Field of Funds

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Portfolio management is a lot like baseball, muses John Schreiber, who pilots the new Janus Fund 2. Both have very visible, daily boxscores. "I like the score," he says. "It's very black and white." Like baseball, managing money takes lots of preparation and endurance over a long season subject to reverses, he reasons.

Many fund managers are quick with baseball analogies, but Schreiber's similes are born of actual experience as a collegiate first baseman, first at Stanford University and then the University of Washington. After earning an engineering degree, Schreiber spent a few years working at a gas utility company, where he found he didn't want to be an engineer. So he got an MBA from Harvard and landed a job as an analyst at Fidelity Investments, the equivalent of a AAA ball club where future portfolio managers hone their investment skills.

Two years later, he moved to Denver and Janus, where he moved up the ladder to cover such high-profile sectors as media companies, personal-computer makers and financial services, and such major companies such as Viacom , Time Warner , Home Depot , American Express and Dell Computer .

That led to becoming assistant portfolio manager on Janus Fund, working under portfolio manager Blaine Rollins. When Janus closed Janus Fund to new investors last year, it tapped Schreiber, at the relatively young age of 31, to run the new Janus Fund 2.

Schreiber, who is still 31, first became interested in the stock market at age 12 while living in his hometown of Coeur d'Alene, Idaho. He used lawn-mowing money to buy shares in companies whose products and services he used and understood. He recalls buying Warner Communications (because it owned videogame maker Atari) and Exxon early on. Warner, which morphed into Time Warner, then AOL Time Warner, is still a favorite.

Schreiber describes his stock-picking style as high-quality growth at a reasonable price. Janus Fund 2 is more a growth than value fund, but Lipper classifies it as a "core" fund, meaning it blends some growth and some value. To look for quality, Schreiber most closely scrutinizes a company's business model, its financial results and its management team.

Table: At A Glance

"I can sleep better at night knowing I have the best people in the world managing the companies I own," he says.

Schreiber looks for particular financial characteristics as well, including accelerating revenue growth, expanding margins, strong earnings growth, free cash flow generation and invested returns on capital. Schreiber says his fund is more balance-sheet oriented than most of his growth peers, again a nod to some value principles.

Schreiber likes to find stocks with double-digit growth rates and especially likes stocks with price/earnings multiples lower than projected growth rates. The stocks in the fund average 23% annual earnings growth and have average P/Es of 26 times 2002 earnings. His favorite stocks are those that can increase earnings and get P/E multiples to expand simultaneously. "The best way to outperform is to get paid twice," he says.

Despite the similarities in their names, Janus Fund 2 is not a clone of the Janus Fund. The two funds' holdings have about a 25%-30% overlap.

Janus Fund 2, Schreiber explains, has a broader charter that allows it to dip into mid- and small-cap stocks, while Janus Fund is a large-cap fund. Janus Fund 2 has about $550 million in assets, some 1/70th the size of Janus Fund. That smaller asset base should make the former fund more nimble, an advantage over bigger funds.

Third, Janus Fund 2 is concentrated in fewer names, which makes each stock pick more important than in a widely diversified fund. Janus Fund 2 holds about 50-60 stocks, with more than half of the fund's assets tied up in its top 10 names, while Janus Fund holds 80-100 names at a given time.

Janus Fund 2 has a sell discipline that unloads companies when Schreiber notices deteriorating fundamentals. He'll also sell stocks outright when their price has fallen 20% from the level at which he bought them.

The verdict is still out on Janus Fund 2, in part because it has been open for only about seven months and also because Janus thinks the fund is misclassified by performance-tracker Lipper. Since its start on January 1, the fund has lost 13.9%, ranking it in the bottom 15% of its multi-cap core peers, according to Lipper. Janus contends that the fund is more like a large-cap growth fund, and it would rank in the top 30% if included in that group. Schreiber says he's been disappointed with the absolute performance of the fund thus far, but it's mostly a function of a down market for growth stocks. "I didn't suspect last year's volatility would continue," he admits.

But Schreiber says he is positioning the portfolio to perform well when the economy recovers, which he thinks could happen soon. He sees semiconductors, securities brokers and media companies all blossoming when the first signs of a recovery arrive. Schreiber is being more aggressive in his stockpicking, which means ramping up the growth rate of the fund and cutting his cash stake.

Typically, it takes six to nine months after the Fed's first rate cut for a recovery to take hold, Schreiber says. "We should be getting there now," he says. Therefore, "it's reasonable to anticipate that stocks will perform well between now and year's end."

Schreiber's top holding is AOL Time Warner , the merger of two companies he followed for years as an analyst. He likes companies such as AOL because they have what he calls "positive network effects." What that means is that parts of certain big companies can enhance other parts, improving the company as a whole. For example, filmmakers and musicians are gravitating toward Time Warner because of the promotional power of AOL, Schreiber says.

Schreiber also loves the company's management and its stock-heavy system of compensating executives. He likes the far-flung properties of the media giant. But perhaps most importantly, Schreiber thinks the stock is cheap.

"It's rare and exciting to find such a dominant diversified growth company &hellip; at one times its growth rate," he says. "I never thought we'd be able to own a company of this quality for 30 times earnings."

Another household name Schreiber likes lately is Microsoft . He notes the software giant is in the biggest new- product cycle in the company's history, with the just-launched Office XP and the soon-to-be-launched Windows XP and Xbox gaming system.

"On October 25 they're going to unleash Windows XP with $1 billion of marketing muscle behind it," Schreiber says. "I think all the stars are lined up for this to be a successful product."

In the year ended June, Microsoft's revenue growth was 10%, with deferred revenues up 16% and operating cash flow up 17%, all in a difficult environment for technology companies. What's more, Microsoft actually raised analysts' revenue expectations at a time when technology companies are feverishly lowering them.

Microsoft also looks relatively cheap to Schreiber. The stock is selling at 1.4 times the market multiple, well below its historical median of 2.1.

Says Schreiber, "We've got a coiled spring here that is ready to perform." Or at least one ready to score some runs.

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