Research is the X factor that powers Janus Henderson Global Research Fund (JANWX) to benchmark-beating returns and into a best mutual fund.
Sure, co-managers Joshua Cummings and John Jordan oversee the portfolio to make sure it doesn't veer from its benchmark sector weightings or take outsize risks.
But the fund's analysts research the industry-leading companies with brand power and enduring business models that turn it into a top mutual fund. It's the research team, which focuses on just seven market sectors, that bring their best ideas to the fund's managers.
Best Mutual Fund Goes For The Win
Including only the highest-conviction names in the $3.8 billion fund is a big reason why Janus Henderson Global Research Fund was an IBD 2024 Best Mutual Funds Awards winner. This top fund was recognized for beating the market benchmark IBD uses to rank international stock funds in the past one-, three-, five- and 10-year periods.
Janus Henderson Global Research Fund's emphasis on doing rigorous research to unearth winning stocks has served clients well again in 2024. The fund has posted a total return of 26.3% through November, topping 80% of its peers, says Morningstar Direct. In the past three years, the fund's annualized return of 9.5% crushed its peers' 2.2% return, ranking the fund in the top 2% of its peer group.
The fund's performance is testament to its proven strategy and investment process that have been in place for more than 20 years. It's business as usual, despite Cummings and Jordan taking over the reins of the fund in January.
"The fund's strategy has not changed," said Cummings, portfolio manager of JANWX and lead research analyst for the consumer and communications sector at Janus Henderson Investors. "The whole premise of this fund focuses on stock selection."
IBD spoke with Cummings about the fund's focus on research and the stocks Janus Henderson Global Research Fund's equity analysts are bullish on.
Best Mutual Fund's Direction
IBD: You took over in January. Is the strategy the same?
Joshua Cummings: This fund is part of our research fund suite. The overall strategy and investment process has been in place for over 20 years. And it has not changed.
IBD: The research component is key to the fund's success. Explain.
Cummings: The analysts on our U.S. research team are really functioning as the primary portfolio managers. So it is really a multimanager approach.
IBD: So the analysts are the stock pickers?
Cummings: The bottom-up ideas come from the analyst teams. The second distinguishing factor of the research funds is that they're sector neutral. Each sector team has a ton of autonomy to make overweight decisions within specific industries. But at the sector level, we are neutral. The third thing is the fund is designed to maximize stock selection (and manage) risk in the portfolio.
Finding Profitable Angles
IBD: What role do you and John Jordan play?
Cummings: We oversee the overall portfolio. The fund invests in seven different sectors that are constructed at the sector team level. All bottoms-up, analyst driven. John and I are responsible for making sure those seven sectors roll up into an efficient portfolio.
IBD: Controlling risk is your job?
Cummings: That's right. You can imagine if you just said to the seven sector teams, "Go off and populate your sector sleeves with your best ideas," and then we just smash it together and hope that it works from a risk-adjusted perspective. It's just so much more complex than that. We have a ton of portfolio risk tools that we have had for the 20-plus years we've run the research funds, but we've gotten better at using them.
IBD: What stock traits are your analysts trying to identify?
Cummings: Each sector is different. The types of fundamental characteristics that you might be looking for if you're researching electric utilities might be different than if you're researching semiconductors. But at the heart of what we do, we have a growth mindset. We're trying to grow our clients' capital over time. We have an overarching view that organic growth (e.g., internal growth driven by in-demand products and innovation) is scarce in the developed world and is probably likely to continue to get scarce. Investors are going to pay up for (organic growth).
Going For Growth
IBD: So, growth is good?
Cummings: We want high returns on capital. If you think about a business model, it is like an engine. Capital goes in. You invest. And then after-tax free cash flow, or profits, comes out. We spend a lot of time in the research process trying to understand how efficient that engine is. How efficiently can this business model convert capital into profits or free cash flow? And then, more importantly, is that going to get easier or harder for that business over time?
IBD: Sounds like you covet companies with moats.
Cummings: We talk a lot about competitive moats. Is the moat widening or shrinking? And, increasingly, a lot of that conversation centers around technology, disruption and digitization. I've been following consumer, tech and communications businesses since the late 1990s. And the number-one theme that permeates across my world is disruption.
Profiting From Disruption
IBD: There's power in disruptions and digitization, right?
Cummings: A lot of the conversations we have when we're talking about individual stocks center around: Is this business model a beneficiary of digitization, or are they going to be a victim of it?
Oftentimes, what it really comes down to is management. Do we trust the management team to allocate our clients' capital responsibly over time? How forward-looking is the company? How strong is corporate governance? (You want) to make sure the executive team is investing in the right types of things and is not behind (or falling behind). We care about business models. We want a high-horsepower engine.
IBD: Your fund holdings are your best ideas, right?
Cummings: We're not necessarily just talking about the best of breed. But what this portfolio is about is figuring out who the winners of the next five to 10 years are likely to be. In large part, we're going to own pretty dominant companies that have been proving that they have the ability to do the things that we want.
What This Top Mutual Fund Is Looking At
IBD: What stocks do your analysts like now?
Cummings: I'll give you a few, but I'm purposely going to avoid the hot stocks of the day. (Note: The fund's top-10 holdings include top-performing stocks, such as Nvidia, Microsoft, Alphabet, Apple, Amazon.com, Facebook parent Meta Platforms and financials JPMorgan Chase and Mastercard.
One of the things I want to get across is that the Janus Henderson Global Research Fund is not the Nvidia fund. We happen to have been early in a lot of those names, and that's been great for our clients. But if you look at the performance of our research suite of funds over time, it's well-balanced by sector. That's what we want to deliver.
Top Mutual Fund Buys Gems
IBD: Give me a name that flies under the radar.
Cummings: One stock I would highlight is Ferguson Enterprises. To U.S. investors, the analog for Ferguson, which is a U.K.-based company, may be like a Home Depot. They don't have retail stores. They're a building supply distributor, so they sell to big contractors and developers. This is the place where you would get your raw plumbing and electrical parts and big pieces of lumber and so forth. A lot of investors don't know about Ferguson because it was only listed in the U.K. for the longest time, but recently (2022) they've relisted in the U.S.
IBD: What's the investment thesis on Ferguson?
Cummings: It's a really good, well-run business in a very fragmented industry. There are lots of mom-and-pop lumber yards and distribution businesses. So, there's an opportunity — and they've been doing this for decades — of rolling up that industry and consolidating it. They're a market leader.
And at the time when we first got involved, it was also a bit of a valuation play. We felt like the U.K. valuations and the multiples that we were seeing in that market for businesses of this quality were just much lower than they were in the U.S. And so not only did we like the business, but we thought there was a bit of an arbitrage opportunity as the listing moves to the U.S., and U.S. investors get more exposure to it.
And the final kicker would be (eventual) U.S. index inclusion and global index inclusion. Ferguson is one name that we've owned for some time, and one I expect we will continue to own.
Going Digital
IBD: Any digital plays you're bullish on?
Cummings: Yes, one that might be a little bit more familiar to IBD readers would be DoorDash. There's a whole bunch of things we love about DoorDash. Number one, it's founder-led (cofounder Tony Xu is CEO of DoorDash and cofounder Stanley Tang is head of DoorDash Labs). The founders are still there and still own a tremendous amount of equity. We like that founder mentality.
Number two, it's a digitally native business. So, it's still on the right side of digitization.
And number three, what we love about this is TAM (total addressable market) expansion. We love businesses that can expand horizontally into a variety of different businesses.
IBD: What else makes DoorDash, known for food deliveries, a good long-term investment?
Cummings: DoorDash started as a restaurant delivery business. But they've done a few different things (we like). Number one is, like Amazon, they got into the membership business. It's called DashPass (and offers unlimited free deliveries and reduced service fees). That's a beautiful thing. If you think about the cash flow of the business, they're hitting your credit card on (the first day of each month). The fee is $9.99 a month, so that revenue comes in no matter what.
And then, because I have DashPass, I'm more incentivized to order, right? Because it's a sunk cost; I'm already paying that subscription. What people find is that they use it a lot. It becomes habitual to them. DoorDash is adding more and more choice and features to their platform.
Best Mutual Fund Seeks Companies On The Rise
IBD: So they're trying to drive more revenue?
Cummings: Let's say you order from Chipotle on DoorDash. A little prompt comes up and says, "Your driver can stop at 7-Eleven on the way" or "would you like dessert from this ice cream shop that's on the way for no additional cost?" So, that's a way to build (a customer's) order value over time and make DoorDash more valuable to their customers.
IBD: Are there other businesses you think DoorDash can get into?
Cummings: The real, long-term dream for DoorDash, in my opinion, is grocery (delivery). What we eat (is a business) that is digitizing. From a historical perspective, the pandemic accelerated that. But if you look at grocery e-commerce penetration, it was 3% before the pandemic and it's now 11%. That's pretty profound, and we don't think it's going back to 3%.
Choosing Other Winners
IBD: What other stocks do you like?
Cummings: Liberty Formula One. It's definitely not one that a lot of people are familiar with. It's the Formula 1 car racing series. Liberty Media is the parent company. We think that company is the number one, the best owner of media content on the planet.
They're an incredibly skilled company. It's led by chairman John Malone, who basically built the U.S. cable industry. We think they're just great owners of content assets, and in particular, live content assets. This is the company that bought us Sirius satellite radio and merged it with XM. This is the company that has owned a big chunk and has been a huge part of Live Nation Entertainment's growth over the years.
IBD: How does Liberty Formula One fit in? What's the investment thesis?
Cummings: In early 2017, the company acquired Formula 1, the car racing series which for years was owned by private equity. It's a U.K.-based business. It was really underdeveloped. It was already the third-most-popular sport on the planet when Liberty bought it. And the whole idea here was like, wow, this is an amazing live content asset. It's a global asset. They race in 20 different countries. It's a really unique asset.
Turning Buzz Into Profit
IBD: What has Liberty Media done to monetize it?
Cummings: Liberty realized it was completely underdeveloped. The sponsorship and marketing organization was like, literally, two or three people working out of a flat in London. They had no digital strategy whatsoever.
The drivers, which people are interested in, are amazing personalities. But there had never been any thought about showcasing the drivers. Liberty, though, (saw value and said), "Wouldn't that make the sport more popular? Wouldn't that help bring a human connection to the sport?" Because that's what Liberty Media is all about, and that was the opportunity that they saw.
IBD: You bought into their vision?
Cummings: We took a big position in Formula One. It's obviously been a very good investment. This was years before the Netflix series "Formula 1: Drive to Survive." And we continue to be major shareholders today. We own between 7% and 8% of this company. We're a top shareholder.
Best Mutual Fund Sizes Up White House
IBD: What will drive stocks with Donald Trump entering the White House?
Cummings: We're not macro investors, so I'm not going to give you some prediction about where policy is going to end up with the Trump administration. But clearly, there's a couple of things that appear favorable. Lower taxes for both individuals and corporations. Clearly our companies would like that if it happens.
As for tariffs, we can speculate what Trump's doing with tariffs. My personal opinion is the early rhetoric around tariffs is a bit of jawboning. Trump has made it clear that he wants U.S. companies to invest more in the U.S. And so maybe some of the threat of tariffs, there's a little bit of purpose behind that. He's trying to make sure that the message is given to U.S. companies that they'll be rewarded for moving supply chains to the U.S.
IBD: The Fed is cutting rates and inflation has come down close to 2%. Are they tracking in the right direction?
Cummings: Overall, it's positive that inflation is way below where we were. If you step back, the inflationary period that we saw in 2021, 2022 and 2023 was a supply-side-driven event due to the pandemic and supply chain. It wasn't necessarily a demand-driven event. So, my view would be that that is largely in the rearview mirror.
However, we are still in a situation where the labor market is tight. And it's not like the inflation goes away. But I do think we're in a little bit better place, obviously. Inflation at 2% or 3% is reasonably manageable. My hope would be that's where we can land. But look, we're on guard for (higher) inflation.
Scanning For More Risks
IBD: So there's still a risk of more inflation?
Cummings: Think about what the stock market might do if you know CPI (consumer price inflation) starts beating to the upside at a time you've got the Fed posturing for lower rates. It will be, like, oops, the Fed might have to scramble and raise rates. That could be a bad outcome.
But, again, we're not going to try to make that prediction. I appreciate that that's a risk, for sure. Again, the best way to combat any of that macro noise or pressure over time is owning great business models that can compound capital in any environment. That's really always going to be our North Star.
