Today’s article in Barron’s profiles the Janus Global Life Sciences Fund (JFNAX, Class A shares). This large-cap healthcare sector fund has a front sales charge of up to 5.75%, net expense ratio of 1.04% and turnover of about 51%. According to the article, the fund’s manager delivered outstanding performance:
Under his care since 2007, the $1.9 billion Janus Global Life Sciences fund (ticker: JFNAX) has gone up an average of 24% a year for the past five years, more than two percentage points a year better than other health-focused funds.
However, the fund’s return is only one aspect of its performance. When adjusted for risk even with a single factor, i.e. on the basis of the Sharpe ratio, the fund failed to beat its ETF counterparts, the iShares Global Healthcare ETF (IXJ) over the most recent three-year period and Vanguard Health Care (VHT) over three- and five-year periods.
Although the fund’s webpage quotes an overall Morningstar rating of five-stars as of April 30 this year, the current rating on Morningstar’s page is four stars. Why has the rating recently decreased? An analysis of the fund using Alpholio’s methodology sheds some light on that.
Here is the cumulative RealAlpha™ chart for the Janus Global Life Sciences Fund for the approximately five last years:
From 2009 through 2012, the cumulative RealAlpha™ for the fund was flat to negatively sloped. In other words, the fund did not add any value on a truly risk-adjusted basis. It was only in 2013 that the fund began to generate a significant amount of RealAlpha™. This was due to its significant position in select biotechnology stocks (see below), which rallied last year. As a result, the annualized discounted RealAlpha™ over the entire analysis period was about 3%. At about 14.2%, the fund’s standard deviation was about 0.8% higher than that of its reference ETF portfolio.
The following chart shows ETF membership and weights in the fund’s reference portfolio over the same analysis period:
The fund had top equivalent equity positions in the Vanguard Health Care ETF (VHT; average weight of 35.5%), iShares Nasdaq Biotechnology ETF (IBB; 33.9%), iShares Morningstar Mid-Cap Growth ETF (JKH; 9.0%), iShares Global Healthcare ETF (IXJ; 8.1%), iShares MSCI Switzerland Capped ETF (EWL; 2.3%). The fixed-income investments of the fund was represented by iShares 1-3 Year Treasury Bond ETF (SHY; average weight of 6.5%). The Other component in the chart represents collective weight of three additional ETFs.
The average weight of the iShares Nasdaq Biotechnology ETF (IBB) in the fund’s reference portfolio increased from about 33% at the end of 2012 to about 45% in the second half of 2013. This illustrates how the fund was able to generate significant gains by riding the biotech rally in that period. However, the cumulative RealAlpha™ chart also shows that after that rally ended in February of 2014, the fund’s performance has suffered.
The final chart depicts a buy-sell signal for the fund derived from the smoothed cumulative RealAlpha™ (to learn more, please visit our FAQ):
Following this hypothetical signal, an investor would have divested the fund in mid-2010 and reacquired it in early 2013, thus avoiding a long period of underperformance and capturing the most recent gains.
In conclusion, while the Janus Global Life Sciences Fund exhibited good annualized three- and five-year returns, it was due to a short period of biotech-driven outperformance in 2013. Otherwise, the fund’s performance since 2009 was unimpressive, especially if its significant front sales charge were taken into account. Investors should therefore remain cautious about the fund’s prospects.
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