Enron Was a Drag on Janus

Technology stocks have been the main drag on large-cap growth funds over the last two years, but Enron Corp. also helped weigh the funds down: Enron was the 25th-largest holding of large-cap growth funds overall as of March 31, 2000, according to Morningstar Inc.

At year-end 2000, as the energy trader’s shares were peaking, Enron was a key holding of several Janus funds. The stock was listed among the top 10 holdings of the flagship Janus Fund, Janus Mercury and Janus Growth and Income.

Some fund-industry analysts say portfolio managers should have been more dubious of highflying Enron well before its December 2001 bankruptcy, even if they could not have detected alleged accounting fraud at the company.

Janus, in particular, “knew the [Enron] upper management very well and trusted it enough to become the largest shareholder,” said Brian Portnoy, a Morningstar analyst who covers the Janus fund family.

“Plenty of other fund shops never liked the smell of Enron,” Portnoy said. “It’s one thing to invest and another thing to back up the truck. The experience sullies Janus’ reputation at the end of the day as a research shop.”

On its Web site, Janus acknowledges it could have asked more questions about Enron.

“We should have probed more deeply into the reasons behind CEO Jeff Skilling’s unexpected departure,” the firm said, although some Janus managers did dump the stock when Skilling left abruptly in August 2001.

“Our biggest mistake, however, was in not pressing management harder about Enron’s complex and obscure accounting methods,” Janus said. “On several occasions, these methods were discussed during our meetings with Enron, and we were assured they were legitimate.”

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Josh Friedman