What the heck is Janus Contrarian?

When I noted the market was tanking today, I decided to make my hypothetical investment for June in the second fund of the "WylieMoney Slowly" portfolio. In this portfolio I am adding one of the 20 funds I researched each month, starting in May 2007. money

The second fund I originally chose was a Global Equity fund: MDISX. money

Well according to Etrade, this fund is closed to new investors:

But according to Morningstar, this fund is not closed and is available through Etrade: money

Regardless of whether this is a mistake on Etrade's site or not, getting someone to help you is not worth the effort. money

So I decided to pick my original runner up, Janus Contrarian JSVAX. This brings me to the title for this post. money

Back in November of 2006, it was open to new investors and it was categorized as World Stock or Global Equity. But tonight, as I look it up, it is not. Morningstar lists it as Large Blend which means it invests primarily in Large Cap American companies. money

Morningstar also shows that it is a Large Cap Growth fund. Note the red dot.


But more curious to me is the allocation of 37.8% in non-American companies!


Why does this matter? Well funds are compared to their peers. So if your peers are domestic funds and you have been gaining profits from surging international markets, you are going to look great compared to your peers:


But if your peers are World Funds which invest in stocks all over the world, you are not likely to look as stellar:


Well MDISX is 70% invested in international companies so it certainly has more of an international focus now than JSVAX but JSVAX has a 39% turnover ratio so who knows what it looked like last December, much less what it will look like in 6 months. money

Regardless, I'm calling it a Global Equity fund and I added it to the WylieMoney slowly portfolio tonight as of today's closing price. money

Non-Retirement: Foreign Large Cap Blend Mutual Fund

Wylie Pick: BlackRock International Index A MDIIX

Selecting from mutual funds available through Etrade with no load or transaction fee and an initial $2500 investment or lower minimum and subsequent $100 or lower minimums, when looking for another Foreign fund, I include all International Foreign Category Funds and use the Mutual fund screener to a number of options.

I was planning to choose a Foreign Small/Mid Cap Value fund to balance against the Foreign Small/Mid Cap Growth fund already selected. Sadly, there is only one available through Etrade to new investors and I do not like the looks of it.

ICON International Equity I IIQIX is listed as a Small/Mid Cap fund, but then is also listed (yes, both links go to the same page!) as a Large Cap Blend fund that recently changed from being a Large Cap Growth fund. The average market value of companies held by the fund is $15 billion. A small company fund this ain't. And it may be focused on value companies or growth or both. Now we could dive deeper into this and try and figure it out, but why bother...

The expenses on this fund are 1.71% which is higher than any of the other Foreign funds across all categories. The turnover ratio was also higher than all other funds from this search and that is only acceptable if performance is stellar on a comparative basis and it is not. It has slightly out-performed one of the benchmarks it claims to track, but has underperformed the average of its peers in this group:


So instead of a Small/Mid Cap company fund I'll chose a Foreign Large Cap Blend fund to compliment the Foreign Growth and Value funds already in the portfolio and I'll ignore the ICON fund because of high expenses and turnover.

Among Blend funds we have 6 choices and really 2 choices that stand out. And upon further investigation, one of these two funds- SSgA International Stock Selection SSAIX is listed as a Blend fund but is also listed as a Value fund and has been a operating as a Value fund for many years. I already have a value fund so I am going with the other choice.

I'm starting to wonder if all of these category designations are being manipulated to represent performance in a better light than is legit. Funds are often measured against their peers, but if a fund is compared against peers in a category other than the one in which it invests, then the comparison is not really valid and perhaps fraudulent.

Anyway, BlackRock International Index A MDIIX is a foreign blend index fund. It has lower than average expenses (0.81%) and turnover (23%) which one expects with an index fund and has performed better than all the other legit Blend funds available over the last year.

Non-Retirement: Foreign Emerging Markets Mutual Fund

Wylie Pick: SSGA Emerging Markets SSEMX

Selecting from mutual funds available through Etrade with no load or transaction fee and an initial $2500 investment or lower minimum and subsequent $100 or lower minimums, when looking for a Diversified Emerging Markets fund, I use the Mutual fund screener to screen out options with 3, 4, or 5 stars and include choices with higher expenses since generally, international funds have higher expenses. money

I find three options: Excelsior Emerging Markets UMEMX, Managers Emerging Mkts Equity MEMEX, and SSGA Emerging Markets SSEMX. money

Each has outperformed the other two in one of the standard periods used to calculate returns (1 year, 3 year, or 5 year). SSEMX is the only one with a 10 year record (10% average annual return). money

I also looked at funds with very high turnover and find Amer Century Emerging Markets Inv TWMIX. It has an astonishing 115% annual turnover. Its one year return is 30%. Compare that to SSEMX at 16.83%. money

TWMIX's top holding is an Emerging Markets ETF. money


Its third top holding is a company that is the second biggest holding of that ETF. money


Gazprom has been creating billionaires in Russia for several years as it is basically the largest 'privatized' company in Russia and is the biggest extractor of natural gas and the third biggest oil company (according to somebody who wrote it in wikipedia... hehe) . Note that Gazprom is listed under the country 'United Kingdom' on these charts. Welcome to the wild world of trying to invest in international businesses in emerging markets. I'm guessing this discrepancy is because shares of Gazprom are traded on the London stock exchange, but I could be wrong. money

Regardless, TWMIX has an expense ratio of 1.85% compared to SSEMX at 1.25%. If I wanted to buy an ETF, I would pay $10 for the transaction, not pay some fund manager 1.85% annually to do it for me. And though TWMIX has been on fire recently, it is making up for lost time as it trails SSEMX over 5 years. If you want to chase hot returns, feel free to look into TWMIX. But TWMIX's high expenses and turnover steer me away. money

So the other funds I originally pulled up also have expenses 1.75% or higher. MEMEX has a 3 star rating while SSEMX has 4. money

And UMEMX has trailed the average Emerging Markets fund recently.


SSEMX with low expenses and a good long term track record looks like the best offering for this portfolio. money

Non-Retirement: Foreign Large Cap Growth Mutual Fund

Wylie Pick: Janus Overseas JAOSX

Selecting from mutual funds available through Etrade with no load or transaction fee and an initial $2500 investment or lower minimum and subsequent $100 or lower minimums, when looking for a Foreign, Large Cap Growth fund, I include higher than normal expenses and turnover in the Mutual fund screener to find seven options. money

One of the seven funds is picked by Etrade as an "All Star" fund. Basically Etrade identifies funds they like in each category and flags then as All Stars. Several of my picks so far have also been picked by Etrade as All Stars but in this case, I think there is a better option. They recommend Excelsior International (UMINX). I like Janus Overseas (JAOSX). money

Etrade's pick has a 'moderate' risk assessment while the Janus fund is assessed as 'high' risk.

Just to be clear- investing in this category can be a wild ride. But despite the assessment that UMINX has less risk than JAOSX, the worst one year performances show that UMINX has had a worse one year downward run (-27.43) than JAOSX (-23.89). money

And Janus has been very well rewarded for its approach. I by very well I mean spectacularly rewarded. money

Since the Janus fund has crushed the Excelsior fund in every period- most importantly the 10 year period, it would have to have pretty high expenses or high turnover or a new manager or something significant to make me think twice about not choosing a consistent winner like this. I do not anticipate that future returns will be this good but a fund with a long track record of tremendous performance has a lot going for it. money

Turns out JAOSX has 5 stars from Morningstar, UMINX gets 4. JAOSX has lower expenses: 0.9% compared to 1.5%! JAOSX does have higher turnover- it is 62% compared to UMINX's 26%. The other 5 Foreign Large Cap Growth funds that came up in my search have turnover ranging from 72% to 138%, all higher than JAOSX so I do not mind a little more churn if the performance is this much better. money

Janus Overseas' manager Brent A. Lynn took control of the fund on 01-01-2001. Check out this chart (From Yahoo) and look at this manager's first two years! That must have been rough. money


The manager of the Excelsior fund has not been at the helm for quite as long but he also started in 2001. money

So crushing returns, the lowest expenses, etc. The Wylie pick is Janus Overseas JAOSX.

Non-Retirement: Foreign Large Cap Value Mutual Fund

My Pick: Harbor International HIINX

Selecting from mutual funds available through Etrade with no load or transaction fee and an initial $2500 investment or lower minimum and subsequent $100 or lower minimums, when looking for a Foreign, Large Cap Value fund, I have four options. Click the table below for a larger view:

American Beacon International Planahead AAIPX is appealing because of it's low expenses. Indeed, I picked American Beacon Planahead as a good Domestic Large Cap Value fund. Harbor International has a much lower turnover which should help keep taxes down and has performed better than American Beacon. Thomas White has also performed better, but its expenses are higher and turnover is the same as American Beacon. money

Upon further research, I discover that .25% of Harbor's expenses are what is known as 12b-1 fees. I think of these fees as marketing fees and they have gotten a lot of bad press in the last few years. After all, why should fund holders shoulder advertising costs for fund companies?


In particular Dustin Woodard wrote at length about 12b-1 fees and how he feels the way Etrade handles them is deceptive and bad. While I understand Dustin's point, I disagree with his conclusion. Etrade rebates fund owners 50% of these fees. So for anyone buying Harbor International via Etrade, the expense ratio you will pay is not 1.30%, it is closer to 1.18%. Dustin's point is that this encourages folks to buy funds with bad fees, but it does not make sense to me to pick a fund with 1.30% that does not charge 12b-1 funds versus one with 1.30% that does since I will pay less fees by choosing the one that includes the 12b-1 fee all other things being equal. Perhaps Dustin's concern is that most fund consumers won't understand how to research the other things- Loads, transaction fees, etc. In this case, with the rebate, the fees for Harbor International are much closer to those of American Beacon and the turnover is half as much. money

Actually, Morningstar reveals that Harbor's fees and turnover have both gone down even more since the beginning of the year. So due to slightly better performance, lower turnover and similar fees, I choose Harbor for this category. money