Bill Gross Effect: Janus Funds Attract $2.8B in Q4, Profits Jump - Mutual Fund Commentary

Inflows to Janus funds were already indicative of the master stroke the asset management firm Janus Capital Group (JNS) had played by roping in bond investor extraordinaire William Hunt "Bill" Gross last year in September. Gross’ move to Janus has now helped the firm record the first quarter of net deposits in over five years, further justifying the decision to recruit Gross.

During the third-quarter 2014 earnings call conference, management had stated that the hiring of Gross did not bear impact on the quarterly results as there were just three days left for the quarter to wrap up following the announcement of his hiring. However there was enough time for the Gross effect to materialize this time. Janus’ shares ended with gains of nearly 13% yesterday after it reported an 18% jump in fourth quarter profits. Obviously, the Bill Gross effect made its mark.

Janus was sure about their recruitment. Janus shares have soared since the announcement of Gross quitting Pacific Investment Management Company (PIMCO) to join Janus was made. Analysts had opined, and as we also suggested previously, a number of clients were to follow Gross’ move to Janus. The almost consistent flow of funds into Janus confirms the predictions are turning true.

Interestingly here, Gross himself has invested $700 million from his pocket in the Janus Global Unconstrained Bond fund. Janus’ fixed-income funds attracted $2.8 billion in the fourth quarter. This reversed the 21 consecutive quarters of withdrawals. In fact, Gross does have a history of betting his own money into funds that he manages. Janus CEO Dick Weil said Gross is “proud to eat his own cooking”. This move does reflect his confidence in the fund, helping investors trust the investment strategies.

Fourth Quarter Earnings

The company reported fourth-quarter earnings per share attributable to common shareholders of 24 cents, beating the Zacks Consensus Estimate by 4 cents. Moreover, results compared favorably with the prior-year quarter earnings of 21 cents. Better-than-expected results reflected top-line growth and increased assets under management (AUM) aided by net inflows, depicting stability in earnings.

For full-year 2014, net income totaled $154.4 million or 81 cents per share, up from $114.7 million or 62 cents per share in the prior year. Moreover, earnings outpaced the Zacks Consensus Estimate by 3 cents.

For full-year 2014, total revenue rose 9.1% year over year to $953.2 million. Moreover, the revenue figure beat the Zacks Consensus Estimate of $941 million.

Janus Fund Inflow

The reported quarter witnessed increase in complex-wide assets, reflecting net market appreciation of $6.8 billion and long-term net inflows of $2.0 billion. Fundamental and mathematical equity long-term net outflows summed to $0.2 billion and $0.6 billion, respectively, while fixed income long-term net inflows totaled $2.8 billion during the quarter.

According to Bloomberg, from $13 million before Gross’ arrival, the Janus Global Unconstrained Bond Fund’s assets swelled to $1.38 billion as of Dec 31.

Janus had witnessed inflow of over $1 billion of estimated net deposits into two bond mutual funds in October. The Janus Global Unconstrained Bond Fund attracted an estimated $364 million in client deposits in October. The company’s core bond strategy, Janus Flexible Bond Fund (JAFIX) drew deposits of $821 million in the month, driving assets to $8.4 billion.

Gross-managed Janus Global Unconstrained Bond fund then attracted $770 million in November, but was followed by $176 million inflow in December. The fund had attracted $66.4 million in just the concluding days of September when Gross joined Janus. (Read: Bill Gross Effect Continues: Janus Fund Attracts $770M in Nov)

Separately, PIMCO continued to witness outflows, a trend most prominent after Bill Gross quit PIMCO to join Janus. PIMCO saw total outflow of $150 billion in 2014, resulting in 29% decline in assets. For the last four months alone, outflows in PIMCO totaled $115.9 billion, while PIMCO Total Return fund saw outflows of $78 billion in the last four months. PIMCO Total Return A (PTTAX) currently carries a Zacks Mutual Fund Rank #4 (Sell).  (Read: Why Bill Gross Left PIMCO to Join Janus: PIMCO to See Outflows?)

Janus Funds to Buy Now

We reported earlier that it was largely believed that Gross’s performance is already contributing positively. The bets on derivatives connected to Mexico and China are said to have been positive. The fourth quarter results and the inflow numbers now prove the expectations. (Read: Janus Funds to Gain as Bill Gross Takes Office)

For investors interested in Janus funds, we will suggest 2 top ranked funds. These funds carry a Zacks Mutual Fund Rank #1 (Strong Buy) or Zacks Mutual Fund Rank #2 (Buy). Remember, the goal of the Zacks Mutual Fund Rank is to guide investors to identify potential winners and losers. Unlike most of the fund-rating systems, the Zacks Mutual Fund Rank is not just focused on past performance, but the likely future success of the fund.

The following funds are among the top gainers over the last three months. They also have lower expense ratios than their category averages.

Janus Venture A (JVTAX) invests half of its assets in small-cap firms. The market capitalization of these small-cap firms are within the range of those companies listed in the Russell 2000 Growth Index. The fund may also invest in large-cap and prominent companies with growth prospects. The fund may also invest in non-US equity and debt securities, including those belonging to emerging economies.

JVTAX currently carries a Zacks Mutual Fund Rank #2 (Buy). It has returned 12.5% over the last three months. The annual expense ratio of 1.17% is also lower than the category average of 1.38%.

Janus Global Life Sciences A (JFNAX) seeks long term capital appreciation. It largely invests in companies that are believed to have relation with life science. It invests a minimum of 25% of its assets in firms having their presence in life sciences domain.

JFNAX currently carries a Zacks Mutual Fund Rank #1 (Strong Buy). It has returned 10.5% over the last three months. The annual expense ratio of 1.03% is also lower than the category average of 1.43%.

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