Janus Absolute Return Income strategy's absolute return objective and broad global opportunity set grant the portfolio managers flexibility to express their investment insights that are not constrained by traditional fixed income benchmarks. This flexibility transcends the breadth of the global fixed income opportunity set to include structural alphas. The investment process is decidedly top-down in approach. The portfolio managers formulate their secular and opportunistic views across different countries, currencies and sectors and translate those views into portfolio exposures - yield foundation and structural alphas - that represent highest conviction ideas, and implement them through cash or derivative instruments. This is a capital preservation, global fixed income strategy that targets moderate level of return.

Investment Approach

1 Experienced Investors: The investment team has been focused on managing strategies with absolute return targets that seek to provide stable and consistent performance with a low tolerance for risk. The team has managed unconstrained, absolute return portfolios through marked periods of extreme volatility and stress.
2 Investment Flexibility across a Global Opportunity Set: The strategy invests broadly across global fixed income markets and is not constrained by benchmark-specific guidelines. This latitude allows the team to fully express high-conviction active views and avoid areas where we see greater downside risk.
3 Uncorrelated Sources of Return: The strategy seeks to provide positive long-term returns through the combination of core fixed income securities and derivative based structural alpha strategies. This allows access to sources of returns that are intended to be uncorrelated to traditional risk assets.
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Performance

Past performance cannot guarantee future results. Investing involves risk, including the possible loss of principal and fluctuation of value. Returns greater than one year are annualized. Returns are expressed in U.S. dollars. Composite returns are net of transaction costs and gross of non-reclaimable withholding taxes, if any, and reflect the reinvestment of dividends and other earnings.

The gross performance results presented do not reflect the deduction of investment advisory fees and returns will be reduced by such advisory fees and other contractual expenses as described in the individual contract and Form ADV Part 2A.

Net performance results do not reflect the deduction of investment advisory fees actually charged to the accounts in the composite but they do reflect the deduction of model investment advisory fees based on the maximum fixed fee rate in effect for the respective time period. Actual advisory fees may vary among clients invested in the strategy shown and may be higher or lower than model advisory fees. Composites may include accounts with performance-based fees. Returns for each client will be reduced by such fees and expenses as negotiated in any client contract as discussed in Form ADV Part 2A.

For a complete list of holdings as of the most recently available disclosure period, contact us.

Manager Comments (For the quarter ended 12/31/2016)

The Portfolio returned 0.11% (gross) in the quarter. In a continuation of the dramatic rise in bond yields that began in October, the U.S. 10-year Treasury ended December at 2.44%, almost a full percent higher than the beginning of October. Consequently, the last three months were the worst for aggregate bond index performance in decades. Virtually all fixed income sectors recorded negative returns with long-dated U.S. Treasuries falling by almost 12%. The Trump-driven 'risk on' equity market rally continued unabated, reflecting a belief in greater fiscal spending, lower taxes and decreasing business regulation. The U.S. dollar also continued to strengthen, lifted by the expectation of higher interest rates, higher growth and higher inflation. It was also buoyed by U.S. consumer confidence which is at its highest level in 15 years against economic concerns elsewhere. Notably, in Europe there were ongoing weaknesses across the banking sector, particularly in Italy where the government announced a bailout package for NPL-troubled bank Monte de Paschi.

While the Portfolio's roughly flat returns of the past few months stand below target, we achieved our primary goal of capital preservation in an ongoing volatile rates environment. Flat performance, in a sea of negative returns across traditional bond market indices, is in our opinion not an unimpressive result, and although the pain in fixed income markets of the past quarter has been challenging, higher-yields create a potentially more attractive environment for bond investors in 2017. For the quarter, our duration positioning within the alpha-seeking portion of the portfolio was the primary contributor, while our credit holdings within the core portfolio were the primary detractor. Our current portfolio yield now of 2.27%, which has risen over the past few months, adds confidence to our performance target over the course of 2017.

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