Janus Henderson's Q2 2024 Commentaries: Insights on Opportunistic Alpha and Mid-Cap Value Strategies

Janus Henderson Opportunistic Alpha Managed Account Q2 2024 Commentary

The earnings outlook for companies beyond the mega-cap tech leaders is improving and could be a catalyst alongside accommodative monetary policy to broaden market returns. Performance - USD (%) Returns 2Q24 (Cumulative) YTD (Cumulative) 1 Yr (Cumulative) 3 Yr (Annualized) 5 Yr (Annualized) 10 Yr (Annualized) Since Inception (04/01/00) Composite (pure gross*) -2.26 6.02 11.64 1.40 12.56 9.73 8.98 Composite (net) -2.99 4.48 8.40 -1.56 9.30 6.55 5.81 S&P 500® Index 4.28 15.29 24.56 10.01 15.04 12.86 7.49 Click to enlarge Past performance cannot guarantee future results. Investing involves risk, including the possible loss of principal and fluctuation of value. Returns greater than one year are annualized. Returns are expressed in U.S. dollars. All returns reflect the reinvestment of dividends and other earnings. *Pure gross performance results do not reflect the deduction of any trading costs, fees or expenses and returns will be reduced by such advisory fee and other contractual expenses as described in the individual contract and Form ADV Part 2A. Pure gross returns are supplemental to net returns. Net returns are calculated by subtracting the highest applicable Managed Account fee (3.00% annually, or 0.25% monthly) from the pure gross or gross composite return. The Managed Account fee includes all charges for trading costs, portfolio management, custody and other administrative fees. Actual fees may vary depending on, among other things, the applicable fee schedule and portfolio size. The fees are available on request and may be found in Form ADV Part 2A. Click to enlarge Investment environment Following a very strong first quarter, the S&P 500 Index continued gains and returned 4.28% in the second quarter. The advance was relatively narrow, driven by mega-cap technology stocks with artificial intelligence exposure. Six of the 11 sectors in the S&P 500 Index posted negative returns, and market breadth was negative with 199 stocks in the index up and 304 down. The S&P Equal Weight Index returned -2.63% during the quarter. Inflation moderated but remained above central bank target levels. This led to uncertainty over the timing of potential Federal Reserve (Fed) rate cuts. However, the 10-year Treasury bond yield retreated off April highs, as investors grew more hopeful that slower economic growth and easing core inflation could lead the Fed to cut interest rates in the coming months. First-quarter earnings and guidance for the second quarter were broadly solid and supportive of market gains. While economic news was generally positive, there were signs that higher living costs were putting a strain on consumer spending. Portfolio review Enterprise software company Oracle was a top contributor torelative performance. The company reported revenue and bottom line metrics that were in line to slightly below consensus; however, it also reported record bookings for new business. This accelerating revenue growth outlook is being driven by AI cloud infrastructure deals and boosted sentiment in the stock. Howmet Aerospace, a manufacturer of specialized aircraft components, was another top contributor to relative performance. The stock experienced a notable performance boost after beating first-quarter earnings expectations and raising full-year guidance. The company benefited from a resurgence in air travel, pushing commercial aerospace sales up by 23%. Despite the potential sales impact from Boeing's 737 MAX production challenges, the extended operation of existing airline fleets could lead to heightened demand for spare parts, offsetting concerns. Teleflex, a medical device company, was among the top relative detractors. The stock underperformed in the quarter despite reporting earnings results that were in line with estimates. In a period of very high levels of medical utilization post-Covid 19 for many companies, Teleflex's results, particularly from its key product, UroLift, have been underwhelming. Also weighing on the stock is conservative 2024 guidance due to the impact of recent acquisitions on the business. We remain attracted to the company from a valuation standpoint, as we believe its longer-term growth prospects are undervalued by the market; however, we are monitoring the company's capital allocation decisions to include further M&A and/or share repurchases. Workday, another detractor, develops and sells subscription-based enterprise cloud applications for finance and human resources. The stock declined after the company reduced full-year guidance for subscription revenue growth. The company closed fewer deals than expected in the first quarter, while its revenues per deal declined as corporate customers reduced head count. On a positive note, Workday reported better-than-anticipated margins in the first quarter and announced plans to launch an AI-powered marketplace. We continue to monitor the challenging software spending environment as companies shift their IT budgets toward AI rather than software. Manager outlook The economy continues to demonstrate resilience despite recession anxieties of the past two years. The Fed's shift toward a less hawkish monetary stance, combined with continued secular growth trends in AI, has created a positive environment for risk assets. The top-heavy, narrow market leadership from 2023 has carried over into 2024 as the "Magnificent Seven" stocks have led the S&P 500's rally of 15.3% this year. Excluding those seven stocks, the gain was only 6.3%. 1 The second quarter saw the third-largest quarterly outperformance differential (6.9%) between the market-cap-weighted and the equal-weighted S&P 500 Index since 1989.2 Looking ahead, we see the potential for a broadening of market leadership into other sectors based on the earnings outlook. Consensus forecasts expect profits to reaccelerate for non-Magnificent Seven companies over the remainder of year, while growth rates for Magnificent Seven stocks may decelerate given their tough comparisons. This could narrow the earnings growth gap between the market segments and serve as a catalyst for a wider range of performance. Such diversification in performance could benefit our strategy, as our distinct portfolio provides diverse return drivers across segments, sizes, and styles. Meanwhile, we are finding new opportunities in overlooked areas and remain optimistic about the quality of the individual stocks we own in non-tech sectors, like healthcare, despite lagging performance in this risk-on environment. We would also anticipate small- and mid-cap stocks, as well as companies with financial leverage, to perform relatively well as more accommodative monetary policy takes hold. Funding costs have declined, and companies are regaining access to capital markets to address looming debt maturities over the next couple of years. Although the market remains constructive for risk assets, we are aware that investor positioning has become more bullish and crowded in certain segments of the market. Additionally, retail activity remains elevated. This sharply contrasts with positioning six months ago, when high investor cash levels were supportive of future market returns. Overall, we believe our portfolio is well positioned to provide diversified equity exposure that stands apart from the market. The S&P 500's heavy concentration, with the top seven stocks now comprising roughly 30% of the index, underscores the value of our strategy in capturing diverse investment opportunities. Representative Portfolio Top Contributors (%) Average Weight Relative Contribution Top Detractors (%) Average Weight Relative Contribution Ast Spacemobile Inc (ASTS) 0.29 0.48 The Beauty Health Compa (SKIN) 1.18 -1.09 Globus Med Inc (GMED) 1.69 0.34 Workday Inc (WDAY) 2.52 -0.62 Oracle Corp (OTC:OECPF) 3.75 0.31 Teleflex Inc (TFX) 4.75 -0.59 Howmet Aerospace Inc (HWM) 2.78 0.25 Caesars Entertainment I (CZR) 4.66 -0.56 Lantheus Hldgs Inc (LNTH) 0.99 0.22 Chart Inds Inc (GTLS) 2.75 -0.51 Click to enlarge The holdings identified in this table, in compliance with Janus Henderson 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 800.668.0434 or visit Products - US Advisor. Relative contribution reflects how the portfolio's holdings impacted return relative to the benchmark. Cash and securities not held in the portfolio are not shown. Click to enlarge Top Holdings (%) Acct Caesars Entertainment Inc 5.67 Vertiv Holdings Co (VRT) 4.66 Oracle Corp (ORCL) 4.59 Teleflex Inc 4.07 Amazon.com Inc (AMZN) 3.88 Marvell Technology Inc (MRVL) 3.78 Sempra (SRE) 3.73 Advanced Micro Devices Inc (AMD) 3.38 PNC Financial Services Group Inc (PNC) 3.36 American Electric Power Co Inc (AEP) 3.27 Total 40.39 Click to enlarge Original Post Editor's Note: This article discusses one or more securities that do not trade on a major U.S. exchange. Please be aware of the risks associated with these stocks. Janus Henderson Investors exists to help clients achieve their long-term financial goals. Formed in 2017 from the merger between Janus Capital Group and Henderson Global Investors, we are committed to adding value through active management. For us, active is more than our investment approach - it is the way we translate ideas into action, how we communicate our views and the partnerships we build in order to create the best outcomes for clients. While our investment managers have the flexibility to follow approaches best suited to their areas of expertise, overall our people come together as a team. This is reflected in our Knowledge. Shared ethos, which informs the dialogue across the business and drives our commitment to empowering clients to make better investment and business decisions.www.janushenderson.com

Janus Henderson Mid Cap Value Managed Account Q2 2024 Commentary

We believe the portfolio remains well positioned for both long-term investment opportunities and defending against market volatility. Mid Cap Value Managed Account Performance - USD (%) (as of 06/30/24) Cumulative Annualized Returns 2Q24 YTD 1 Yr 3 Yr 5 Yr 10 Yr Since Inception (10/01/98) Composite (pure gross*) -3.12 6.79 14.82 6.39 8.63 8.15 12.27 Composite (NET) -3.85 5.24 11.50 3.29 5.47 5.01 9.01 Russell Midcap® Value Index -3.40 4.54 11.98 3.65 8.49 7.60 9.60 Click to enlarge Past performance cannot guarantee future results. Investing involves risk, including the possible loss of principal and fluctuation of value. Returns greater than one year are annualized. Returns are expressed in U.S. dollars. All returns reflect the reinvestment of dividends and other earnings. *Pure gross performance results do not reflect the deduction of any trading costs, fees or expenses and returns will be reduced by such advisory fee and other contractual expenses as described in the individual contract and Form ADV Part 2A. Pure gross returns are supplemental to net returns. Net returns are calculated by subtracting the highest applicable Managed Account fee (3.00% annually, or 0.25% monthly) from the pure gross or gross composite return. The Managed Account fee includes all charges for trading costs, portfolio management, custody and other administrative fees. Actual fees may vary depending on, among other things, the applicable fee schedule and portfolio size. The fees are available on request and may be found in Form ADV Part 2A. Click to enlarge Investment environment Broader measures of the U.S. equity market, such as the S&P 500® Index (SP500, SPX), ended the second quarter higher, as moderating inflation raised hopes for Federal Reserve (Fed) rate cuts in the second half of the year. Economic news was also generally positive despite weakness in residential construction and strains on the consumer. The market advance was narrow, driven by large-cap growth stocks with exposure to artificial intelligence. Other market indices ended the quarter lower, while small- and mid-cap stocks underperformed their larger peers. Overall, value stocks lagged behind growth stocks. Portfolio review Stock selection in the healthcare sector lifted relative performance, due in part to an investment in device maker Globus Medical (GMED). The stock has faced headwinds in recent quarters because of uncertainty around its acquisition of NuVasive, another device maker. The integration with NuVasive proceeded better than expected, and the stock rebounded in the second quarter following strong earnings as investors became more optimistic regarding the synergies offered by the merger. Long-time holding Casey's (CASY) was another top contributor. The consumer staples company owns an expanding network of gas stations and convenience stores. It delivered strong earnings growth over the quarter, supported by higher gasoline and convenience store sales as well as margin improvement. Information technology company Teradyne (TER), which supplies testing equipment used in semiconductor and electronics production, was another notable contributor. The stock rose on expectations that AI-related investments will drive more capital spending by semiconductor manufacturers. Our position in NICE, a provider of software-based technology solutions for call centers and data security, hindered relative performance. The stock declined after the company announced weaker-than-expected earnings, and its chief executive officer unexpectedly resigned. Given the increased uncertainty, we exited the position. Insurer Globe Life (GL) was another detractor, as shares fell after a short-seller report questioned its life insurance sales practices. After we learned that regulators were investigating these claims, we saw heightened risk for the core business and quickly eliminated the holding. Macroeconomic headwinds and the outlook for higher-for-longer interest rates pressured several industrials holdings with exposure to residential construction. These included Fortune Brands (FBIN), a supplier of doors, plumbing fixtures, and other house-related accessories. During the quarter, we continued to be opportunistic, using volatility to our advantage as we identified new investment opportunities with attractive valuations. The portfolio ended the period overweight in the industrials, materials, energy, and consumer staples sectors. It was underweight in utilities, financials, communication services, real estate, consumer discretionary, healthcare, and information technology. Manager outlook For several quarters, we have cautioned about the prospects of higher-for-longer interest rates, especially as inflation has not moderated as quickly as policymakers would like. Economic growth has remained quite resilient in the face of higher interest rates but has started to show signs of cooling. We have seen more evidence that higher inflation is cutting into consumer spending, especially for lower-end households. While the job market has remained healthy, the unemployment rate has ticked higher over the past year. Signs of slower economic growth may persuade the Fed to reduce interest rates, with the market now pricing in one or two rate cuts by year-end. While investors may welcome this development, we caution that equities have historically struggled during periods of sharp Fed rate cuts, especially if the economy slows meaningfully, the unemployment rate rises, or there is some type of market-related mishap. Additionally, we see other sources of potential market volatility, including election uncertainty, geopolitical tensions, and weaker overseas economies. There are risks related to the market's recent euphoria surrounding AI-related companies, as mega-cap AI-related stocks have overshadowed other compelling investments in the small- and mid-cap arena. As usual, we remain on the lookout for opportunities to use this environment to our advantage, as we seek compelling investments that may be missed by other investors. We remain committed to our core process of investing in well-managed and attractively valued companies with proven earnings growth, strong free cash flow, and low debt levels that help them navigate potential economic challenges. Representative Portfolio Top Contributors (%) Average Weight Relative Contribution Top Detractors (%) Average Weight Relative Contribution Caseys Gen Stores Inc 2.59 0.53 Globe Life Inc 0.18 -0.60 Globus Med Inc 1.95 0.51 Nice Sys Ltd 0.89 -0.45 Teradyne Inc 1.73 0.51 Fortune Brands Home & S 1.67 -0.35 Kirby Expl Co. 1.23 0.29 Lincoln Elec Hldgs Inc (LECO) 1.28 -0.32 Agree Realty Corp (ADC) 1.74 0.20 Hillenbrand Inc (HI) 1.20 -0.21 Click to enlarge The holdings identified in this table, in compliance with Janus Henderson 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 800.668.0434 or visit Products - US Advisor. Relative contribution reflects how the portfolio's holdings impacted return relative to the benchmark. Cash and securities not held in the portfolio are not shown. Click to enlarge Top Holdings (%) Rep Acct Casey's General Stores Inc 2.96 Entergy Corp (ETR) 2.46 Freeport-McMoRan Inc (FCX) 2.42 Marathon Oil Corp (MRO) 2.34 Fidelity National Information Services Inc (FIS) 2.28 Alliant Energy Corp (LNT) 2.25 Chesapeake Energy Corp (CHK) 2.21 Globus Medical Inc 2.20 Lamar Advertising Co (LAMR) 2.14 Hartford Financial Services Group Inc (HIG) 1.97 Total 23.23 Click to enlarge Definitions Volatility measures risk using the dispersion of returns for a given investment. Free cash flow ('FCF') yield is a financial ratio that measures how much cash flow a company has in case of its liquidation or other obligations by comparing the free cash flow per share with the market price per share and indicates the level of cash flow the company will earn against its share market value. Please see the last page for important GIPS® disclosures. To receive a complete list and description of composites and/or a presentation that complies with the requirements of the GIPS® standards, please contact Janus Henderson at 800.668.0434. The opinions are as of 06/30/24, are subject to change and may not reflect the views of others in the organization. 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. Mid Cap Value Managed Account Composite, benchmarked to the Russell Midcap Value Index, includes portfolios that are broadly diversified and seek to identify quality mid-sized US companies trading at discounted prices with favorable risk/reward potential. Portfolios invest primarily in US companies whose market capitalization, at time of initial purchase, fall within the 12-month average of the capitalization range of the Russell Midcap Value Index. Prior to January 1, 2005 returns for the composite are for the Institutional Perkins Mid Cap Value Composite, which included institutional accounts and mutual funds prior to 2003. Prior to May 2021, the composite was known as the Perkins Mid Cap Value Managed Account Composite. The composite was created in January 2005. Information relating to portfolio holdings is based on the representative account in the composite, which reflects the typical portfolio management style of the investment strategy. Other accounts in the strategy may vary due to asset size, client guidelines and other factors. Portfolio holdings are as of the date indicated, and are subject to change. This material should not be construed as recommendation to buy or sell any security. Holdings are subject to change without notice. For equity portfolios, relative contribution compares the performance of a security in the portfolio to the benchmark's total return, factoring in the difference in weight of that security in the benchmark. Returns are calculated using daily returns and previous day ending weights rolled up by ticker, gross of advisory fees, may exclude certain derivatives and does not represent actual performance. There is no assurance the stated objective(s) will be met. Investing involves risk, including the possible loss of principal and fluctuation of value. Discussion is based on performance gross of fees and expenses. 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. Value stocks can continue to be undervalued by the market for long periods of time and may not appreciate to the extent expected. Actively managed portfolios may fail to produce the intended results. No investment strategy can ensure a profit or eliminate the risk of loss. Actively managed investment portfolios are subject to the risk that the investment strategies and research process employed may fail to produce the intended results. Accordingly, a portfolio may underperform its benchmark index or other investment products with similar investment objectives. Russell Midcap® Value Index reflects the performance of U.S. mid-cap equities with lower price-to-book ratios and lower forecasted growth values. Index returns are provided to represent the investment environment existing during the periods shown. The index is fully invested, including the reinvestment of dividends and capital gains. Index returns do not include any transaction costs, management fees or other costs, and are gross of non-reclaimable withholding taxes, if any and unless otherwise noted. Janus Henderson Investors claims compliance with the Global Investment Performance Standards (GIPS®). For the purpose of claiming GIPS compliance, Janus Henderson Investors defines its GIPS Firm as the following entities within Janus Henderson Group plc that directly manage assets: Janus Henderson Investors UK Limited, Janus Henderson Investors (Singapore) Limited (excluding private equity assets), Janus Henderson Fund Management UK Limited, Janus Henderson Investors US LLC and Janus Henderson Investors (AuStralia) Institutional Funds Management Limited. The GIPS firm was formed on January 1, 2018 as a result of the merger of the predecessor GIPS firms Janus Capital Management LLC and Henderson Global Investors, which previously claimed compliance since January 1, 1994 and January 1, 2009, respectively. Janus Henderson provides investment advisory services in the U.S. through Janus Henderson Investors US LLC, together with its participating affiliates. Janus Henderson is a trademark of Janus Henderson Group plc or one of its subsidiaries. © Janus Henderson Group plc. GIPS® is a registered trademark of CFA Institute. CFA Institute does not endorse or promote this organization, nor does it warrant the accuracy or quality of the content contained herein. Click to enlarge Original Post Editor's Note: The summary bullets for this article were chosen by Seeking Alpha editors. Editor's Note: This article discusses one or more securities that do not trade on a major U.S. exchange. Please be aware of the risks associated with these stocks. Janus Henderson Investors exists to help clients achieve their long-term financial goals. Formed in 2017 from the merger between Janus Capital Group and Henderson Global Investors, we are committed to adding value through active management. For us, active is more than our investment approach - it is the way we translate ideas into action, how we communicate our views and the partnerships we build in order to create the best outcomes for clients. While our investment managers have the flexibility to follow approaches best suited to their areas of expertise, overall our people come together as a team. This is reflected in our Knowledge. Shared ethos, which informs the dialogue across the business and drives our commitment to empowering clients to make better investment and business decisions.www.janushenderson.com