Finding Balance

In this interview, Marc Pinto, co-Portfolio Manager of the Janus Henderson Balanced Fund, explains how he and the portfolio management team navigate markets using a balanced approach to risk and return, creating the potential for equity-like returns with significantly lower volatility.

Can you describe your portfolio management team and how you’ve recently bolstered your capabilities?

The Balanced Fund is led by Janus Henderson investment professionals with extensive industry experience. We recently welcomed tenured Janus Henderson Portfolio Manager Michael Keough and industry veteran and Head of U.S. Fixed Income Greg Wilensky, CFA, to the team. Greg and Michael are now responsible for the fixed income portion of the Fund, while Jeremiah Buckley, CFA and I manage the equity investments, with shared duties around the Fund’s asset allocation. We are excited about working with our new team members, and all of us are resolved to maintain continuity in the investment process, with a primary focus on active security selection in both the equity and fixed income sleeves and a dynamic approach to asset allocation.

How is your process in the Balanced Fund unique?

It starts with our dynamic asset allocation across equities and fixed income. The growth-oriented equity sleeve primarily provides the potential for capital appreciation, while the actively managed fixed income sleeve typically aims to reduce volatility. Our ability to adjust the allocation between the two gives us flexibility to navigate a variety of market conditions, and I think historically we've used that ability to effectively drive returns. We have found that many of our peers are constrained to a static asset allocation, making our flexible and dynamic approach unique.

We also employ fundamental, bottom-up research to choose individual stocks and bonds. Our equity and fixed income analysts work side by side, facilitating robust analysis of a company's fundamental outlook. I think our focus on individual security selection, and the integration of both our equity and fixed income research, are also key differentiators.

Describe some of the key market themes you’re identifying and how they’ve impacted positioning in the equity sleeve.

Given the modestly slowing macro environment and the potential for the 2020 U.S. presidential election to create more bumps in the road, we are focused on powerful secular themes that we expect to remain in place for an extended period of time, many of which are tied either to the strength of the U.S. consumer or to digital disruption. We believe that companies benefiting from these themes, including the shift to cloud services, greater adoption of Software as a Service solutions, a worldwide increase in the use of e-payments and the growth of global travel and leisure activity, are poised to perform through a variety of market cycles and economic conditions.

How has the prevalence of negative and low-yielding sovereign debt affected the fixed income sleeve of the Fund?

Trillions of dollars in negative- and ultra-low-yielding debt across the globe has generated robust demand for U.S. fixed income products. The 10-year Treasury yield remains attractive relative to its low-yielding peers, and we expect demand to keep U.S. rates range-bound for the near future. Similarly, riskier areas of the fixed income market should see sustained support as investors continue to reach for yield. Given already narrow spreads, the fixed income team is emphasizing higher-quality business models with stable free-cash-flow generation and issuers that are focused on balance sheet improvement. They are also seeking opportunities in asset- and mortgage-backed securities tied to the strength of the consumer. With both Treasuries and corporate bonds trading at relatively low yields, we believe that the risk/reward trade-off between stocks and bonds currently favors stocks and, in terms of asset allocation, intend to maintain our equity overweight.

What role can the Fund play in a portfolio, particularly for investors saving for retirement?

One of the goals of the Janus Henderson Balanced Fund, which we consider critical to those saving for retirement, is to keep investors confident and invested through volatile markets. We can adjust the equity and fixed income weightings based on where we are identifying the best reward for the risk taken. Similarly, we can change the composition of the holdings in each sleeve, adjusting our risk profiles to cater to the opportunities and risks in a given market environment. In this way, we strike a balance between the dual goals of capital appreciation and capital preservation, aiming to participate on the upside while limiting downside.

 

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