BOSTON MFS Investment Management and Janus Capital Group have climbed back from crises over the past decade to win back investor confidence with improved performance and reduced risk taking.
Boston-based MFS, a unit of Canadian insurer Sun Life Financial, and Janus, based in Denver, were among just four large fund firms awarded for consistent and top performance over the past three years by Lipper, a unit of Thomson Reuters.
The awards marked a turnaround for both firms since they stumbled when the Internet bubble burst in 2000 and then were embroiled in the market timing scandals that hit the industry in 2004.
MFS had the best and most consistent performance across all funds in comparison with other large firms, Lipper said. The Lipper formula penalizes outsized losses more than it rewards outsized gains.
Perennial winners like Pimco and Loomis Sayles also were recognized by Lipper.
Among top MFS funds, the $1.3 billion MFS New Discovery Fund has gained an average of 16.58 percent a year over the past three years, almost double the annual return of the Russell 2000 Growth Index. The $1.3 billion MFS Bond Fund has gained 9.40 percent per year, beating a Barclays benchmark index by almost 3 percentage points per year.
"This is the toughest one to get," Lipper senior analyst Tom Roseen in Denver said. "When you're as big a firm as MFS, or some of the other big guys with hundreds of funds, it's hard to be good across the board."
The "large" fund firm category includes the top 15 percent of fund firms by assets, or those with at least $42 billion of mutual funds under management at the end of 2010.
MFS overhauled its upper management after the problems of the past decade, got out of the business of administering retirement plans and reorganized its research efforts around global sector teams.
Bond and stock analysts also started working together more closely. That helped many of MFS' funds side-step the worst of the credit crisis in 2008 and 2009.
"Much of what began to play out started in the fixed income area," MFS president Michael Roberge said. "But it didn't stay there."
With the insight from bond analysts, MFS equity managers began selling off over-leveraged financial stocks like American International Group, Citigroup and Fannie Mae before many competitors.
Investors appear to have recognized MFS' broad performance improvements. The firm's mutual funds, which suffered through years of withdrawals from clients after the scandals, finally began gaining net flow in 2009. MFS funds took in a net $5.3 billion from investors for the 12 months through the end of February.
The firm's recovery should be no surprise given its lengthy history as a top money manager, according to long-time fund industry consultant Burton Greenwald. Its first fund was founded in 1924.
"They are one of the original mutual fund shops and they've gone through cycles," Greenwald, based in Philadelphia, said. "They had some embarrassing moments earlier this decade."
Too many MFS funds were invested in technology stocks as the Internet bubble popped in 2000, leading to subpar performance.
The firm also paid $225 million in 2004 to settle with regulators over charges that MFS allowed market timers and late traders to profit at the expense of other fund shareholders. Regulators concluded that MFS did not knowingly permit the late trading by some of the market timers.
To help remake the firm, MFS brought in former Fidelity Investments vice chairman Robert Pozen as chairman and promoted one of fund managers, Robert Manning, to chief executive officer.
Among specific fund awards, the MFS New Discovery Fund won as the best in Lipper's small-cap growth fund category. The MFS Bond Research Fund was recognized for outstanding 10-year performance.
Janus, too, has undergone changes, but analysts said the firm remains a work in a progress and investors continue to withdraw more money than they are putting in.
Its mutual funds had $2.7 billion of outflow for the 12 months through the end of February. The fund industry overall has taken in $224.7 billion over that span, mainly in taxable bonds and non-U.S. stocks.
Lipper recognized Janus for the three-year performance of its mixed asset funds, which combine the efforts of the firm's fundamental analysis with quantitative measures supplied by its Intech subsidiary.
Among specific funds, the Janus Overseas Fund was also recognized as the best in the category international multi-cap growth funds by Lipper.
Janus launched its line-up of allocation funds in 2005 and hired former MFS fund manager Dan Scherman to run them. He was also tasked as chief risk officer to protect all the firm's funds from becoming overly concentrated again.
The move followed Janus' problems in the 2000 to 2003 bear market and its own $225 million market timing settlement with regulators in 2004.
The Janus Moderate Allocation Fund has gained an average of 5.47 percent annually over the past three years versus a 3.79 percent gain in a global moderate allocation mix of 60 percent stocks and 40 percent bonds.
Unlike some competitors, Janus tinkers with the percentage of stocks and bonds in its multi-asset fund line based on market conditions instead of setting fixed ratios like 60 percent stocks and 40 percent bonds.
As problems became more apparent in the capital markets in 2007, Janus started moving its funds toward higher bond allocations.
"We had concerns about the underlying valuation of equities and about excessive leverage," said Gibson Smith, co-chief of fixed income for Janus in Denver. "We made a strategic decision to turn toward fixed income."
Lately, the indicators have gone the other way. The firm's moderate allocation is set at 64 percent stocks and 36 percent bonds, Smith said.
"The sustainability of the current recovery is far greater than the consensus view," Smith said.
(Reporting by Aaron Pressman; Editing by Walden Siew)