401(k) Fund Spotlight: Janus Triton
Summary Janus Triton is a small to mid capitalization growth stock fund. Triton has consistently beaten the Russell small capitalization growth indexes, but not the higher quality S&P 600 Small Cap indexes. Triton is overweight the technology sector, which comprises about 31% of the fund. A look at some of the fund’s largest technology holdings reveal the manager is true to the fund’s promise of investing in companies with “differentiated business models”. Introduction I select funds on behalf of my investment advisory clients in many different defined contribution plans, namely 401(k)s and 403(b)s. I have looked at a lot of different funds over the years. 401(k) Fund Spotlight is an article series that focuses on one particular fund at a time that is widely offered to Americans in their 401(k) plans. 401(k)s are now the foundational retirement savings vehicle for many Americans. They should be maximized to the fullest extent. A detailed understanding of fund options is a worthwhile endeavor. To get the most out of this article, it is helpful to understand my approach to investing in 401(k)s . I strive to write these articles for the benefit of the novice and professional. Please comment if you have a question. I always try to give substantive responses. Janus Triton Fund The Janus Triton Fund has the following share classes: I will assume the “T” shares for this article, since that is the share class that holds the most assets of the fund. It is also the primary share class used by Janus to evaluate historical calendar year returns. The net expense ratio for the T shares is .93. Evaluating Historical Performance Triton is a small/mid capitalization (“cap”) growth fund. Janus compares the fund’s historical performance to the Russell 2000® Growth Index and the Russell 2500™ Growth Index and it comes out favorably, as shown on the following table: as of September 30, 2015 1 Year 3 Year 5 Year 10 Year Janus Triton – T Shares 5.1% 14.2% 14.1% 11.4% Russell 2500™ Growth Index 3.4% 13.8% 13.9% 8.4% Triton Outperformance (Underperformance) 1.7% .4% .2% 3.0% Russell 2000® Growth Index 4.0% 12.9% 13.3% 7.7% Triton Outperformance (Underperformance) 1.1% 1.3% .8% 3.7% Triton has outperformed both growth benchmarks over all four of these time periods. Most notably, Triton’s outperformance in the important (for long term investors at least) 10-year category ranged from 3.0% to 3.7%. This particular 10-year period is also noteworthy, because it included one of the worst bear markets in U.S. stock market history. However, taking a step back, it is important to ask the question: “Are the Russell indexes the best for comparison?” Perhaps they are if your fund is always outperforming them. There are other widely used small cap indexes from S&P that have outperformed the Russell small cap indexes over time. (This article explains the difference between the two.) The S&P Small 600 Index tends to hold a bit higher quality stocks. For example, it requires index members to have at least four consecutive quarters of positive earnings. I drew up a chart of Triton versus the SPDR S&P Small Cap 600 Index ETF (NYSEARCA: SLY ) and the SPDR S&P Small Cap Growth Index ETF (NYSEARCA: SLYG ) since March 1, 2009 (arguably the approximate date of the current secular bull market). Here is what it looks like: JATTX Total Return Price data by YCharts A:JGMAX C:JGMCX I:JSMGX N:JGMNX S:JGMIX R:JGMRX T:JATTX Out of the three, the SPDR S&P Small Cap 600 Growth Index ETF was the winner, but only slightly. Overall, I think it could be said that all three have pretty much been running neck and neck throughout this bull market. According to Barrons , Triton has outperformed 89% of its peers, as measured by the Lipper Small Cap Growth Index, over the last five years. I think the fact that it beat such a large percentage of its peers, but still trailed the S&P Small Cap 600 Growth Index ETF during this bull market, really speaks to the quality of the S&P Small Cap 600 indexes. Overall, the fund has a solid performance track record. If available in a 401(k), I would likely choose either of the similar S&P Small Cap 600 Indexes though instead. The index gives you a lower expense ratio, so you have a slight advantage right out of the gate. Triton, like so many other mutual funds, is so widely diversified that it really cannot stray to far from the index as long as it remains fully invested. The problem is not so much that the fund holds 120 different stocks, it is that there are only four stocks that comprise more than 2% of the fund each. Other Noteworthy Tidbits Triton does have a substantially overweight position in information technology (31% of the fund as of October 31, 2015) compared to the Russell 2500 ™ Growth Index’s (21%). The fund may present a good angle for investors interested in having more exposure to the sector without going overboard. However, the overall fund has a forward Price to Earnings (“P/E”) multiple of 24, which is very high. I suspect that some of the information technology stocks it holds are widely overvalued. Let us dig a little deeper. The industries the fund has most exposure to are Software (12% of fund) and Information Technology Services (9%). The following table lists the fund’s largest holdings within these two sectors and their trailing twelve month (“TTM”) and forward looking P/E multiples (taken from Yahoo! Finance). Company P/E Multiple (Last 12 Months) Forward P/E Multiple SS&C Technologies Holdings ( SSNC ) 98 22 BlackBaud ( BLKB ) 121 36 Cadence Design Systems ( CDNS ) 30 19 Euronet Worldwide ( EEFT ) 44 22 Broadridge Financial Solutions ( BR ) 24 18 Jack Henry & Associates ( JKHY ) 30 26 I tend to focus on forward looking multiples and most of these are too high for my liking, although I was a bit off on my speculation of wild overvaluation. They are not in the extreme territory of some overplayed growth stocks. Janus states in the Triton fund description that: “The Fund invests in small-cap companies with differentiated business models and sustainable competitive advantages that are positioned to grow market share regardless of economic conditions.” Glancing at the business descriptions of just these six companies leads me to believe that Triton’s manager is following through on this promise. These companies strike me as those that are not going away anytime soon and could continue to experience solid growth in their niches (e.g., payment processing for small financial institutions and designing web solutions for non-profits). Conclusion The Janus Triton Fund is a solid option for 401(k) investors looking to get exposure to small/mid cap growth stocks. I would not choose the fund over the S&P Small Cap 600 Growth Index, but that is rarely a choice. Triton has consistently beaten the comparable Russell growth indexes and most of its peers. I would likely choose it, or at least give it a higher allocation, than other such available options. Investing Disclosure 401(k) Spotlight articles focus on the specific attributes of mutual funds that are widely available to Americans within employer provided defined contribution plans. Fund recommendations are general in nature and not geared towards any specific reader. Fund positioning should be considered as part of a comprehensive asset allocation strategy, based upon the financial situation, investment objectives, and particular needs of the investor. Readers are encouraged to obtain experienced, professional advice. Important Regulatory Disclosures I am a Registered Investment Advisor in the State of Pennsylvania. I screen electronic communications from prospective clients in other states to ensure that I do not communicate directly with any prospect in another state where I have not met the registration requirements or do not have an applicable exemption. Positive comments made regarding this article should not be construed by readers to be an endorsement of my abilities to act as an investment adviser.