Janus Global Unconstrained Bond strategy's absolute-return objective and broad global opportunity set grants the portfolio manager flexibility to express his investment insights that are not constrained by traditional fixed income benchmarks. This flexibility transcends the breadth of the global opportunity set to include cash bonds and structural alphas. Structural alpha strategies include volatility sales, relative value strategies, and directional trades, in addition to the judicial use of notional leverage. Janus Global Unconstrained Bond's investment process is decidedly top-down in approach. The portfolio manager formulates his strategic and opportunistic views across different countries, currencies and sectors, translates those views into portfolio exposures that represent highest conviction ideas, and implements them through cash or derivative instruments.

Investment Approach

1 World-Renowned Investor: Bill Gross is one of the world's foremost thought leaders on fixed income. His unconstrained, macro style of investing offers investors an exceptional approach to navigating today's markets, which are deeply affected by central banks and macroeconomics.
2 Investment Flexibility: The portfolio invests broadly across global fixed income markets and is not constrained by benchmark-specific guidelines. This latitude allows us to fully express our high-conviction active views and potentially avoid benchmark biases.
3 Uncorrelated Sources of Return: This bond portfolio seeks to provide positive long-term returns through the employment of derivatives and option-based strategies. This allows access to sources of returns that are intended to be uncorrelated to traditional risk assets.

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 03/31/2017)

The Portfolio outperformed its benchmark, the 3-month USD (LIBOR). The strategy seeks to provide long-term positive returns and preserve capital through various market environments by managing portfolio duration, credit risk and volatility. The Portfolio seeks to limit potential downside and avoid areas of the market where we see disproportionate risk. For the period, the Portfolio was largely positioned to capitalize on rising interest rates. While opportunities in certain asset classes and specific securities enabled us to generate positive returns, other strategies utilized by the Portfolio were negatively impacted by predominantly falling interest rates.

The core of the portfolio is comprised of shorter-duration, cash-based fixed income securities. We believe that higher-yielding corporate credits with durations under three years represent an attractive source of income that is often overlooked by the market. For the quarter, the Portfolio's core generated positive returns, with both corporate credit and collateralized mortgage obligations (CMO) being key factors. The Portfolio also benefited from its positioning in Mexican inflation-linked bonds, which rallied over the period.

Complementing the Portfolio's cash-based core, we employ a series of strategies we refer to as Structural Alpha, which are designed to generate excess returns by judiciously utilizing instruments, including options, futures, swaps and other derivatives. A key component of Structural Alpha is the selling of volatility on a range of asset classes using options strategies. Contributing to performance during the period was the Portfolio selling volatility in select government debt with the expectation that interest rates would remain range-bound. The Portfolio also generated returns by selling volatility on commodities, namely crude oil and gold with the bias that prices would not decline. Crude traded tightly for much of the period, aiding performance. Similarly, volatility sales on U.S. equities, tilted against lower prices, aided performance.

During the period, the Portfolio was able to generate returns by taking positions in companies involved in merger and acquisition (M&A) transactions. Such exposure is another component of our Structural Alpha strategy. We believe that arbitrage opportunities exist, given the tendency for announced acquisition prices and settlement prices to differ.

Some of the Portfolio's positioning, however, detracted from quarterly performance. The Portfolio's duration weighed on results. In February, the Portfolio sold volatility on German interest rates, expecting them to rise. As German rates fell, the Portfolio's position detracted from returns. The Portfolio also had exposure to credit default swaps (CDS) on corporate credit, expecting spreads to widen. Instead, credit spreads narrowed over much of the period, causing this positioning to weigh on returns. Late in the period, the Portfolio's positioning in sovereign CDS also generated slightly negative returns.

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