IN DECEMBER of 1998, Mike Lu warned his mother not to make the Janus Global Technology fund her primary investment.
The fund was new and - even for Janus, with its reputation for goosing returns by picking hot tech stocks - tightly focused and undiversified, the wrong kind of option for a huge chunk of the family nest egg.
Wowed by the bull market, Lu said, his mother didn't heed his warning, diving heavily into the fund, noting that she "expected annual returns of 25 percent" from all her funds.
Those were the kinds of numbers Janus put up in the late 1990s, and Mrs. Lu must have thought her son's warning was a bit loopy when Janus Global Tech gained 211 percent in 1999.
That was then, this is now.
While most funds have suffered in the bear market, Janus funds have been particularly hard hit. Rated as the top-performing fund company of 1999 by Barron's, the firm was dead last in the 2000 rankings, and things haven't been looking up much this year.
What makes the situation particularly troublesome for many Janus investors is that they ignored warnings like the one that Lu gave his mother, and have watched their holdings shrivel up.
In Lu's case, that's particularly frustrating. He manages the Janus Globe Tech fund.
"As a shareholder - which I am - I'm not happy with the performance of the company," says Lu. "Neither are my friends nor my mother. But people need to understand that investing is a long-term process and that you have to do the right thing and be smart when times are good or bad. It's not about who is hot now, it's about what's best for your money over time."
The question most Janus investors are asking right now is, "What's the right thing to do with my Janus funds?" Last week this column examined Janus, the company, delving into the issues that have affected the firm during its slide. Today, our attention turns to Janus, the investment, and the role this company's funds should play in your portfolio.
There are six key factors to consider in deciding whether to buy, sell, or hold Janus funds at the present time. They are:
Aggression/risk tolerance. Not every Janus fund aims to be king of the hill, but the firm's managers pride themselves on their stock-picking, believe they can deliver superior returns and take the steps necessary to pursue them.
That, by nature, makes many Janus funds aggressive.
If you don't want a large-cap growth fund with the potential to swing like a sector fund, you may not want Janus. You almost certainly won't want two Janus funds in the same asset category.
Overlap. Janus managers share ideas. (And for good personal reasons, too; sources say management teams that contribute great ideas to a sister fund may get some of that fund's annual bonus money, even if their own fund is in the tank.) Such selfless idea exchanges make it hard to build a diversified portfolio using mostly Janus funds. Avoiding the feast-or-famine experience that Janus investors have lived the past few years means diversifying into other fund firms.
One Janus large-cap growth fund should suffice. Three Janus equity funds - and only if they cover different asset classes - should be your limit.
The fit. Every fund in your portfolio should have a role. If you don't need an aggressive player in a certain category, don't buy Janus. And if you have too much Janus now, scale back.
Your level of confidence in the company. If your Janus experience has been nothing but misery or if recent performance has soured you on the company, it's time to go.
While most observers (yours truly included) believe the company will rebound, that's not really the issue.
Never stick with a fund in which you have no confidence; it's just not worth the loss of sleep.
Your experience in the fund/tax situation. Always factor taxes into a sell decision. If the downturn hasn't wiped out your gains, which it hasn't for most long-term Janus investors, don't switch funds until you find a new fund that you think will outperform Janus and make up for the taxes due on the sale.
If you have a loss - and particularly if you have lost faith in Janus management - consider selling to capture the tax benefits of the loss, and repositioning your money.
Expectations. If you are like Lu's mother and have unreasonable expectations for returns, chances are you will be unhappy with any company you invest in.
With Janus, don't base your expectations on the late 1990s boom or the last few months of bust.
It's fair to expect above-average returns over time, but cushion those hopes by investing in other firms with different management styles if you want to more comfortably ride out the kind of rough stretch Janus investors are experiencing today.
Chuck Jaffe is mutual funds columnist at The Boston Globe. He can be reached by e-mail at email@example.com or at The Boston Globe, Box 2378, Boston, Mass. 02107-2378.