Janus Funds is putting new money in asset rich companies with positive free cash flow, in relatively stable sectors such as gaming, food, deathcare and energy, where companies are aggressively looking to pay down debt, says Sandy Rufenacht, portfolio manager of some $2.2 billion in high-yield assets. Janus has been taking in $10-20 million in new assets per day. He says the strong performance of the junk market over the last eight months has created opportunities in lower-yielding issues as his peers take on increasing risk in the search for sizeable returns. While he acknowledges that he has underperformed more aggressive funds of late, he says he is ahead of his 7 1/4% target for the year, and does not feel the need to hit a home run. "I'll buy all the conservative paper I can right now," he says.
Names Janus owns and will likely continue to buy include Venetian Casinos. Rufenacht says the property is the best in Las Vegas, and has produced solid numbers of late, especially versus the rest of the strip. The casino's single issue, the 11% notes of '10 (B3/B-) were trading at 112 last Tuesday.
Janus will also likely add to its holdings in deathcare companies Service Corporation International andStewart Enterprises. Rufenacht argues that an aging baby boomer population bodes well for the industry's long-term prospects. Service Corp.'s 6 3/4 % notes of '08 were trading at 102 last Tuesday, while Stewart's 10 3/4 % notes of '08 was at a 111 bid.
One strategy Janus has employed recently is to buy tendered bonds as a cash substitute. For example, when Speedway Motorsports did a new issue to take out its 8 1/2% notes of '07, Janus bought $20 million of the old issue, which would remain outstanding for 45 days at a yield of 4.5-5%--well above Treasuries.
At a duration of 3.68 years, the Denver-based fund manager is well short of its bogey, the 4.75-year Lehman Brothers high-yield index. While many high-yield managers do not pay close attention to duration, Rufenacht says he wants to stay short because, as a conservatively managed fund, Janus would otherwise be vulnerable to a sharp upward move in interest rates.
