October 2019

Enterprise Fund Recap and Outlook

Portfolio Managers Brian Demain and Cody Wheaton provide perspective on current market dynamics, their outlook and portfolio performance.

 

View Transcript

Brian

The quarter was essentially flat from a total returns point of view for the Russell Mid-Cap Growth benchmark, but there are a number of underlying dynamics beneath the surface that are worth teasing out. There was certainly volatility within the quarter driven by uncertainty around the macroeconomic situation, trade policy and interest rates. Especially notably in September we saw a meaningful reversal in the prevailing market dynamic over the last couple of years, which has been growth dramatically outperforming value. September saw a very aggressive reversal of that where value outperformed growth by a fairly meaningful amount in the quarter.

Performance Discussion Title Card

Cody

Our investment process tends to emphasize valuation discipline as one of the four cornerstones of our investment philosophy and that helped enable the strategy outperformed during the third quarter.

The technology sector contributed to outperformance for the strategy during the third quarter. What we saw during the third quarter was some of the most expensive stocks within the software part of the Russell Mid-Cap Growth Index, namely enterprise SaaS companies, that have been trading at somewhat unprecedented valuations. We saw those stocks sell off during the third quarter. We tend to emphasize a little bit more vertically-oriented software companies that maybe are not growing quite as fast as some of these enterprise SaaS companies, but have very defined unit economics and very strong competitive positions and more reasonable valuations. And those types of stocks helped us outperformed during the third quarter.

Brian

Within the healthcare sector, over the course of the quarter we saw a lot of volatility driven by the political rhetoric around drug pricing and the overall reimbursement landscape. Our positioning in healthcare is generally focused on innovative companies that are often times suppliers into the broader healthcare ecosystem. These companies tend to be one or two degrees removed from that direct reimbursement risk. And so because of that positioning, we were able to generate stock selection, outperformance within the healthcare sector in the quarter.

Outlook Title Card

Brian:

We see the potential for continued increased volatility going forward as a function of the continued uncertainty around the trade environment, interest rates and a political landscape that is increasingly unfriendly to Corporate America. When we think about positioning of our portfolio and what we generally look for in companies, from a relative performance point of view, we feel comfortable with our we are positioned for that environment. We are looking for companies with sustainable growth, a strong competitive advantage, good management and a reasonable valuation. We think that balance will serve us well in a more volatile environment. As we think about the populist political dynamic coming from both the left and the right, one thing we think a lot about is how our companies fit into that political dynamic. Corporate America, it is important that they are earning profits for their shareholders. We are ultimately shareholders and care about value creation through that lens. But we don’t want companies that are creating profits at the expense of their employees, customers or communities. We think those types of practices will be increasingly scrutinized by the populist political dynamic that is a real part of the American fabric today.

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Past performance is no guarantee of future results. Call 800.668.0434 or visit janushenderson.com/performance for current month-end performance.

Discussion is based on the performance of Class I Shares.

Closed to certain new investors.

The opinions are as of 9/30/19 and are subject to change without notice. Janus Henderson may have a business relationship with certain entities discussed. 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.

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Smaller capitalization securities may be less stable and more susceptible to adverse developments, and may be more volatile and less liquid than larger capitalization securities.

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C-1019 26908 01-30-19

 

Key Takeaways

  • Market Environment: In a market characterized by two distinct periods, Brian and Cody began to observe a change in the outperformance of growth versus value.
  • Performance Update: The Managers provide a recap on some of technology growth drivers within the portfolio and share their positioning around recent volatility, particularly within the health care sector.
  • Outlook: Brian and Cody remain disciplined around valuations given continued uncertainty around trade, interest rates and a delicate political landscape.

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