Analyst Spotlight: Rachel Zibrak

Janus Comes Back Strong
A new CIO marks a turnaround for Janus and improving fortunes on its funds

Janus Capital Group, headquartered in Denver, Colorado, has been hurt by customer withdrawals, which initially were driven by their especially poor performance during the 2000-2002 technology selloff, and then exacerbated by a trading scandal in 2003, which caused billions of assets to leave the firm. Regulators accused the group of striking deals with certain investors and allowing them to rapidly trade in and out of various Janus mutual fund shares.

In 2004, Janus paid more than $225 million to settle the charges without admitting or denying wrongdoing. But the seeds of a turnaround for the firm's fortunes were also sown in 2004 when Janus hired Gary Black from Goldman Sachs Asset Management to become its new Chief Investment Officer. Since his appointment in March of that year, Gary has made a number of personnel changes, building an organizational structure at Janus similar to the model used by Goldman Sachs.

Gary appointed Gibson Smith chief investment officer of the firm's fixed-income and money-market departments and Jason Yee as global and international equity chief investment officer. Recently, Gary appointed Jonathan Coleman and David Decker as co-chief investment officers for its U.S. equity growth and core-investment disciplines.

Investors have begun to notice these changes, and for the first time since 2000, Janus had net inflows in 2005, of some $2 billion, a sign that things are finally turning around for the beleaguered firm. As of December 31, 2005, assets under management totaled $148.5 billion (down from a peak of $300 billion in 2000).

In January of 2006, Gary was named CEO, and he has begun to make significant changes in the fund manager ranks, as well. Among Gary's recent fund manager changes was the appointment of David Corkins to manage the company's flagship, Janus Fund. David Corkins has been a star manager at Janus and has built a strong track record on two of its other funds. We applaud this as a positive change both for Janus and its shareholders as this was one of Janus' weaker funds in their fund lineup and has the largest asset base.

Gary has made numerous other changes at Janus as well such as creating six sector teams; increasing the number of assistant portfolio managers to strengthen their succession plan; creating a career analyst role; hiring seven new portfolio managers and analysts; tying portfolio manager and analyst compensation to performance, not assets; and requiring the investment team to invest a significant portion of their compensation in their own funds. As Gary sums it up, Janus plans to continue re-establishing itself in 2006 as "the best growth manager in the industry."

Most important, of course, is that these positive changes in Janus' management and investment process have been reflected in improved performance of Janus funds. As of December 31, 2005, approximately 76% of the retail funds were in the top half of their Morningstar categories on a one-year total return basis and 67% of the retail funds were in the top half of their Morningstar categories on a three-year annualized return basis.

Janus Growth and Income
One Janus fund we like in particular is the Janus Growth and Income fund (JAGIX), which has been managed by Minyoung (Min) Sohn since January 2004. Min joined Janus in 1998 as an analyst specializing in large capitalization companies and has covered a wide range of businesses, including firms in the financial, retail, consumer, Internet, and energy sectors.

Min had the great opportunity of having David Corkins as his mentor, working side-by-side with him for six years, when David was running Janus Growth and Income. At the end of 2002, Min became Assistant Portfolio Manager to David, and in early 2003, he also joined David as Assistant Portfolio Manager on Janus Mercury. He was promoted to Portfolio Manager of Janus Growth & Income in January 2004.

Corkins felt it was a natural progression for Min as he saw first-hand how Min's stockpicking and portfolio management skills had been a real asset to the fund. In the past year, the fund's assets have increased 7.2% and the fund now has over $6 billion under management. Not only has Min proved himself to investors, but he has also proved himself to Janus' management, as they appointed him as Portfolio Manager of another fund, Janus Core Equity, in May of 2005. Min now manages approximately $8.5 billion at Janus.

Performance during Min's Tenure (Jan 2004 - Jan 2006)
	YTD	2005	2004
Janus Growth & Income	7.0%	12.5%	11.9%
Peer Category: Large Growth	3.4%	6.5%	7.9%
Russell 1000 Growth Index	1.8%	5.3%	6.3%
Rank in Peer Category	Top 3%	Top 12%	Top 17%

Philosophy & Process
The universe of stocks that Janus Growth and Income hunts in comes from the fund's two benchmarks, the Russell 1000 Growth and S&P 500 indexes. Janus has a research team of 35 analysts supporting their funds and Min feels it is their biggest strength. They cover 1,100 stocks with 250-300 of them rated as buy or strong buy. About 85% of the stocks held in Min's portfolio are stocks that the analysts rated buy or strong buy. He believes that the formula for successful investing at Janus is the close collaboration among their research team and he wants to leverage that as much as possible.

Two-thirds of his fund is core, longer-term holdings with strong competitive advantages. These are companies such as ExxonMobil, Procter & Gamble, and Microsoft, which he believes will continue to build value over time. The other one-third is special situation stocks. Examples of special situations are a new management team, changes to the way capital is allocated among businesses or returned to shareholders, or a product catalyst that's powerful enough to grow the business.

The portfolio is positioned for growth, but without taking on too much risk. Min focuses on both qualitative and quantitative analysis in building his portfolio. He does qualitative research by traveling to meet management teams 8 out of every 25 business days, meeting roughly 200 management teams per year. Min feels that deep grassroots research must also be tied to balance sheet, cash flow, and valuation analysis. According to Min, it is a real art to take this qualitative research and marry it to their quantitative models to determine what they have learned. Min will only invest in businesses that he really knows because he feels the biggest risk is owning something you don't understand.

The other piece to this fund besides growth, is its second objective, which is to generate income. His objective is to deliver an income yield that is at least equivalent to the S&P dividend yield. As a growth investor, he feels the best way to deliver income to his shareholders is through convertible preferreds, structured notes, and equity derivatives such as covered calls, rather than by seeking out high dividend-paying stocks.

Min's compensation is based on relative performance on a one and three year basis vs. the Lipper large cap core group. And his interests are aligned with his shareholders in another very important way, as well. Nearly every investment dollar he has is with Janus, and 90% of that is in Growth & Income and Core Equity (the other fund he manages).

Sector Allocation (as of 11/30/05)
Sector	Janus Growth & Income	Russell 1000 Growth Index
Energy	17.2%	3.5%
Health Care	15.9%	19.0%
Hardware	15.3%	16.3%
Consumer Goods	12.5%	10.0%
Industrial Materials	8.8%	13.1%
Financial Services	8.2%	6.3%
Media	8.0%	3.3%
Software	7.4%	6.7%
Consumer Services	5.3%	13.7%
Business Services	1.3%	6.7%
Utilities	0.3%	0.5%
Telecommunications	0.0%	0.7%

Asset Allocation
One thing that stands out from a glance at his sector weightings versus the Russell 1000 Growth Index, is the fund's large bet on Energy which boosted performance in 2005 and continues to drive the fund today. 

-- Rachel Zibrak