Dr.Paul B. Farrell

LOS ANGELES (CBS.MW) — Recently one of our readers asked how to get into the Janus Funds bandwagon now that the Janus Twenty fund is closed. Hey, that’s an easy question. Open an account and throw darts at their list of nineteen equity funds.That’s right, Janus is that good.

Okay, seriously, we don’t want to make this seem easier than it is, or sound too flippant — but, well, maybe it is almost as easy as throwing darts, even though the skeptic-in-you is screaming, Hey, this is too good to be true, there’s gotta be a catch somewhere — so don’t do it!

But before you dump the idea, stop a minute. Check out this list of the 20 key Janus family equity funds. And keep in mind that where Fidelity and Vanguard have hundreds of funds, Janus is, by comparison, a relatively small fund family.

But wow, does it ever have a huge percentage of high-performing winners among its offerings. Note in particular that while Janus Twenty is the family’s best performer on a 3-year basis, there are eight other funds in the family that are performing even better on a short-term basis:

JANUS FAMILY’S AMAZING FUNDS Ticker net assets 3-yr rtn% 1-yr rtn% Janus Aggressive Growth JAAGX 1.4 B 30.1 101.3 Janus Enterprise JAENX 1.4 B 27.9 99.6 Janus Mercury JAMRX 6.7 B 37.0 89.0 Janus Olympus JAOLX 2.9 B 38.7 79.4 Janus Venture JAVTX 1.5 B 22.9 75.6 Janus Global Technology (ytd data) JAGTX 1.8 B n/a 73.6 Janus Special Situations JASSX 1.2 B n/a 68.1 Janus Capital Appreciation JACAX 0.3 B n/a 67.1 Janus Twenty JAVLX 25.2 B 44.4 62.5 Janus Fund JANSX 31.8 B 30.2 58.5 Janus Growth JAGRX 1.8 B 28.1 55.0 Janus Equity-Income JAEIX 0.8 B 30.4 52.3 Janus Growth & Income JAGIX 5.0 B 33.5 47.0 Janus Worldwide Growth JAWGX 3.8 B 25.0 35.9 Janus Worldwide JAWWX 20.8 B 23.0 34.3 Janus Balanced JABAX 2.5 B 22.7 33.5 Janus Global Life Sciences (ytd data) JAGLX 0.3 B n/a 31.3 Janus Overseas JAOSX 4.8 B 19.5 27.6 Janus International Growth JAIGX 0.4 B 20.0 26.3

Also notice, in particular, that Janus has three giants, Janus Fund, Janus Twenty and Janus Worldwide, all with more than $20 billion in assets. If I were a betting man I’d bet that anybody familiar with this successful no-load fund family is already shifting money to one of these alternatives when they hear that Janus Twenty is closed. And yes, I still think you could almost throw darts and build a successful retirement portfolio with all these Janus funds. The Janus secret? ‘Culture’ not darts

So what’s the secret to the Janus success story? When I interviewed Blaine P. Rollins some time ago it was obvious to me, even though somewhat intangible — Janus’ secret is its unique culture. In an age when so many other fund managers are morphing into index clones, the Janus no-load fund family, like Frank Sinatra, is doing it My Way. And it pays off, the company’s fabulous record speaks for itself: Eleven of Janus’ 19 equity funds are currently in the top 20 percent of their peer groups, and all but one of the rest in the top 40 percent.

Rollins has been on the Janus team since 1990, a couple years before the inception of Janus Balanced. He’s been on the $31.8 billion Janus Fund management team since 1994, and in 1996, he took over as lead manager of both Janus Balanced and the newly-created Janus Equity-Income fund. Balanced has been averaging 22.7 percent for the three-year period. Here’s a few observations that stand out regarding the culture that makes Janus so successful: Farrell: How do you do your research. You mentioned your analysts making trips. What actually does that entail? Rollins: The firm that Tom Bailey founded is based on very intensive company research. Tom’s always very much shunned Wall Street and tried to find ideas on his own away from Wall Street. We have an unlimited travel budget. We spend as much time as we want on the road seeing our companies. seeing subsidiaries of our companies. seeing the competitors of our companies. It helps me sleep at night knowing that I’ve been on the road seeing over three-quarters of the guys running my companies in the last year. And I know that the rest of my analysts have seen the other 25 percent. We’re real fortunate to be in a position that we can call up our companies and set up meetings with upper management or with their subs and get in the door. So you and your analysts spend a lot of time in the air? Jim Craig, myself and Dave Decker, the three of us work together on the large fund. We easily spend one to two days a week on the road which is extremely uncharacteristic of portfolio managers in this business. If you work in Boston or New York, you probably have a lot of conferences going on.You can just run down and see a company’s presentations. However, we avoid seeing companies at the conferences. We’d rather fly down to Dallas to see the Associates Corp. in their office where the CEO feels most comfortable and he’s going to give us the straight poop on how his business is doing, and what his company’s prospects are, and what really gets him excited about being a shareholder in the company. Then we filter all of that information through our heads and make our investment decisions based on all those meetings. When companies are at the really big conferences, they have a pre-programmed mission in their head that they’re going to talk about. And even when they go on the road and they’re making little road trips around the United States, they basically have a script. For example, we’re making a trip to New York, and we’re going to spend time with Sandy Weill at Travelers, with John Mack at Morgan Stanley, with Barry Diller at USA Networks. We’re going to see Jerry Levin at Time Warner. When we sit in their offices, they definitely let down the guard. They love to talk to their large shareholders. And in most cases we’re usually a top-5 or top-10 shareholder in most of these companies. And the fact that we’re interested in them as a business rather than them just being a ticker on a screen or a chart that moves up and down, they know we’re in them for the long term. And as long as they allocate their capital the way they say that they’re going to allocate their capital, we’re going to be a long-term shareholder. There’s just too much emphasis on using index as the baseline, today. It’s forcing so many managers to mimic an index fund, to actually become an index fund in disguise. We were trying to use the Janus research style to find great individual opportunities rather than just running an index portfolio with GE, Coca-Cola, and big drug stocks. We don’t want to play the index game and that really hasn’t helped us for the last five years. It’s just not the Janus way to index a portfolio. All my peers, all my extremely large balanced and equity-income peers in Boston and New York have been forced into becoming index funds. I view the [index cloning trend] as an opportunity, which has started to show up in my numbers. But I feel sorry for those guys that are being forced to buy the S&P 500. When you say grow, you’re more on the growth spectrum rather than a value-oriented fund. What’s the distinction? Growth is very much reflective of the Janus background of investing in growing companies. I am not only look at bottom-line growth, but I want to see some top line growth in my companies. It’s much easier to make money in stocks that have top-line growth. ‘Top-line growth?’ Tell me, how does top-line growth differ from bottom-line growth? Hopefully I find companies that will have a double-digit unit volume top-line growth rate that will filter down through: — some margin expansion, and — definitely some return-on-invested-capital expansion, somewhere between 15 and 20 percent bottom line growth. I like to find those companies that have the higher margins with better returns on capital than other businesses, companies that become cash-generating machines to: — help them expand their own current businesses, — help them to acquire other great businesses, — pay down debt, or — repurchase stock. We don’t really care about dividends. Half my shareholders have to pay taxes. So I say to our companies: Let’s not see dividends increase. Find something better to do with the money within your business or via an acquisition. Otherwise, go out and repurchase your stock. I also pay taxes on most of my shares in the fund too, and I hate the double taxation. Do all the Janus managers participate in the ownership of the fund family, or the funds? Yes. All Janus managers are somehow compensated off of the performance of our fellow managers. So you see no in-house fighting for stocks or ideas. In fact, if I find something that I know is going up, it’s my job to go in and stand on Helen Hayes’ desk [Janus Worldwide], on Scott Schoelzel’s desk [Janus Twenty], and on Jim Craig’s desk [Janus Fund], and make them also buy the stock. But then again, we do have small-cap funds, mid-cap funds and international funds where some stocks obviously are a better fit than others. However, if I knew Microsoft was going to put on 50 points over the next couple of months, I’d better do my best job to make sure everybody owns it because not only will all of our shareholders make money but we’ll beat the pants off our competitors. So you have a personal responsibility to sell ideas in-house? Yes, yes. And we have a multitude of meetings during the week. On Monday afternoons the entire firm meets for a couple hours — all the PM’s [portfolio managers], the assistant PM’s, and the analysts. We filter through all the ideas everybody’s working on, to make sure everybody’s focusing on the best things they can spend their time on. There might be some PM’s that didn’t know about certain ideas that were being talked about. That’s where we try to beat each other over the head to make sure everybody owns the best names. Every Thursday we have a luncheon meeting for an hour and a half when each PM presents his portfolio and then the rest of the shop just gets to take potshots, or add some constructive criticism, or stand on the desk and scream about how much he hates this stock or that stock. We do this so that we’re always on the same wavelength with our companies. Come see the office. We’re all on one floor, we have a couple meeting tables spread around our floor with the trading desk in the middle. It’s a very informal shop. We all run around to each others’ offices and stand on their desks and scream and yell at each other and it’s an extremely healthy environment. So how would you summarize the culture of the Janus organization? It sounds very family-oriented. When you say jump up on a desk, I can feel the intensity. Everybody on this floor is my family. They’re all my best friends and we don’t think twice about speaking our mind to anybody. There are absolutely no egos here at Janus, which very much helps the culture. I know some of the other firms around the United States that portfolio managers and analysts don’t talk to each other within the same domain. They’re robbing information from each other. I’m talking with everybody on our floor about what I’m finding out is going on at 3M currently! We have a very wired up world here at Janus. We all have laptops that are wired up with e-mail. We have Lotus Notes, databases that we can access all our research at any time. And it’s extremely informal. I’ve been told by all of our salespeople that we’re the most informal — and most productive — of any firm in the United States. That makes me feel good, but then again, I don’t know anything different. And neither does anybody else here because we haven’t really worked at any other firms. The culture has been to hire right out of school. Grab the freshest and brightest minds we can, then turn on the hose to their brain and fill it up with Janus. So we don’t know anything different besides traveling two days a week and going out and seeing our companies and beating each other up all the time. How about manager tenure? Look at our turnover. With the exception of Tom Marsico leaving, our turnover is basically nil. We have headhunters calling all the time trying to get our people to leave, but it’s like, Why? You want me to go work in New York? You want me to work for which firm? You couldn’t pay me all the money in the world to do that. They’ve stopped calling. Plus our numbers right now are great. Blaine, I can feel the Janus culture. It’s enough to make me want to get out there soon. Come out and spend a day or two. There’s a lot of companies here in Denver. Our sister company’s across the street. Founders just right around the corner. Invesco. Come on up, spend the day here with us!

Whether it’s skiing or investing or culture, when you talk to Janus, you’re talking high energy — and you’re racing with a winning team.