We believe a bottom-up, fundamentally driven investment process can generate risk-adjusted outperformance and capital preservation over time. Our comprehensive bottom-up view drives decision-making at a macro level, enabling us to make informed risk and sector allocation decisions.

Investment Approach

1 Dynamic Core Bond Holding: By emphasizing risk-adjusted returns and capital preservation, the portfolio can serve as a foundation for a fixed income allocation. The strategy uses a bottom-up, fundamentally driven investment process that seeks to identify the best opportunities across fixed income sectors, including up to 35% high-yield.
2 Integrated Research: Partnership and fluid communication between fixed income and equity analysts promote idea generation. Credit research emphasizes free cash flow generation, quality of management and security valuation.
3 Sophisticated Risk Management: Our proprietary fixed income portfolio and risk-management system, Quantum Global, is integrated into the investment process at each step. We identify and measure the sources of risk in the portfolio at multiple levels to confirm that the portfolio is positioned as intended.

Working to be consistently good... not occasionally great

Janus Core Plus Bond Composite outperformed the Bloomberg Barclays US Aggregate Bond Index 120 of 120 periods, or 100% of the time

ANNUALIZED MONTHLY ROLLING THREE-YEAR RETURNS*

*Returns based on 10-year time frame ending 12/31/16.

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)

We were positioned defensively in corporate credit for much of the period, wary of a fragile U.S. economy and an abundance of shareholder friendly activity indicative of the latter stages of a credit cycle. While we continued to focus on issuers with higher quality business models and solid balance sheets throughout the year, our outlook shifted to selectively opportunistic by December's end. An improving economic picture, recovering commodity prices, and stronger-than-expected third quarter earnings supported our view, as did steady demand for U.S. corporate credit — due to its comparatively higher yields versus other global fixed income asset classes. It is likely, in our view, that the results of the U.S. election and the associated prospects for growth have further extended the credit cycle, also contributing to our modestly improved outlook. On rates, however, we have turned defensive. An actively tightening Fed in combination with rising inflationary pressures led us to reduce duration exposure coming from Treasurys. We also diversified our duration profile with the addition of Treasury Inflation-Protected Securities (TIPS). The Portfolio's duration ended December at 76% of the benchmark.

Our positioning in U.S. mortgage-backed securities (MBS) was the leading contributor to outperformance. As rates rallied during the first half of the year, the prepayment-resistant nature of our positions proved beneficial. As rates rose over the latter part of the period, our positions were less exposed to the duration extension across the asset class. Within MBS, we focus on generic agency pass-throughs with higher coupons and less negative convexity than the positions in the index.

Our positioning in investment-grade corporate credit was another strong contributor. Our overweight allocation aided relative results, as did spread carry, a measure of excess income generated by the Portfolio's corporate credit holdings. Investment-grade corporate credit was the strongest performing asset class in the index and benefited from significant spread tightening.

Relative credit sector contributors included technology, independent energy and brokerage, asset managers and exchanges. Outperformance in technology was due to spread carry, as well as our overweight allocation. In energy, the rebound of crude oil prices, following February's decline, benefited surviving companies — many of which have streamlined their businesses and shored up their balance sheets via asset sales.

Credit sector detractors were led by our holdings in electric utilities. As investor demand for U.S.-based defensive business models boosted the sector during the period, our underweight allocation dragged on relative performance. Holdings in the hard-hit pharmaceuticals sector also detracted from relative results.

At the asset class level, our yield curve positioning in U.S. Treasurys weakened relative performance. We reduced duration exposure from the asset class following the U.S. election. However, exposure to the 5- and 10-year notes, which were significantly impacted by future Fed projections, weighed on performance late in the period. A modest cash position also proved to be a detractor. Cash is not used as a strategy within the Portfolio but is a residual of our fundamental, bottom-up investment process.

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