DENVER — The Janus Worldwide Fund was one of the fastest growing international mutual funds last year and appears likely to continue to grow.

Yet some observers wonder whether the fund can sustain that pace.

Janus Worldwide racked up $2.2 billion in sales in 1996, ending the year at $5 billion, a net growth of 43%, including market gains. Monthly sales of the Janus Worldwide Fund began to substantially outpace the company’s flagship equity offering, the Janus Fund, for the first time in April, said Lorrie Graves, a spokeswoman for Janus Capital Corp.

Net monthly sales of Janus Worldwide averaged $185 million in 1996, compared with an average of $96 million for the Janus Fund and $52 million for Janus Overseas Fund. According to sales figures supplied by Janus, the Worldwide Fund accumulated 21/2 times as much cash in June as the Janus Fund, three times as much cash in October and 50 times as much cash in December. Independent fund flow information from Financial Research Corp. Chicago, confirmed Janus’ numbers.

The fund attracted average daily cash flows of $35 million during the first eight trading days of 1997, propelled by the phenomenal performance of its lead portfolio manager, Helen Young Hayes.

Janus Worldwide was the best performing global equity fund for the five years ended Dec. 31, with a 123.5% annualized return, according to Lipper Analytical Services Inc. New York. The fund has been among Lipper’s to 10 best global fund performers for the one-, two- and three-year periods as well. Ms. Hayes has managed Worldwide for about four years.

Ms. Hayes also manages the all-international equity fund, Janus Overseas, established in September 1994. The Overseas Fund was Lipper’s third-best performing international equity fund for 1996 with 28.8%. The fund was second for the two-year period with a 57.2% annualized return.

The Overseas Fund also enjoyed huge success last year with new cash flow of $628 million, bringing fund to $955 million at year end, a net growth of 111%, including market gains.

Ms. Hayes was not available for interviews.

High-visibility cited

Ms. Graves attributed part of the success of the Worldwide and Overseas Funds to high-visibility advertising to the retail market.

Indeed, only about $6 billion of the overall $46.3 billion Janus managed as of Dec. 31 came from institutional investors. Much of the company’s 19% growth in total assets in 1996 came from individual investors, although Ms. Graves said substantial numbers of retirement plans added Janus funds last year to their investment lineups.

Mutual fund consultants cautioned that much of Janus’ international success is likely coming from the hot money category of retail investors chasing the market’s latest top performer or in the funds of media-friendly portfolio managers.

Such money tends to be fluid and more subject to transfer than retirement assets. One consultant noted Janus’ assets could drop precipitously if the performance of either fund stumbles.

I can’t think of any other foreign manager that is attracting as much money as she is, said Russ Kinnel, equity fund editor, Morningstar Inc. Chicago.

The amazing thing is that all these assets that Helen Hayes has attracted haven’t slowed her down yet and surprisingly, the fund performance hasn’t suffered yet with so much money flowing in. It is going to be awfully tough for her to meet everyone’s expectations into the future.

Style purity an issue

Investors concerned with style purity wonder about the effects of so much cash.

It gets very difficult to invest such large amounts of money and keep both to normal portfolio weightings and to the regular due diligence a portfolio manager normally applies to stock selection. You can’t just keep investing in what you already own because you can end up overweighting certain stocks in your portfolio, limiting the benefits of diversification or driving up stock prices on yourself, said Derek Sasveld, a senior consultant at Ibbotson Associates Inc. Chicago.

Very popular funds like Janus Worldwide will generate excess cash and that will dilute equity performance. It causes style drift from investment mandates, which is frustrating for a global fund, because that much daily cash flow often remains parked in cash or perhaps put more heavily into U.S. stocks than a global fund would normally hold.

Both Janus funds appear to be awash in cash. Janus Worldwide moved to 18.3% cash as of Oct. 31, 1996, from 6.3% a year earlier, according to its annual report. The percentage of cash continued to remain fairly high, with 11.9% on Dec. 31 and 15.1% on Jan. 14, said Janus’ Ms. Graves. The Overseas Fund moved to 27.6% in cash on Oct. 31 from 21.1% a year earlier. Cash as of Jan. 14 was 24.9%.

Ms. Graves said Ms. Hayes doesn’t specifically build up cash reserves. She is not going to invest new money until she finds suitable investments. She won’t deploy cash until she is ready.

Other managers hold less cash

Other international mutual fund managers, even those enjoying strong new cash flow, said they strive to maintain a much lower cash position.

I watch between 170 and 180 stocks and there are a lot of positions I have which can take a lot more money, said Henrik Strabo, vice president and portfolio manager of the American Century International Discovery Fund, which is managed by American Century Investors, Kansas City, Mo.

Investors could keep throwing money at me and I have so many ideas, I could put it to work right away. I never have more than 1% in cash at any time, he added.

Mr. Strabo’s equity fund was Lipper’s No. 1 international small-cap equity fund last year, with a return of 31.2%. The fund attracted $325 million in 1996, bringing it to $425 million by year end.

Mr. Strabo said cash inflows to the fund on some days in January often were two or three times as large as they had been on any one day last year.

Portfolio managers at T. Rowe Price Associates (TROW ) Inc. (TROW ), Baltimore, and INVESCO (IVZ ) Funds, Denver, said their cash positions in international equity funds do not exceed 5% of holdings and are usually lower.

Such huge increased cash flow is certainly an element that draws attention, but based on our research, I can tell you, it’s not necessarily a negative, said a Lipper spokesman. Our research shows that large funds often do better than smaller funds; being big is not a definite drag on performance. But when a big fund like Janus Worldwide is doing so well, you do expect performance results to cool off a little. There’s only one direction you can go from No. 1.

’96 was record-breaking year

The attraction of Janus and other international mutual funds resulted in a record-breaking sales year for international funds — despite the lackluster 6.36% return for the year of the Morgan Stanley (MS ) Capital International Europe Australasia Far East index.

Global funds fared somewhat better, with a 14% return for the MSCI World index, but still significantly lagged the Standard & Poor 500 index’s 22.96%.

Net new cash flow through November to international equity funds was $28.7 billion, compared with $6.7 billion in 1995 and $27.1 billion in 1994, the runner-up for the best international mutual fund sales, according to data from the Investment Company Institute, Washington. Global funds had net new cash sales of $15.6 billion; the record year was 1994, with net new cash sales of $16.7 billion.

Investors’ allocations to international and global equity funds together account for 13.4% of the total $323.4 billion in equity funds, up from 8.6% of the 1995 equity total.