Janus fund takes smart step on Crocs

Portfolio correctly bet shoemaker would stumble

By James Paton, Rocky Mountain News (Contact)

Wednesday, April 16, 2008

An ad touts Niwot-based Crocs in the latest issue of Rolling Stone magazine.

A Janus mutual fund that can profit from rising as well as falling stocks identified Crocs as a company that would stumble.

It was right.

A bet against Crocs was listed as one of the top contributors to the Janus Adviser Long/Short Fund's relatively strong performance in the first quarter. The portfolio dipped only 0.6 percent in the period when many stock funds had double-digit losses.

It was hardly a huge bet, but it turned out to be a smart one.

Crocs tumbled 53 percent in the first three months of the year to $17.47 from $36.81. The shares have dropped further in April, losing more than 40 percent of their value on Tuesday alone and closing at $9.73 on Wednesday.

Assuming the portfolio stuck to its position in April, the fund's profit would have been greater. It's also possible the fund missed out on this week's carnage. Mutual funds divulge holdings with a significant lag.

Janus Long/Short Fund managers David Decker and Dan Riff try to "minimize the impact of market disruption" and produce positive returns when stocks are up or down, they noted in a recent shareholders' report. They have a mandate to go both "long" and "short," finding companies that create and destroy value.

Crocs' value has deteriorated swiftly since last fall. The Niwot- based company's stock on Tuesday sank below its initial public offering price. That came a day after Crocs cut its forecast.

Janus, based in Denver, does not provide enough information to figure out how much the fund profited from the drop. But a report detailing its holdings as of the end of January shows Decker and Riff had a short position in Crocs of about 168,000 shares.

Janus usually does not comment on individual stocks. When it comes to short positions, the firm is even quieter, so it's unknown whether the fund's view on Crocs has changed in recent weeks.

Janus spokesman James Aber said the managers declined to comment.

The managers said in the report they do not discuss shorts because they do not "believe it serves anyone well to publicly criticize companies," and it could make it hard to execute transactions at the best prices.

In selling stocks short, investors borrow shares and then sell them, waiting for the stock to fall so they can return the cheaper shares and pocket the difference.

The Long/Short fund, whose assets have ballooned to $1.2 billion, recently closed its doors to new investors. Over the past 52 weeks the portfolio is up 6.3 percent, putting it in the top 4 percent of its peers, according to Lipper.

The managers said in the most recent period they had been successful betting against some "economic and credit-sensitive" financial companies and retailers.

"The key question is whether the global correction we have seen over the past five months has satisfactorily discounted the economic risks we have faced," they said. "The answer, unfortunately, is, we have no idea."

patonj@RockyMountainNews.com or 303-954-2544