New junk bond portfolio

Ex-Janus manager rolls out fund for individual investors

James Paton, Rocky Mountain News

Tuesday, June 6, 2006

Denver money manager Sandy Rufenacht, who left Janus Capital Group three years ago to start his own firm, has introduced a new junk bond portfolio aimed at individual investors rather than institutions.

Rufenacht's fast-growing Three Peaks Capital Management, whose assets have more than doubled to $310 million from $150 million at the end of 2003, will run the portfolio for the New York-based Aquila Funds.

High-yield, or junk, bond funds have been on a roll, climbing 2.9 percent in the first five months of 2006, putting them at the top of the U.S. fixed-income charts, according to research firm Lipper Inc.'s preliminary data. Over three years, the average high-yield fund is up an average 8.8 percent a year.

Rufenacht, who says he put $1.5 million of his own money into the new Aquila Three Peaks High Income Fund, plots a more conservative course than many rivals.

That might help down the road.

Fitch Ratings, citing the prospect of more interest rate increases, wrote in a report Thursday that returns in the U.S. high-yield market "are likely to remain in positive territory through the second quarter, although the second half of the year could prove more problematic."

High-yield bonds are issued by companies that have higher credit risk, often because of already heavy debt or other financial problems. The downside for investors is the greater likelihood that they will not be able to repay what they have borrowed.

On the flip side, they carry higher returns to compensate for the risk.

However, Rufenacht said he seeks out companies that are "fiscally responsible and have a road map" to paying off debt and improving their balance sheets.

Most clients of Three Peaks are institutions. Some are wealthy investors. Rufenacht said a few members of the Forbes 400 list of richest Americans have money with his firm.

The new product is the only one designed for average investors and will be sold through intermediaries. The fund is in addition to Aquila's municipal-bond portfolio lineup.

Rufenacht can lean on a strong track record in rolling out the portfolio. At Janus, he said he recorded an average annual gain of 8.4 percent between 1996 and mid-2003, compared with a 5.7 percent yearly performance for the rest of the sector.

Three Peaks was up 9.1 percent in 2004, trailing the 11 percent rise for the pack. In 2005, Three Peaks was up 3.1 percent compared with 2.7 percent for the index, he said.

So far this year, he added, they're up around 3 percent, matching the rest of the sector.

Rufenacht was one of a handful of Janus managers, including Helen Young Hayes and Warren Lammert, to leave Janus in 2003.

He has not had a losing year in the past decade, a volatile period that included both hot markets and cold, the attacks of Sept. 11, 2001, a recession and scandals at Enron, Tyco and other companies that rattled the markets.

patonj@RockyMountainNews.com or 303-892-2544