Volunteer

What do we do when we are not managing your money? Chances are you can catch one member of the team out volunteering, that’s what. While prudently managing your money is our number one job, we also believe that giving back to our community is just as important. Not only do we sponsor organizations such as the Oregon Children’s Theatre where John Woolley has been a past board President and Treasurer, we volunteer hours in our community (frequently with our children).

John and his wife, Karen, have lead mission trips to Rwanda working with street orphans and resettlement refugees. Their last trip was in 2009. He is now helping two of his daughters prepare for their trip to Managua, Nicaragua where they will be working with Forward Edge International. While in Nicaragua they will be helping repair the Villa Esperanza facility which is a safe haven for girls trying to escape their life in the garbage dump/landfill of Managua and the horrors that life in the dump entails.

Beth Craven puts in many volunteer hours at her girls’ high school, Jesuit. She has also accompanied her daughters as they fulfill Jesuit’s numerous required volunteer hours at places such as an elderly hospice house in SE Portland and The Boys & Girls Club.

Christel Turkiewicz can frequently be found at many elementary schools around the city teaching students the basics of personal finance through her work as a volunteer with Financial Beginnings. While living in Thailand during 2008-2010 she helped teach an English camp in northern Thailand for under privileged girls. She also volunteered this year at the Oregon Food Bank with her son as he completed a community project for his People to People Student Ambassador program.

Not to be outdone by the others at Northwest, Mark Scarlett will head out in July for two weeks in Zambia with a group from Lake Grove Presbyterian Church in partnership with World Vision. He will be working in an extremely impoverished area called Sinazongwe in the southern part of Zambia where they will focus on agricultural development/food security, clean water, HIV/AIDS and education. Mark made his first journey there in 2009. His wife, Anita, and their two oldest daughters are involved in many philanthropic events as part of the National Charity League organization.

We appreciate your business, and we appreciate the community both locally and globally we live and work in.

Adding Janus to the Smaller Companies Portfolio

We have added Janus Capital Group, Inc. (JNS) to the Smaller Companies portfolio. Janus manages approximately $173 billion through various mutual funds and separate accounts for retail and institutional accounts. In recent years, Janus has diversified away from a focus on the growth style of investing by purchasing Perkins Investment Management (a value based manager) and INTECH Investment Management (a quantitative based manager). Janus has also been growing their fixed income management (9% of AUM). Currently, quantitative assets under management are about 25% of the total and value assets under management are about 12% of their total.

The chart presents the history of Janus’ assets under management at year end since 1996. Janus was a darling of the dot-com era with their successful (and aggressive) growth style of investing. Janus peaked at $250 billion in assets under management in 2000. Not surprisingly, Janus’ stock performance since 2000 has been dismal and there has been a fair amount of senior management and portfolio manager turnover.

What is our thesis? Despite a rocky ten years for Janus, the asset management business is still a good business and Janus is a mid-sized competitor with a narrow economic moat around their business. Janus’ return on tangible invested capital (ROIC) is over 200%. Management, in recent years, has improved Janus’ balance sheet with net debt down to around $100 million. The Board of Directors upped the annual dividend to $0.20 per share from $0.04 (not that we focus of dividends in the Smaller Companies portfolio, but if the Company pays it out, management cannot waste it on acquisitions). Currently, the stock is trading at an unlevered operating income (OP) to market value of invested capital (MVIC) of about 20% or a 5x multiple of MVIC/OP. Based on our discounted cash flow (DCF) and economic value added (EVA) analysis, we estimated that Janus is worth around $14 per share.

We also recognize that there are some fundamental changes in the asset management business with the advent of exchange traded funds (ETFs). We expect that it will be much harder for small and mid-sized mutual fund firms like Janus to compete in the coming years. While management is attempting to broaden Janus’s scope and scale (and we hope they succeed), we would prefer the Board of Directors put Janus up for sale. In this case, our analysis indicates a possible value of $18 per share or about 100% gain on our investment (click table below).