Janus Funds' change at the top greeted by investors with a yawn; Dollars & Sense


THE JANUS Funds announced a changing of the guard this month. The more noticeable change, however, was how investors reacted to the news.

Jim Craig will leave as manager of the Janus Fund Jan. 1 to become Janus' research director, remaining as chief investment officer and keeping an active role in the company's investment strategy but relinquishing hands-on, day-to-day control over his fund to Blaine Rollins, one of his Janus stable mates.

In the past, this kind of news might have shaken investors. As recently as two years ago, word that Michael Price would step down as manager of the Franklin Mutual Series funds was enough to make some investors bail out. Never mind that Price, like most star managers, would be succeeded by hand-picked, personally trained colleagues. There was still plenty of fear that the big man's departure would weaken the fund.

That's why the Janus announcement was so interesting. Previous star manager departures have made investors nervous, but Janus' news made shareholders, mostly, yawn.

That tells us the fund industry and average investors have evolved to the point that both realize star managers aren't such a big deal anymore.

That's not shocking, It's just the extension of what has been happening in the business over the past few years.

Management legends such as Peter Lynch and John Neff could move their funds in any direction, but the vast majority of managers today are tightly constrained. The stars of bygone days could sidestep a downturn by moving to cash, bonds, or sectors that weren't losing steam. Today's managers are locked into an asset class and have no choice but to ride out a downturn.

Changing the fund's mission, strategy or primary asset base would drive investors away faster than bad performance. Making the wrong call also would cost the manager his job.

That's a big reason that stars are harder to make today. Even if managers have the smarts to stay a step ahead of the market, they don't have the leeway.

In that light, Craig's departure still might have caused a stir. After all, in 13-plus years at the Janus Fund, he has produced an average annualized gain of 17.54 percent. That's 1.3 points better than the annual average gain of the Standard & Poor's 500 over the same time, and it puts Craig near the top of the list of elite managers.

That his step-aside didn't shake up investors is a sign that shareholders recognize that Janus is a big-name firm with a deep bench of analysts and that Rollins is cut from the same cloth as Craig. That means changes at the fund should be minimal.

"There was a time in the past when many investors would have seen a manager change and simply cut and run from the fund, and that was simplistic and naive thinking," says Michael Stolper, a San Diego investment manager and an independent director for Janus. "Today, investors look for a well-planned succession and a corporate culture that develops and retains good talent."

About the only time experts get nervous over a manager's departure is with small funds, usually the eponymous ones at which the top guy is the only draw and there is no history of changing managers smoothly. (Janus, by comparison, didn't miss a beat when Tom Marsico left a few years ago to start his own funds; Craig isn't even leaving the company.)

"A manager who earns a good reputation is not necessarily unique; he may be a product of his environment," says Roy Weitz, whose www.fundalarm.com Web site advises investors on when to sell a fund.

Janus Fund shareholders might worry if Rollins can't match Craig's gains, the same unfair comparison that has dogged Lynch's successors at Fidelity Magellan.

Rollins is unlikely to change the fund much, but the market might not reward Rollins as much as it has Craig, even though they follow the same discipline (and despite the influence Craig will have over all Janus funds).

Any investor who looks for trouble will interpret lesser performance -- if it happens -- as a drop-off in management talent rather than a shift in the market; such a judgment most likely will be unfair.

Charles A. Jaffe is mutual funds columnist at the Boston Globe. He can be reached by e-mail at jaffe@globe.com or at The Boston Globe, Box 2378, Boston, MA 02107-2378.

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