Fund Profile: Janus Fundamental Equity Fund
by Ann C. Logue
It’s like that old joke about the operation being a success even though the patient died — even five-star funds can perform badly in difficult markets. So far, 2008 has been a doozy, dragging down almost all U.S. equity mutual funds. The Janus Fundamental Equity Fund has had storms of its own to weather. Market conditions led to poor performance for the five-star rated portfolio; but the resignation of the fund manager in November and confusion within Janus about what to with the fund, led to uncertainty about its direction beyond the effects of the S&P 500.
This growth stock fund was formerly managed by Minyoung Sohn, who has left Janus for parts unknown. It’s now under the direction of James Goff, CFA, who joined the firm in 1988, briefly managed the Janus Enterprise Fund, and now serves as the company’s Director of Research. Under his regime, the firm’s 30-person research staff will manage the Fundamental Equity Fund, buying their favorite stocks within each of the seven industry sectors. This not only turns the fund into a bit of a training ground, but it also makes it a twin of another fund managed by Goff and staff, the Janus Research Fund. In fact, Janus’s management had considered merging the two, but it backed off from those plans earlier this month. The new plan is to have the fund be managed by the research team but with the same emphasis on large-cap stocks taken by Sohn.
There’s no denying that the Janus Fundamental Equity Fund earned those five stars. It has a great track record. In 2007, it was up 11.71% while the average fund in the category was up 6.16%. For the last five years, it’s posted an average annual rate of return of 13.78% versus the category’s average of 11.76%. However, past performance does not indicate future results, and that’s especially true here and now. Those who are currently in the fund and who might not be keen on selling low, can take comfort in the fact that the Janus Research Fund, which is in the Large Growth category, is also a five-star fund and posted gains of 24.52% last year, against its category average of 13.35%.
The Fundamental Equity Fund’s largest holding is Hess Corporation (NYSE: HES), which represents 3.89% of assets and handles the exploration and development of crude oil and natural gas resources. Next is Suncor Energy Inc. (NYSE: SU), at 2.46% of assets, an integrated fossil fuel company with a major oil sands project in Alberta. The third largest holding, at 2.34% of the portfolio, is CVS Caremark Corp. (NYSE: CVS), provider of pharmacy benefits and operator of retail drug stores. Oil companies in total make up 9.27% of the fund’s assets, the largest sector; the fund is clearly looking to profit from rising fuel prices, as alternative energy companies forming the third largest sector at 4.52% of assets. The second-largest industry sector is pharmaceuticals at 4.97% of holdings. The portfolio is almost entirely invested in equity, with 71.54% of holdings in U.S. companies, 280.5% in foreign stocks, and the remaining 0.41% in cash and equivalents. The prospectus gives the fund the right to be up to 35% invested in bonds, but it has not done so.
This is a no-load fund with no 12b-1 fee and a $2,500 minimum investment. The management fee is also low, at 0.60% of assets, and the total expense ratio of 0.91% is below the category average of 1.11%. Portfolio turnover had been just 33%, below category average of 72.55%, which made this a good choice for taxable accounts. However, the Janus Research Fund has a turnover of 147%; given that the two funds will be managed in a similar style, it is likely that the Fundamental Equity Fund’s turnover will increase.
Although the Janus Fundamental Equity Fund has a great track record, it was earned under a different management and mostly under different market conditions. The management company doesn’t seem quite sure what to do with it, creating too many unknown factors to currently recommend the fund. It’s unclear if all five of those stars will make it through the year.
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