The movement of Janus Capital Group Inc. (NYSE: JNS) shares after Friday’s announcement that bond king Bill Gross would join the firm may or may not have been justified. What may be more difficult to be constructive on the shares at this time is the actual fund flows regarding the timing and success of scaling Bill Gross’s new fund. What needs to be considered in the shares of Janus is that the jump may have already priced in (or overpriced) the gains from Bill Gross. Other considerations have been made regarding the bond market and PIMCO’s most directly impacted funds itself.
Sterne Agee estimates that the current market price implies roughly $35 billion of fixed income inflows by the end of 2016. This represents about 10% of the total assets managed by Bill Gross at PIMCO. While significant growth is possible over time, it is worth noting the performance of Bill Gross’s strategies has suffered recently. At Janus, Gross will be managing only an unconstrained bond fund from the onset, with a potential for other products to follow.
Sterne Agee has maintained a Neutral rating for Janus shares and a price target of $17.00.
A portion, close to 60%, of the assets he previously managed are either institutional or held within a retirement plan. Sterne Agee points out that retirement assets are less likely to move quickly from one firm to the next. Still, the firm believes that Bill Gross’s long-term track record will allow Janus to leverage his brand name and skill set to expand the product offering and improve penetration in U.S. and Japanese markets.
Sterne Agee analysts on the call, Jason Weyeneth and Samuel Ross, concluded the report with this statement:
We view the +34% move in the shares post announcement as warranted as the hiring of Bill Gross should prove transformational to the franchise. However, given the uncertainty and lack of visibility into the timing and ultimate success of scaling the Global Unconstrained Bond Fund and other yet-to-be-launched strategies, it is difficult to be more constructive on the stock following the strong upward move.
There is another word of caution on how big the real impact may be in the world of bonds. Janney Capital Markets sees the fallout being limited. Its fresh fixed income weekly report indicated:
Despite the overdramatic headlines, the markets should be able to handle one person’s job change with limited pain — even if that person is Bill Gross. Janney’s Fixed Income Team sees minimal impact on interest rates and Treasuries, but potential values to be had if PIMCO is forced to sell less-liquid assets.
Another interesting take on the whole PIMCO shuffle came from Morningstar. This ratings firm downgraded the PIMCO Total Return Fund (PTTAX) to “Bronze” from “Gold.” The rating remains positive overall, but the firm sees uncertainty over outflows and the reshuffled management responsibilities. Morningstar’s take is that it will take some time to see how Dan Ivascyn and the new managers will act and perform as head of this and other funds.
24/7 Wall St. showed how bad the continued selling carnage was in some of the PIMCO closed-end funds on day two, and some of these funds have continued to face pressure on the third day since the Bill Gross PIMCO departure rocked the bond market.
Janus has a consensus price target of $15.28 and a 52-week trading range of $8.51 to $15.95. It has a market cap of roughly $2 billion.