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A Chat with Janus Funds' Jason Yee

Few mutual-fund companies looked better than Janus when the bull market raged during the late '90s. The Denver fund shop's managers epitomized the momentum-hungry, tech-centric investors of the era. Janus' strategy sure seemed to work. Concentrated portfolios of 40 to 60 stocks -- primarily in large-cap tech and New Economy issues -- was their specialty, and the market rewarded them with returns far greater than their competitors. Many of the company's mutual funds ballooned in assets to be among the 25 largest nationwide.

Today, Janus is a very different performer. Many of its favorite stocks -- Cisco, Sun Microsystems, and Nokia -- are under water, along with its star funds. Its largest fund, Janus, sports a 28% one-year loss, while more gung-ho efforts, such as Janus Twenty and Aggressive Growth, have even larger losses. While Janus fund managers are broadening their exposure to the market, the firm is also broadening its fund-offering lineup. Now that value stocks are in vogue, the company just launched the new Janus Global Value Fund on July 2.

Enter Jason Yee, 31, who will managing the new Global Value Fund. His plan: Invest in about 40 companies around the world -- only he'll use a more conservative approach than his brethren.

Yee started as a research analyst at Janus in July 1992. Four years later, he left to become portfolio manager at Bee & Associates in Denver, where he focused on vesting international companies for institutional accounts. But he rejoined Janus in April, 2000, and has worked closely with portfolio managers David Decker, of the Janus Strategic Value Fund, and Helen Young Hayes, who runs the Janus Worldwide Fund. Recently, he spoke with BusinessWeek's Mara der Hovanesian about his investing strategy and his view of the markets. Here are edited excerpts of their conversation.

Q: As a value stockpicker among growth-fund managers, do you feel like a stranger in a strange land?

A: First of all, I cut my teeth in the investment-management business on Janus research. I believe the fundamental research and the analysis that's what Janus is all about. And that goes for whether you're following a company that's growing at 3% a year or 15%. The questions involved are still the same, but it's a slightly different valuation framework.

True, I'm not looking at the more emerging-growth business models out there. I'm looking for companies that have long track records of earnings growth. But I think the philosophy at Janus is you agree to disagree, and you're much the sharper for it in terms of someone challenging every idea.

This [new fund] will encourage it, and it will be a great part of the process. We can all walk out of a meeting and come out with different conclusions about whether the stock should or shouldn't be in the portfolio. That's a huge advantage for anyone. You learn more from being challenged than [by] people agreeing with you.

Q: Can you give investors any notion of where you'll be looking, what sectors you find compelling?

A: I'll be surprised [if] any one country -- even the U.S. in particular -- will account for the bulk of assets. I'm more attracted to the developed markets vs. emerging markets because I don't want to take the macro-economic or political risks.

I'm also more prone to buy cash-flow-rich businesses that are stable and consistent, and that usually means media or publishing, and consumer products like food and beverage. I don't like capital-intensive businesses, like the airlines or commodity businesses. And I definitely am staying away from emerging growth businesses that aren't profitable. Since small-cap stocks have underperformed, there may be a few more bargains, and perhaps it's a good place to look.

Q: What about the tech sector?

A: I see opportunity where there is crisis. There are many more tech names today I'd look at than I would have a year and a half ago. Does that mean I'll find some that are undervalued? Possibly, but not necessarily. Certainly, there are tech businesses that have records of being consistently profitable even during downturns and [within] a consolidated competitive environment. But I'm going to be very strict on...the prices I'm willing to pay for them.

Q: Can you describe your overall investing strategy?

A: I'm looking to invest in a few exceptional companies, regardless of geography or market capitalization, that have the ability to create value in any environment. These are companies with a sustainable competitive advantage -- whether that means being the market-share leader, the low-cost producer, or the provider of a superior product or service. These companies also exhibit strong financial performance: high operating margins and returns on invested capital, strong free cash flow, and solid balance sheets.

Often, investment opportunities arise from good companies that have temporarily fallen out of favor with the market. Typical opportunities include companies that have been punished for short-term issues such as quarterly earnings disappointments, product delays, or general industry concerns. Management changes, unrealized or hidden asset values, or other special situations can also present interesting potential opportunities.

Q: How do you determine value? And how might you differ from other value managers?

A: I'm not a statistically cheap, deep-value manager. I don't strictly look for companies say, selling at 1.5 times book, or less than some random amount of their p/e. And I'm not trying to benchmark an index either....I'm really trying to take a broad-brush approach and look closely at the numbers, and use both qualitative and quantitative analysis.

Q: Many Janus managers have been criticized for holding on to tech stocks too long while the market tanked. Do you have a sell discipline?

A: I will typically sell a position for any of the following reasons: It has reached my target price/intrinsic value, I have found more attractive investment opportunities from a risk/reward standpoint, or the company has experienced a significant change in business fundamentals.

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