Asset manager Janus is hoping that institutional investors are back looking for growth. It’s high time the market started playing their song again, the Denver-based investment house believes.
“We have had a run where value has outperformed growth for five consecutive years,” says Gary Black, president and CIO of the $130bn (e106bn) group. “That has not happened in 25 years.”
The spreads between growth and value stocks in terms of returns ROE are among the highest 20% of the past 50 years. “The price you pay for growth versus value, divided by PE, is among the lowest 20% of the last 50 years.”
As the economy continues to grow at 2 to 3% per annum, investors will revisit growth stocks again. “It’s time,” he declares.
There is no middle ground for money managers. “No longer can asset managers be in the middle. They have to be good at indexation, as are a few firms,
or be at the other end of high alpha
Where does Janus fit in that perspective? “We are trying to make sure portfolio managers run highly concentrated portfolios. That is high conviction investing.” That’s the high octane Janus is aiming to deliver, says Black.
“You have to be best in class at something, so we have to be great at growth investing. As growth investing comes roaring back with the growing economy, we have to be positioned to take advantage of this.”
While growth investing was in eclipse, Janus continued to invest in its research capabilities in recent years. “We have developed low turnover portfolios – just 30 to 40%. Typically, in a large cap growth portfolio it could be 40 to 60 names, not the 200 of some of our competitors,” says Black.
He adds that a range of risk controls have been included, but without changing the culture. “We want our managers to be risk seeking, yet to be disciplined.”
When growth went out of favour, many competitors gave up, he says. But Janus stuck with it. The US market is wide open for growth managers today, Black maintains.
He claims that a number of the great growth managers back in the bubble days of 1998 to 2000 really have not come back as Janus has in performance terms. “The strongest statement is the strength of our performance over the past few years.”
He reckons the group is now in good shape. On the personnel side, he describes the scenario as stable. “We really have not lost too many portfolio managers or analysts in the last couple of years.” In fact, the last 12 months has seen no turnover on the analysts front.
Institutional investors are looking for growth and value managers still, he says. “One very noticeable trend has been the granting of a lot more latitude to managers by clients. You can now go outside of the box.”
Outside the US, there has been a move to global products. “In the US, you never see a demand for true global products, people increasingly hire EAFE growth and value outside the US, alongside US value and growth managers. In Europe, you are seeing global mandates,” says Black.
But this poses a question in his eyes: “How many managers truly manage money globally? Many take their US and non-US products and bolt them together.” Janus goes the other route with a dedicated global manager. “He picks best pharma or financial stocks globally,” Black explains.
Life-cycle products are in demand, as are ‘one-stop shopping’ with asset allocation being done for the end investor. “So they can come to us, Fidelity, or whoever, to do the asset allocation. We are launching life-cycle later in the year.
Intech, the Janus in-house quant operation, is a mathematical model firm. “In a low volatility stable world, the models do well. They have had a good five-year run.”
At Janus, money has been run the way hedge funds run it, except it is always long. “We only do our own research. We think deep. We have seven survey associates who go out and swarm around a project to figure out what’s going on. So if it’s a drug they look at whether doctors are recommending it, and pharmacists selling it. It’s a 360-degree research review.”