Tom Perkins and Jeff Kautz guided the Janus Mid Cap Value Fund to higher returns than all but one rival in the past 10 years by applying a Depression-era lesson: Seek out companies with strong balance sheets.

Share story







Tom Perkins and Jeff Kautz guided the Janus Mid Cap Value Fund to higher returns than all but one rival in the past 10 years by applying a Depression-era lesson: Seek out companies with strong balance sheets.

The $7.5 billion fund lost 5.4 percent this year through Sept. 18, less than the 9.7 percent decline by the Russell MidCap Value Index. Janus Mid Cap Value also has been bolstered by holdings in companies that attracted takeover offers, such as voting-machine maker Diebold and computer-networking firm Foundry Networks.

Perkins was mentored at Chicago’s Kemper Financial Services in the 1960s by John Hawkinson, who began investing in utility and railroad stocks in the 1930s.

Hawkinson’s message that balance sheets were the best predictors of financial survival “came home loud and clear” when the market fell 30 percent during Perkins’ first six months of managing money at Kemper in 1974.

“That experience was a life experience that hasn’t left me,” Perkins said in a telephone interview from his San Francisco office. Perkins’ fund, opened in August 1998, gained an annualized return of 16.5 percent in the past 10 years, compared with the 11 percent average for peer funds, according to Morningstar. It trails only Security Mid Cap Value, run by James Schier, which has returned 16.9 percent.

The fund has a three-year Sharpe ratio of 0.45, compared with a -0.01 ratio for rivals, according to Chicago-based Morningstar. A higher Sharpe ratio indicates better risk-adjusted returns. Morningstar recommends the fund and gives it a five-star rating, its highest.

Janus Mid Cap Value invests at least 80 percent of its assets in stocks seen as undervalued based on earnings or other financial measures. It also limits picks to companies whose size falls within the 12-month average of the market capitalization of the Russell Midcap Value Index. The index’s average market capitalization is $6.94 billion.

“We like their levelheadedness,” Andrew Gogerty, a Morningstar analyst, said in an interview. “They’re just as likely to talk about what could go wrong as what could go right with a particular holding.”

This year, Perkins hedged the fund for the first time, buying put options tied to various mid-cap indexes. These gave him the right to sell the index options at a predetermined price within a certain range of time. So, if an index dropped sharply, the fund could cash in on the difference.

“We were beginning to see more and more interesting value, but the macro situation was dicey enough that we wanted some protection,” Perkins said.

The strategy allowed the fund to stay more fully invested, rather than holding higher amounts in cash, as funds often do during declining markets. The fund has broken even on options, Perkins said.