Chief Executive Officer Richard Weil is introducing funds that seek to spread risk across asset classes and protect clients from sharp market drops. Instead of focusing on returns, which are difficult to forecast, the so-called asset allocation funds offer investors varying levels of volatility.
“Investors, in general, have less confidence in aggressive, active equity management than they did 5 or 10 years ago,” Weil, whose firm oversees $157 billion, said in an interview. “Risk-adjusted returns, rather than swing-for-the- fences returns, are absolutely more important.”
Janus, named for the two-faced Roman god who looked to both the past and future, is following firms from BlackRock to Invesco Ltd. and Goldman Sachs Group in using the promise of lower risk to lure back clients burned by losses during the stock market rout five years ago. With equities approaching record highs again and volatility declining, the industry’s latest sales pitch has been hampered by underperformance.
Asset allocation funds returned a risk-adjusted 0.8% in the year ended Feb. 28, compared with 1% for the Standard & Poor’s 500 Index and 1.3% for the Barclays U.S. Aggregated Bond Index. Over three years, the funds gained 2.3%, compared with 2.5% for stocks and 5% for bonds, according to data compiled by Bloomberg.
Bloomberg’s calculation of risk-adjusted returns is based on total return divided by volatility, or the degree of daily price variation, giving a measure of income per unit of risk. The figures aren’t annualized.
“There’s definitely been a trend in response to the crisis of 2008 and to people’s fears about the stock market,” Josh Charlson, analyst at fund research firm Morningstar, said in an interview. “There are a lot of new products designed to lower volatility while also producing some decent returns, although it sounds like a formula that’s too good to be true.”
Selling safer funds after a crisis isn’t Janus’s first attempt to staunch investor withdrawals, and it’s turning to a strategy that’s had mixed results for competitors. Sales of U.S. asset-allocation funds peaked at $59 billion in 2004, two years after the collapse of the technology-stock bubble. Investor deposits rose to $25 billion in 2012 from about $14 billion in each of the previous two years, according to Chicago-based Morningstar.
Janus has been hurt by more than a decade of turmoil. Its concentration in technology stocks led to a rapid rise and steep fall when the sector’s 1990s boom turned to bust. Assets peaked at $325 billion in the first quarter of 2000, before shrinking by 59% over the next three years.
The firm, based in Denver, introduced the first of its new funds, the Janus Diversified Alternatives Fund (JDAIX), in December, using derivatives to mirror returns from stocks, bonds, commodities, currencies and real estate.
Derivatives are contracts such as futures, swaps and options whose value is derived from one or more underlying assets. They typically use leverage to amplify returns.
With 82% of its investments in actively run equity portfolios, the company is seeking to reverse a 24% drop in assets since the end of 2007 as clients pulled money in 18 of the last 20 quarters.
“Janus’s brand clearly stands for high-conviction stock- picking,” Weil, who has already built up the firm’s fixed- income group, said in the interview in New York. “We would like to expand the brand to mean more than that.”
Among 263 U.S.-registered mutual funds categorized by Bloomberg as asset-allocation products, 130 have opened since the end of 2009. The group ranges from traditional stock-and- bond balanced funds to more varied versions such as Janus’s Diversified Alternatives.
Invesco, based in Atlanta, beat the wave with its Balanced- Risk Allocation Fund (ABRZX) in June 2009. The fund is similar to Janus’s offering in its use of derivatives.
Balanced Risk has grown to $12.9 billion, returning a risk- adjusted 6% from its June 2009 inception through Feb. 28, versus 4% for the S&P 500 Index. Versions sold in Canada, the U.K. and continental Europe hold an additional $7.5 billion.
“When other fund companies see Invesco getting $12 billion, you’re going to get some copycats,” Charlson said.