Janus' Reidy uses price swings

When Minnesota Mining & Manufacturing Co shares fell amid earnings worries last year, Janus Capital Corp's Karen Reidy made a mental note to herself: Buy it.

Reidy, manager of the US$4.6 billion Janus Balanced Fund, said the slide in 3M shares to a low of US$80.50 last September was the kind of overreaction she looks for when buying a stock.

"It's a very good company," Reidy, 34, said of 3M, whose more than 50,000 products also include Scotch Tape and Littmann stethoscopes. Earnings problems at the company, she said, were due in part to currency fluctuations.

While Reidy credited Janus's research team with helping her pick 3M, a company that had a 23 percent return on capital last year according to Janus's calculations, luck helped as well. The ex-University of Colorado tennis star knew when she began buying the stock last September at US$88 a share, that 3M was preparing to name a new chief executive.

Reidy got a pleasant surprise in December when James McNerney, who had been one of three contenders to replace Jack Welch as CEO of General Electric Co, was named to the job. Shares of 3M, which rose 11 percent the day McNerney's appointment was announced, closed on Friday at US$100.78.

"That's not a double, but it's a pretty good idea of what I try to do," the manager said, adding that she'd rather hit singles and doubles than strive for home runs and take big risks.

"This fund is intended to allow investors to sleep well at night," Reidy said.

Balanced Fund, which invests in both stocks and bonds, has returned 14 percent a year over the past five years through yesterday to beat 97 percent of its balanced fund competitors, according to Bloomberg. This year, the fund has lost 6.7 percent to beat 58 percent of its peers.

As of July 31, equities accounted for 46 percent of the portfolio, bonds for 43 percent and cash for 11 percent. General Electric Co, Citigroup Inc, Tenet Healthcare Corp, Marsh & McLennan Cos and Exxon Mobil Corp ranked as the fund's top-five stocks as of June 30.

Bonds accounted for about 40 percent of the portfolio at the start of 2001, Reidy said, adding that the slightly higher weighting now stems mainly from market appreciation. Though the fund's charter calls for bonds to account for 40 to 60 percent of the portfolio, Reidy's style has been to manage it within a 40 to 50 percent range, she said.

US government securities accounted for 21 percent of the portfolio as of July 31, with investment-grade US corporate bonds accounting for 20 percent and domestic high-yield bonds accounting for 1.5 percent.

According to Janus's Web site, Balanced Fund leans toward the less risky end of the risk-reward spectrum when compared to other Janus funds. The fund entails more risk, and potentially more reward, than Janus Flexible Income Fund and carries less risk than Janus Core Equity Fund.

"The type of person who wants to own this fund, aside from someone who wants to sleep peacefully at night, is someone saving for a first home, or saving for junior's college tuition," Reidy said, "Or who wants to feel rock solid about a chunk of money for retirement."

Reidy also runs separate accounts and sub-advised portfolios that contain both stocks and bonds, bringing the total amount of balanced money she manages to US$9.8 billion. She also manages the US$800 million Janus Core Equity Fund.