The "Bond King" Bill Gross abdicated from his PIMCO throne last month of September 2014 - the firm he founded in 1971- to join small asset Manager Janus Capital (JNS) following a year of rising criticism about his performance and heavy outflows from his flagship bond fund Pimco Total Return Bond Fund. JNS stock boomed +30% the day of the announcement reaching a five-year high and the shares have been trading between $16 and $18.3 since 2015 kicked off. The question I raised here is double: Is JNS stock valuation reasonable and what does it entail since Bill Gross joined JNS to be the manager of the Janus Unconstrained Bond fund? Well, when Mr. Market pumped up JNS shares from $12 to current 16$, it was pricing a huge expectation about two things: i) Bill Gross will manage to attract investors from Pimco Total Return fund to Janus Unconstrained Bond Fund and ii) Gross's performance metrics will be back to best-in-class. With hindsight we can confirm that none of these two assumptions have materialized. Firstly, Pimco Total Return Bond Fund AuM have shrunk from $225 bn (Gross departure) to less than $135 bn, yet Janus Unconstrained bond fund only was recipient to $1.7bn out of the $90bn total redemption from Pimco. Secondly, nobody expects this figure to improve as Gross's first performance numbers have been utterly disappointing: Janus Global Unconstrained has declined 1.7 percent in the past three months, lagging behind 96 percent of peers, according to Morningstar. One will assume that JNS stock price should have returned back to levels pre-Gross arrival as the whole move has proven to be a fiasco. Wrong: JNS stock price has been gravitating around $16-$18 per share hinging on hopes that Bill Gross will be back with vengeance. Another case of stock price detaching itself from reality. As the table below shows, the current market price assumes that Bill Gross should have attracted between 60-80% of the Pimco Total Return fund AuM to justify JNS stock price current $16-$18 trading range. The figures are calculated using JNS's pre-event figures along with reasonable recent performance fees and long term assumptions about the asset manager profitability and growth metrics:
To sum up, JNS stock price eventual return to $12-$13 is just a question of time and patience as investors lose faith in Bill Gross's lure and ability to attract AuM. Monitoring Janus Constrained Bond fund performance and Pimco Total Return bond fund withdrawals' destination is key to manage this short play and avoid short-term short-squeezes. Disclaimer: the blog is intended to convey investment ideas and, market views , yet they are not a solicitation or recommendation to buy/sell/hold securities but merely investment ideas that should NEVER serve as the basis of the reader trading decisions. This website and its reports are for general information purposes and any investment decision should be discussed with a financial adviser before taking place. The investment ideas displayed here could have been implemented at an earlier date than the one stated at the blog's post date; for which reason the latter dates do not represent accurate and timely entry/exit points in order to protect those investors with whom the blog author has a fiduciary agreement.
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Carlos Salas
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