Janus International Equity Fund Janus Sample Line One Janus Sample Line Two

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JanusSample
International
Equity Fund
Portfolio Commentary | 4Q12
Portfolio Commentary | 1Q14
Investment Environment
Japan weighed on lackluster developed market returns during the quarter, largely over
disappointment that Prime Minister Shinzo Abe’s administration was having difficulty
pushing forward its structural reform program, which was seen as crucial to its long-term
economic growth strategy. Additionally, hopes for significant buying of Japanese equities
following the launch of tax-free investment accounts for individuals failed to meet
expectations of institutional investors who had moved into the market earlier. A stronger
yen further pressured Japanese stocks.
Europe performed relatively better than Asia, reflecting a number of positive signs that
indicated the region’s recovery is underway. Notably, property prices appeared to have
bottomed in most of the peripheral countries and started to rise in others. Credit markets
also signaled improvement. Greece, which was at the center of Europe’s sovereign debt
crisis, completed a debt issuance with much tighter spreads than its current debt. Finally,
unemployment rates began ticking down in many countries, even Spain, which has had
the highest rates.
Portfolio Manager:
Carmel Wellso
Portfolio Manager:
Julian McManus
Emerging markets continued to lag developed markets, reflecting ongoing worries over
China’s slowing economic growth rate and its shadow banking system as well as new
geopolitical concerns resulting from Russia’s annexation of Crimea from Ukraine.
Performance Discussion
The Fund underperformed its primary benchmark, the MSCI EAFE Index, and its
secondary benchmark, the MSCI All Country World ex-U.S. Index. Our Fund focuses on
companies we believe have sustainable competitive advantages, high or improving
returns on capital and strong long-term growth opportunities. Competitors with a zero
weighting in emerging markets and a focus on European companies perceived as
defensive likely performed better in the largely risk-off investment environment; however,
we believe our approach of modest exposure in emerging markets and companies in
Europe that we consider better levered to a European recovery will provide superior riskadjusted performance longer term.
On a sector basis, our usual lack of exposure in utilities and overweighting in consumer
discretionary, the second-worst-performing sector within the primary benchmark, were
among detractors. Our consumer discretionary holdings, which were easily our top
contributors in 2013, also underperformed, reflecting in part muted hopes for consumer
spending in China and Japan.
Our Japanese holdings in homebuilder Iida Group Holdings and e-commerce leader
Rakuten were among our consumer discretionary holdings that weighed on
performance. Real estate developer Mitsubishi Estate, our top detractor, added to the
weak relative performance of our Japanese holdings overall. All reflected the downturn
in the Japan’s equity market generally, but particularly Mitsubishi Estate, given its stock
price has historically been more volatile than the wider Japanese market due to its large
foreign ownership. Mitsubishi Estate was additionally impacted by concerns over a
broader rising interest rate environment. As a prime landowner in central Tokyo, the
company remains well positioned to benefit from the government’s reflationary monetary
policy, in our view.
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Portfolio Manager:
Guy Scott, CFA
Executive Summary
• Japan weighed on
developed markets due to
lack of progress in
implementing economic
reforms.
• Japanese and consumer
discretionary holdings
weighed the most on
relative performance.
• Although our outlook for
Japan has diminished, we
see Europe’s recovery
continuing and believe
market concerns on China
are overdone.
Janus International Equity Fund
Portfolio Commentary | 1Q14
Iida Group, which reflects the merger of six small- to mid-size
homebuilders in 2013, also suffered following the end of a
deadline for people to build homes before an increase in
Japan’s consumption tax. Residential orders, which rose leading
up to the deadline, subsequently declined. Additionally, the
group’s founder died, leading to less confidence the companies
will be able integrate successfully. We believe the merger will
move forward, while the stocks’ valuation at period end more
than compensated for the company’s leadership uncertainty.
Rakuten, the Fund’s top contributor in 2013, gave back some of
its gains. The positive effects of the stock being added to the
Tokyo Stock Exchange Price Index (TOPIX) in January were
offset by the company’s acquisition of Viber Internet messaging
and calling service later in the period. While the price paid
appeared high, it was low relative to what Facebook paid for a
similar company in the U.S. We feel the market will better
appreciate Rakuten’s acquisition in time. Meantime, the
company’s core e-commerce business continued to be strong,
with growing market share.
UK-based global advertising agency WPP, another detractor,
declined due to its exposure to emerging markets. The
company has enjoyed a higher growth rate than peers because
of its emphasis on emerging markets and on the digitalization
of advertising. We continue to appreciate the company’s growth
strategy.
Among contributors, Italian bank UniCredit led the list. UniCredit
is among European banks that have been aggressive in building
provisions and writing down risk-weighted assets ahead of the
European Central Bank’s stress tests and asset quality reviews
(AQRs), which are designed to assess the asset quality of the
region’s banking sector. The bank’s extremely proactive
measures to align with European banking standards removed
investor concerns on its stock.
Denmark’s Novo-Nordisk, the world’s largest insulin maker, led
the relative outperformance of our health care holdings. During
the quarter, a competing Type 2 diabetes drug failed to
demonstrate superiority to Novo-Nordisk’s existing drug. The
news eased a major investor concern on the stock. We continue
to appreciate Novo-Nordisk’s market position and increasing
demand for insulin globally.
Staying in Denmark, transportation and energy conglomerate
AP Moeller-Maersk also aided performance. The Fund’s largest
position benefited late in the period after the U.S. Federal
Maritime Commission approved an alliance between the world’s
top three container shipping firms, including Maersk’s shipping
division. The alliance will pool the companies’ ultra-large vessels
in an effort to reduce costs in an environment of industry
overcapacity. Rather than running only partly full ships, the firms
would be able to run larger ships, which are more efficient, fully
loaded. Provided Chinese and European regulators approve the
arrangement, the alliance will control a high percentage of the
world’s ultra-large vessels. We believe the cost savings to
Maersk could be more significant than the market believes.
Early in the period, Maersk also announced it would sell its
noncore grocery business, which is consistent with the firm’s
restructuring efforts.
In materials, chemical company LyondellBasell Industries was
also among contributors. The stock rose after the company
reported better-than-expected full-year results, raised its
dividend and announced it expects to complete a significant
share buyback plan by May. We appreciate that management is
return-on-capital driven and disciplined on investing in its
business. Lyondell also continues to enjoy a cost advantage,
driven by relatively low prices for is main primary input, natural
gas.
For detailed performance information, please visit www.janus.com/funds
Outlook
Japan has become less attractive to us on a macroeconomic
basis. In the absence of substantial progress on structural
reforms, which form the “third arrow” in Mr. Abe’s economic
growth strategy, it is difficult to see Japan outperforming other
markets. The wild card remains the Bank of Japan’s monetary
policy and its impact on weakening the yen. We reduced our
weighting in the country, but still remain modestly overweight
based on the growth opportunities we still see for individual
Japanese companies. An example is a new investment we
made in an exploration and production company that is
developing a large, promising liquid natural gas (LNG) project
offshore of Australia.
In China, we believe concerns of slowing growth and fears over
its shadow banking system are overdone. We think the
government will be able to manage down nonregulated lending,
although it will take time and the market will likely remain
skeptical until there are tangible results. One sign of progress
were defaults in some wealth management products, which
although negative-sounding demonstrated China is willing to
manage its financial problems more openly than in the past and
thus will allow poor investments to fail. In industrials, recent data
has shown that the capital spending cycle has peaked, which
implies a potential recovery in profit margins. We have started
to see the market better differentiate between those companies
that are showing margin improvement and those that are not.
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Janus International Equity Fund
Portfolio Commentary | 1Q14
Therefore, we think stock selection among Chinese industrials
will be a more important factor going forward, rather than
macroeconomic concerns as has been the case more recently.
As for Europe, we anticipate the improving macroeconomic data
points to continue, particularly with interest rates remaining low.
We think the peripheral countries are at the beginning of a slow
recovery, and we expect the recovery in the bigger markets,
such as Germany, and healthier economies, such as the UK, to
continue but likely not as fast as in 2013. At the company level,
we are avoiding European companies that have benefited from
infrastructure or fixed asset spending in China and emerging
markets more broadly, since those areas are less robust.
Instead, we appreciate “self-help” restructuring companies, such
as an express shipping company that is exiting underperforming
contracts, reducing fixed costs and positioning itself to capture
greater operational leverage in a European recovery. We also
added two real estate companies, which we think will benefit
from rising property prices in Europe generally, and the UK in
particular.
Top Contributors and Detractors for the Quarter Ended 3/31/14
Ending
Weight (%)
Contribution
(%)
Ending
Weight (%)
Contribution
(%)
UniCredit SpA
2.11
0.36
Mitsubishi Estate Co., Ltd.
1.52
-0.41
Novo Nordisk A/S - Class B
1.45
0.31
Iida Group Holdings Co., Ltd.
0.75
-0.32
A.P. Moeller - Maersk A/S - Class B
2.91
0.30
WPP PLC
2.04
-0.22
LyondellBasell Industries N.V. - Class A
2.15
0.25
Rakuten, Inc.
1.74
-0.21
Petrofac, Ltd.
1.35
0.21
Japan Exchange Group, Inc.
0.00
-0.19
Top Contributors
Top Detractors
The holdings identified in this table, in compliance with Janus policy, do not represent all of the securities purchased, held or sold during the period. To obtain a list
showing every holding as a percentage of the portfolio at the end of the most recent publicly available disclosure period, contact 877.33JANUS (52687) or visit
janus.com/advisor/mutual-funds.
Top Contributors
Top Detractors
UniCredit: Italy’s largest bank by assets, UniCredit offers
consumer credit, mortgages, life insurance, business loans,
investment banking, asset management and other services.
We believe management’s proactive measures to meet
European banking standards by increasing provisions will
position it well for growth going forward. We also appreciate
the bank’s exposure to Italy, one of Europe’s large
manufacturing countries, and emerging markets in Central
and Eastern Europe.
Mitsubishi Estate: An investor in real estate properties in
Japan, the company leases, manages and develops
commercial buildings in central Tokyo. Mitsubishi Estate also
develops and sells residential properties and parking lots
and manages recreational facilities including golf courses
and tennis clubs. As a prime landowner in central Tokyo, the
company is well positioned to benefit from the government’s
reflationary monetary policy, in our view. We’re also seeing
indications of higher rents in Tokyo.
Novo-Nordisk: The Denmark-based pharmaceutical
company focuses on diabetes care and offers insulin
delivery systems and other diabetes products. We appreciate
the company’s position in a market with limited competition,
rationale pricing and long-term growth prospects, given the
growing prevalence of diabetes.
Iida Group Holdings: Established by the merger between
Hajime Construction, Iida Home Max, Touei Housing, Tact
Home, Arnest One and ID Home in 2013, the holding
company’s subsidiaries design, construct and sell singlefamily houses and condominiums. We believe the merger of
these small- to mid-size homebuilders into a single entity will
enable them to better compete against industry leaders. We
think Iida’s valuation could rise in line with the industry
leaders. We also expect to see some benefit from these
smaller companies no longer competing against each other
and as they integrate some of their functions to reduce
costs.
AP Moeller-Maersk: The conglomerate involved in the
transportation and energy sectors is transitioning from a
family-run business to a public company with greater
transparency into its operations and focus on returns on
invested capital. We appreciate that new management is
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Janus International Equity Fund
Portfolio Commentary | 1Q14
Top Contributors (continued)
Top Detractors (continued)
focused on the company’s four core divisions, which
generate the company’s highest returns, and that the
company has sold noncore assets and reinvested proceeds
into its higher growth divisions. One of the key divisions,
Maersk Oil, in particular we feel has been undervalued by
the market due to lack of transparency. We think if this oil
and gas exploration and production division reaches its
production targets, it could be valued significantly higher.
WPP: A global advertising and communications company
based in the UK, WPP operates under some of the most
well-known brands in the industry: Ogilvy, JWT and 24/7
Media. We believe the key structural drivers are the
company’s rising penetration rates in emerging markets and
growing demand for digital advertising. We anticipate further
upside from new client wins and a cyclical recovery will lead
to improving cash flows and margins.
LyondellBasell Industries: The large chemical producer,
which converts liquid and gaseous hydrocarbon feedstock
into plastic resins and other chemicals, has a cost advantage
since the primary input to its production process is natural
gas, a commodity that has experienced considerable price
pressure due to excess supply. We also like the global
supply/demand dynamics for ethylene, one of the company’s
primary products. Finally, we think management is
committed to improving shareholder value by paying out onetime special dividends, buying back stock and selectively
investing in high ROIC projects.
Rakuten: We consider Rakuten the Amazon.com of Japan
since it dominates online shopping in the country. We feel
this business has strong long-term potential given that
online shopping still represents only a small percentage of
total sales. As online shopping increases in Japan to levels
closer to rates in the U.S. and UK, Rakuten is well positioned
to benefit, in our view. Also strengthening its competitive
position are its credit card and travel businesses as well as a
bank that we feel when combined have the potential to
create a network effort that creates loyalty from customers.
Petrofac: We believe the UK oilfield engineering and
construction firm can grow earnings from its integrated
energy services division. We think national oil companies will
outsource production from their mature fields to this new
division in order to improve oil recovery and stimulate
production growth. We also appreciate the company’s strong
market position in the Middle East, and we believe it should
continue to capture significant incremental growth and
capacity from that region.
Japan Exchange Group: We sold our position in the
Japanese stock and futures exchange operator, which
benefited from strong trading volumes in 2013, based on
the stock approaching our price target and due to the lack of
a catalyst to drive its market volumes higher.
Page 4 of 5
Janus International Equity Fund
Portfolio Commentary | 1Q14
Please consider the charges, risks, expenses and investment objectives carefully before investing. For a prospectus
or, if available, a summary prospectus containing this and other information, please call Janus at 877.33JANUS (52687)
or download the file from janus.com/info. Read it carefully before you invest or send money.
Past performance is no guarantee of future results. Call 877.33JANUS (52687) or visit janus.com/advisor/mutual-funds for current month-end performance.
Discussion is based on performance of the Fund's initial share class.
As of 3/31/14 the top ten portfolio holdings of Janus International Equity Fund are: A.P. Moeller - Maersk A/S - Class B (2.85%), AIA Group, Ltd. (2.39%), Japan
Tobacco, Inc. (2.39%), Ericsson (2.31%), Samsonite International S.A. (2.19%), Shire PLC (2.18%), LyondellBasell Industries N.V. - Class A (2.11%), Taiwan
Semiconductor Manufacturing Co., Ltd. (2.10%), Seven Bank, Ltd. (2.10%) and UniCredit SpA (2.07%). There are no assurances that any Janus portfolio currently
holds these securities or other securities mentioned in this commentary.
The opinions are those of the authors as of 3/31/14 and are subject to change at any time due to changes in market or economic conditions. The comments
should not be construed as a recommendation of individual holdings or market sectors, but as an illustration of broader themes.
Security contribution to performance is measured by using an algorithm that multiplies the daily performance of each security with the previous day’s ending
weight in the portfolio and is gross of advisory fees. Fixed income securities and certain equity securities, such as private placements and some share classes of
equity securities, are excluded.
A Fund’s performance may be affected by risks that include those associated with nondiversification, non-investment grade debt securities, highyield/high-risk securities, undervalued or overlooked companies, investments in specific industries or countries and potential conflicts of interest.
Additional risks to a Fund may also include, but are not limited to, those associated with investing in foreign securities, emerging markets, initial
public offerings, real estate investment trusts (REITs), derivatives, short sales, commodity-linked investments and companies with relatively small
market capitalizations. Each Fund has different risks. Please see a Janus prospectus for more information about risks, Fund holdings and other
details.
Foreign securities are subject to additional risks including currency fluctuations, political and economic uncertainty, increased volatility and differing
financial and information reporting standards, all of which are magnified in emerging markets.
MSCI EAFE® (Europe, Australasia, Far East) Index is a free float-adjusted market capitalization weighted index designed to measure developed market equity
performance. The MSCI EAFE® Index is composed of companies representative of the market structure of developed market countries. The index includes
reinvestment of dividends, net of foreign withholding taxes.
MSCI All Country World ex-U.S. IndexSM is an unmanaged, free float-adjusted, market capitalization weighted index composed of stocks of companies located in
countries throughout the world, excluding the United States. It is designed to measure equity market performance in global developed and emerging markets
outside the United States. The index includes reinvestment of dividends, net of foreign withholding taxes.
A Fund’s portfolio may differ significantly from the securities held in an index. An index is unmanaged and not available for direct investment; therefore its
performance does not reflect the expenses associated with the active management of an actual portfolio.
Janus Capital Singapore Pte. Limited is an indirect subsidiary of Janus Capital Group Inc. and serves as the sub-adviser on certain products.
Funds distributed by Janus Distributors LLC
C-0314-59529 07-15-14
188-15-16691 04/14
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