Education
A Model of Self-Control ... Computer Model, That Is
By CBS MarketWatch.com
Jan 9, 2005, 09:56
SAN FRANCISCO (CBS.MW) - Janus Capital Group has a reputation as a growth-stock fund company staffed with shrewd portfolio managers, yet its top-performing fund this year relies on a computer to pick lower-risk stocks.
With a mere $165 million in assets, the Janus Risk Managed Stock fund [JRMSX] is neither big nor well-known, which might be expected of a 19-month-old offering. Yet in the 12 months ending Oct. 12, the large-cap fund outranks most rivals and every retail fund in the Janus stable. And it succeeded without exposing shareholders to any more volatility than the Standard & Poor's 500 Index [SPX].
Risk Managed Stock's [JRMSX] investment approach combines elements of active- and index-fund management. The strategy is complicated - using computer-driven stock trading software programs that aim to build a better index than the S&P 500 [SPX] itself - but the results are straightforward.
Its 16 percent one-year gain is better than all but five large-cap blend funds, according to investment research firm Morningstar. Its 7.7 percent return this year beats every challenger but three, and handily tops the S&P 500's [SPX] 2.2 percent rise.
Moreover, that one-year gain exceeds all other funds that Denver-based Janus [JNS] offers, including large-cap growth cousin Janus Twenty [JAVLX], an $8.8 billion concentrated fund closed to new investors. It's also running 5 percentage points ahead of large-cap blend sibling Janus Core Equity [JAEIX].
Risk Managed Stock [JRMSX] isn't run out of Denver, nor are its managers Janus employees. The fund is the brainchild of Enhanced Investment Technologies, or INTECH, a Palm Beach Gardens, Fla.-based institutional money manager in which Janus has a 77.5 percent stake.
Basic investing says investors can smooth volatility and pocket index-topping returns by owning a diversified basket of stocks that don't move in the same direction at once. INTECH founder Robert Fernholz, a Princeton University math professor, puts theory into practice using what's known as a "quantitative" approach to stock selection, where valuation and market condition is largely irrelevant.
All that really matters to a "quant shop" is how stocks trade in relation to each other. If the Risk Managed Stock [JRMSX] management team does its job, the portfolio will contain securities that tend to move independently. In this way, the fund mitigates swings and offers the potential for market-beating returns.
At first glance, the fund's [JRMSX] composition resembles a typical S&P 500 index fund or large-cap blend portfolio, diversified across more than 300 names. Top holdings as of Aug. 31, the most recent reporting period, included such popular stocks as ExxonMobil [XOM], General Electric [GE], Pfizer [PFE] and Citigroup [C].
A key difference is how much of the fund each of these mammoth companies represents. In a standard index fund such as the Vanguard Index 500 [VFINX], those corporate bellwethers would be 2 percent to 3 percent holdings, reflecting the benchmark. In contrast, Risk Managed Stock [JRMSX] commits about 1 percent of assets to these companies.
Even more unorthodox, the fund [JRMSX] mixes stocks into its top layers that seem out of place, including orthopedic-device maker Zimmer Holdings [ZMH], online auctioneer EBay [EBAY] and slot machine giant International Game Technology [IGT].
"It's not stock-picking in the classic sense; it's portfolio building," said Robert Garvy, INTECH's chairman and CEO. "We're looking to generate 3 percent on average above the index return, with a risk that is equal to or less than the benchmark."
Janus Risk Managed Stock (JRMSX)
Manager Team
YTD Return 7.7%
1-Yr. Return 16%
Total Assets $165 million
Expense Ratio 1.13%
Minimum Initial Investment $2,500
Source: Morningstar (Data through 10/12/04)
Copyright (c) 2004 CBS MarketWatch.com
10/14/2004 06:20:59 AM [CBS MarketWatch]
