Investment firms sometimes bury their mistakes, killing their evil spawn, the funds that never produced good results or that once attracted attention but have since fallen and can’t get up.
But when Janus unveiled plans recently to kill its Olympus fund by merging it into Janus Orion, industry watchers did a double take. This was not some mercy killing of a lackluster fund, but the end to a name that has been in the top 10 percent of all large-cap growth funds over the last decade and has been in the top quarter of its peer group for the last five years.
There were no warning signs. Olympus had even recently appointed a new manager, not coincidentally the guy who runs the money at Orion.
When you dig deeper, however, the situation makes sense not only for Janus but also for Olympus shareholders. Orion investors might not be quite so pleased, and all fund investors can learn a little lesson from the entire situation, just in case more fund firms develop a conscience and start to tighten their management focus.
The situation starts with Olympus, a $2.2 billion fund that needed a new manager after Clare Young announced her retirement. In June, Ron Sachs, manager of the $1.1 billion mid-cap growth Orion fund, was put in charge, and it looked as if he would run both funds.
Internally, however, Janus was already planning the merger. Officials couldn’t discuss the inner workings of the deal, but some insiders suggest that marketing officials were reluctant to give up the Olympus name. Fund firms usually hang on to successful funds forever, often long after management has lost its edge.
One hold-up to making the move when Young retired involved tax accounting. Olympus had tax-loss carryforwards that management wanted to keep and move to Orion. The timing of the deal, which must be approved by shareholders at a special meeting Oct. 2 before becoming effective Oct. 20, apparently maximizes the benefits.
That will pay off as Sachs most likely will sell some Olympus holdings and realize gains as he combines the assets.
While Olympus is better known–an annualized total return of 8.9 percent over a decade does that–the younger Orion has been better, near the top of Lipper’s multi-cap growth category. Olympus has been in the middle of the pack of late.
With both funds having a charter that allows the manager to go anywhere, the deal simplifies management, which is always good for investors. (An evaluation of the two funds using Overlap software shows that about 20 percent of each fund’s portfolio is invested in the same stocks.)
As with any merger, shareholders should have some concerns.
Mark the deal done, as there’s no foreseeable situation where investors vote it down. A shareholder who wants to hold Olympus, or who prefers a smaller Orion, should start adjusting to that reality by considering other options.
The additional $2 billion in assets will change Orion. The fund currently gravitates toward mid-cap and even some small-cap stocks, but experts suggest Sachs will have no choice but to tilt toward large-cap issues to put the additional money to work.
Olympus investors are likely to see a fund that has lower turnover and that is more concentrated, but otherwise should expect the fund not to be dramatically changed.
In the end, it appears that Janus did an honest assessment of what it could do best at this point, something investors typically don’t see from fund companies. More funds, even those with good records, should probably be merged to death, if only to simplify the management process and allow consumers to build better, easier-to-understand portfolios.
———-
Chuck Jaffe is senior columnist for MarketWatch. He can be reached at jaffe@marketwatch.com or at Box 70, Cohasset, Maas. 02025-0070.
