than a little unclear from Janus' marketing literature. However, in its previous iterations for institutions, the offering has managed to successfully beat the S&P 500, albeit with tax consequences. Before you go running for your checkbook, understand the risks in the strategy.
How the Fund Works
The fund could be categorized as an "enhanced" index fund, which is any fund based on a well-known index that is manipulated or "un-pure." The managers of the Janus Risk Managed fund try to improve on the efficiency of the S&P 500. This may strike some as strange, as the S&P 500 is considered the perfect "efficient" market portfolio. The whole theoretical underpinning of indexing is that stocks are priced efficiently: You can just buy a large basket of them at random and do just fine. Most actively managed large-cap funds find it impossible to beat the S&P 500 even somewhat regularly. The sad reality of investing is that most professionals do not deliver stock picks that are consistently 2% better each year than the index, which is about how much all the fees and hidden trading costs add up to over low-fee, low-turnover index funds. Given this state of affairs, coming out and saying you are going to improve on the index is a bold line. How does Janus stake such a claim?