Veteran Investment Chief to Leave Janus Capital

Janus Capital Corp., the fastest-growing mutual fund company of recent years, said Wednesday that its chief investment officer will depart--a move that comes as the firm’s high-octane funds have cooled considerably.

James Craig, who has spent 17 years at Janus as a fund manager and executive, said he’s leaving to manage the assets of a new foundation established by him and his wife to help the Denver area’s disadvantaged.

Craig, 44, said in a conference call that his departure was “strictly a personal decision,” and analysts agreed the lackluster performance of many Janus funds this year probably wasn’t a factor. But the timing, shortly after the recent spinoff of Janus’ parent company, Stilwell Financial, from Kansas City Southern Industries, also revived talk that many Janus executives were unhappy with the terms of the spinoff.

Craig, who will leave at the end of September, acknowledged that his decision caught “some of the younger people” at Janus off-guard. But he said the change will cause “nary a ripple” in the firm’s operations.

A committee of Chief Executive Thomas Bailey and five fund managers will take over Craig’s duties, overseeing general investment policy.

Investors reacted with concern: Stilwell shares fell $3.50 to $44.50 on the New York Stock Exchange.

Janus, whose assets now top $300 billion, has been the hottest fund company of recent years, attracting record cash inflows from investors as many of its stock funds turned in spectacular gains in 1998 and 1999--fueled by heavy investments in technology shares.

But with the tech sector’s slump this year most of Janus’ funds are lagging their average peer fund.

Craig had managed the flagship $46-billion Janus Fund until early this year, when he decided to take an oversight role at the company.

Analysts noted that many of Janus’ individual fund managers long ago established their credentials, and that talent at the firm is deep.

“The Janus success has come because of the collective wisdom that resides in the firm,” said Avi Nachmany, an analyst at Strategic Insight, a New York-based fund research company. “This kind of thing almost never comes from one person.”

Indeed, Janus easily survived the departure in 1997 of Thomas Marsico, whose Janus Twenty fund ignited the craze for concentrated stock funds.

Still, Morningstar Inc. chief fund analyst Russel Kinnel called Craig a key element in Janus’ long-term success.

“This decision is a blow,” Kinnel said. “But it’s no reason to sell any of the funds.”

Even so, Kinnel said investors would be right to reconsider if such star managers as Helen Young Hayes or Scott Schoelzel were to also leave.

Hayes, who manages Janus Overseas and Janus Worldwide, has arguably been the industry’s most successful manager of international funds in recent years.

Schoelzel took over Janus Twenty in 1997. He led the fund, which holds only about two dozen stocks at any time, to gains of 73% in 1998 and 65% in 1999 before this year’s pullback.

Though many Janus funds have seen similar reversals in performance this year, analysts attribute that to the nature of the fast-growing companies Janus focuses on, rather than on a sudden spate of bad stock-picking.

“So Janus Venture is down 20% this year after gaining 140% last year,” Kinnel said. “I’ll take that.”

Volatility is the nature of the Janus beast, given the firm’s willingness to make large bets on stocks it likes.

Sheldon Jacobs, editor of the No-load Fund Investor newsletter in Irvington, N.Y., said he admires the depth of talent among Janus managers, but said the funds remain vulnerable because Nasdaq and the tech sector are still overvalued, even after the spring sell-off.

He said he would be “very cautious for the next several months” about funds heavily weighted in technology, including most of the Janus offerings.

Postings at Morningstar’s Janus Junction Internet message board reflected a mix of concern and nonchalance among investors. A posting titled “Craig who?” seemed to reflect the majority sentiment, but one participant said, “I consider Craig leaving as bad news. He was such a cornerstone of the Janus foundation. Makes you wonder who’s next.”

One poster speculated that Craig was leaving because Stilwell would not promise him Bailey’s job when the CEO retires. Craig however, went out of his way to dismiss talk of a corporate spat as meaningless.

Janus executives reportedly have been irked that Kansas City Southern spun off the fund group along with several other financial units lumped together as Stilwell, rather than as an independent company.

Though the market has turned against Janus this year, the company has continued to get strong flows of new cash into its funds, including $2 billion in July. “But that’s based on trailing performance,” said fund industry consultant Geoff Bobroff. “We’ll have to wait and see what happens if Janus stays in the market’s penalty box for a while.”

Fund analysts noted that Janus has long been known for its management stability, which is one reason Marsico’s high-profile departure caused a stir. “When he left, everybody said, ‘Oh my!,’ ” Jacobs said. “And yet, it wasn’t the end of the world, as it turned out.”

Analysts said portfolio concentration and huge cash flows could be bigger concerns for Janus than Craig’s departure.

They note that many of the funds have overlapping stock holdings. Indeed, the recent earnings warning from cell-phone giant Nokia Corp. jolted several Janus funds that had large positions in the stock.

Still, “That’s the Janus way, and it’s kind of hard to argue with given the performance numbers,” Bobroff said.

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Janus’ Blistering Growth

Janus Capital has exploded in size since 1997, boosted by record inflows to its mutual funds and by the hot performance of those funds.

Total assets under management, in billions:

2000: $308 billion*

Source: Janus Capital

* As of Tuesday

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Janus Funds: Returning to Earth

After clobbering their peers in 1998 and 1999, most of Janus Capital’s stock mutual funds have been laggards so far this year, trailing the average return of comparable funds.

*

Source: Morningstar