SM: The Two Faces of Janus

Maybe it's the fact that Janus Capital Management has had four CEOs come and go since 2002. (No. 5, Dick Weil, arrived in February 2010.) Or maybe it's that two of the firm's largest funds -- Janus Twenty and Janus Forty -- landed in the bottom third of their Morningstar fund categories over the past three years. Or maybe it's that the fund family has gone, in the course of a decade, from being America's sixth largest by assets to ranking No. 16. But one thing's for sure: The once-unbeatable Janus -- which, back at the turn of the millennium, had every one of its stock funds in the top quartile -- has looked pretty bad in recent years.

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That makes the latest developments at the Denver firm all the more striking. While its largest and best-known portfolios continue to lag their categories, some of those on the edge of the spotlight have done quite well -- make that extraordinarily well. Its Janus Flexible Bond -- one of five Janus funds on our 2012 all-star list -- has a five-year track record that trounces more than 90 percent of its peers. Kathryn Young, a Morningstar fund analyst, pegs the standout success of the fund and that of several other Janus fixed-income portfolios to the firm's fundamental research. "That's the wheelhouse of Janus," she says. "They saw the downturn coming and played it well." Likewise, says Young, prescient calls on the economy helped the firm's balanced funds, which own a mix of stocks and bonds. The Janus Balanced fund's annualized three-year return of 12 percent -- impressive for a fund that generally has 40 percent invested in bonds -- has garnered not only double takes from fund analysts but also more than $3.2 billion in new investor money since the beginning of 2009.

Such star turns, of course, make the poor performance of the firm's largest funds still more confounding -- because they spring from the same research-intensive culture. The new CEO, who rode into the fund company's corner office from bond giant Pacific Investment Management Co. (Pimco), acknowledges this disconnect and is working to bring the bigger names back to the front of the class. Weil calls the underperformance of some of its largest funds the company's No. 1 challenge, explaining that with investors focused on economic and political risks, the markets have been particularly unforgiving to large-cap stocks. "Traders are buying the index one day and selling it the next," he says. "That makes it very difficult for research-oriented stock pickers."

Dick Weil, Janus CEO

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Close Photograph by Bryce Boyer for SmartMoney

Analysts such as Todd Rosenbluth, at S&P Capital IQ, say that while the split personality at Janus is extreme, it's not uncommon for big fund firms to have portfolios with sharply divergent returns. Indeed, over the past three years, the best-performing portfolios in each of the 20 largest mutual-fund families have ranked within the top 5 percent of their Morningstar fund categories, while the worst have generally been at or near their category bottoms. "It's a challenge to have all the funds working at the same time," he says.

That said, there may yet be more good news buried in Janus's mixed bag of numbers: The success of the bond funds, as well as of selective small-cap stock portfolios like Janus Triton, is a positive long-term sign for the firm, because it shows that a focus on fundamentals can ultimately bear fruit, Rosenbluth and other experts say. CEO No. 5, for his part, says he's counting on that. Weil anticipates that when concerns over risk factors like European debt and U.S. economic growth subside, stocks won't be trading in lockstep anymore. And that, he believes, will work in favor of the company's flagship funds once again.