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Two Janus funds can sting
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June 2, 2000: 6:36 p.m. ET
Owning lots of funds in same family can cut down on your diversification
By Morningstar's Peter Di Teresa
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NEW YORK (Morningstar) - As the market has declined, I've heard from many readers who aren't sure why all their funds are doing so badly.
In general, the answer is that they own lots of funds and those funds follow very similar strategies.
This is a column from February, in which I show how to find out if your funds are varied, or as alike as peas in a pod.
QUESTION: I'm a first-time investor and I have just opened an account with Janus. I have selected Janus Olympus. Sometime in May, I'd like to invest in Janus Enterprise. Do you think it's a good idea to have two aggressive funds?
Carlton D.
ANSWER: While it's hard to evaluate someone's condition via e-mail, I believe Carlton suffers from the "Janus bug." Investors catch it when they own
one Janus fund and see how well it's doing. (All of Janus' U.S. stock funds have three-year returns in the top 25 percent of their categories, and many are in the top 10 percemt.)
These investors then develop an overwhelming compulsion to buy another Janus fund. This condition is spreading among fund investors: Carlton is just one of many people who have asked me about owning two or more Janus funds.
Good news: The Professor has found a cure--using Morningstar.com
Quicktakes. And it works not only for Janus funds, but also for any funds that could be too similar. After all, Carlton isn't asking whether he should own two Janus funds, but whether he should own two aggressive funds. The short answer is that there's no point if the two funds are doing the same thing.
Follow along as I analyze Carlton's picks in four steps, showing how he can find the similarities and differences between the funds. I did my research using the funds' Quicktake reports.
In each step, I'll show you where in the Quicktake I found the information. The Quicktakes are divided into sections which are linked in the left-hand margin of each Quicktake page. I'll also show you whether you can get it for free or if it's part of the premium service.
1. Morningstar Style Box and Category
As I explained in Keeping on Top of Your Fund's Position, a fund's Morningstar style box shows where the portfolio is now. Both Janus Olympus JAOLX and Janus Enterprise JAENX land in the upper-right corner of the style box, which is the large-growth zone.
But their Morningstar categories, which reflect how the funds invest over time, show Olympus in large growth and Enterprise in mid-cap growth. Let's dig a little deeper.
Market Capitalization (Located under Style Box Details, premium)
Enterprise has 55 percent of its assets in mid-cap stocks and 43 percent in large cap. Olympus, on the other hand, has 42 percent in large cap and 37 percent in giant-cap land, with just 16 percent in mid-cap stocks. Those look similar enough to me that I don't need to own both.
If I wanted to be particularly aggressive, I'd choose Enterprise. Price Multiples (For premium members, this is under Style Box Details. Free users, go to Investment Style.)
These reflect the ratio between the prices of the stocks owned by a fund and measures of financial strength such as book value, earnings, and cash flow. (I discussed P/E ratios in How to Use a Stock's Price/Earnings Ratio, and I'll be covering the other measures in the future.)
The most morningstar feature I see is that Olympus has a P/E of 49 while Enterprise's P/E is a lofty 58. That tells me that Enterprise manager Jim Goff is more willing to take a flyer on future growth. He either pays up more for growth stocks than does Olympus' Claire Young, or hangs on to soaring stocks longer, or both. Again, if I were inclined to bolder investing, I'd probably go with Enterprise.
2. Sectors (Snapshot, free)
When I look at the top three sectors (under the What Does This Fund
Own section of the Snapshot), I see both funds are pretty aggressive. Olympus has 40 percent in technology, 26 percent in services, and 16 percent in retail stocks. Enterprise has 54 percent in services, 31 percent in technology, and 9 percent in health stocks.
Based on that mix, I'd tend to call Olympus more aggressive--technology has historically been the riskiest (and most rewarding) sector. But when I go to Holding Details for the funds, which is only available for Premium members, I see that a lot of those services stocks are high-tech telecom companies. So, I'm inclined to call the funds even on this front. They're both very aggressive in their sector positions, committing large percentages of their portfolios to fast-moving sectors.
3. Stock Overlap (Portfolio Manager, premium)
I went to Portfolio Manager for this, creating a Quick Portfolio with equal money in each fund. I found that there was some overlap, though nothing that dramatic. My doubts about owning these funds have more to do with owning two funds that follow similar styles, rather than getting too much of the same stock.
4. Analysis (Morningstar Analysis, premium)
My inclination is to own one or the other fund--tell me you didn't see that coming--and the analysis confirms it. In particular, the Olympus analysis notes that Young has taken advantage of her fund's relatively modest asset base to invest in some smaller companies, and that she could steer away from large and giant caps when that part of the market turns cold. In other words, the fund would become more like Enterprise. (Click here for the Janus Enterprise analysis.)
Carlton, I'd have to say that you probably don't need another aggressive fund from Janus or anyone else. If you're looking for a second fund, you might consider a total stock market fund. In combination with Janus Olympus, that would give you a solid portfolio foundation with a growth tilt. For more on the merits of total stock market funds, take a look at The S&P 500 versus the Total Stock Market.
* Disclaimer 
Copyright 2000 Morningstar All rights reserved. This material may not be published, broadcast, rewritten, or redistributed.
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