We believe that investing in companies with sustainable growth and high return on invested capital can drive consistent returns and allow us to outperform our benchmark and peers over time with moderate risk. We seek to identify mid-cap companies with high-quality management teams that wisely allocate capital to fund and drive growth over time.

Investment Approach

1 "Smart Growth" Approach: The portfolio's investment approach focuses on long duration, sustainable growth companies with strong competitive advantages and large addressable markets. We seek to avoid companies with rapid-but-unsustainable, short-term growth profiles.
2 Deep, Specialized Team: The portfolio benefits from in-depth fundamental research, supported by a broad team of analysts, a team of small-mid cap specialists, and portfolio managers with experience in the midcap space.
3 Growth Potential with Tempered Volatility: Offering exposure to medium-sized companies with resilient business models, this equity portfolio is designed to weather a variety of market environments and take on moderately less risk than the index.

Working to be consistently good... not occasionally great

Janus Mid Cap Growth Composite outperformed the Russell Midcap® Growth Index of 110 of 120 periods, or 92% 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)

Following the November election, markets began to anticipate a stronger economy, higher interest rates and corporate tax reform. As investors adjusted to this new paradigm, cyclical stocks, interest rate sensitive financials and companies with a larger portion of earnings within the U.S. outperformed the broader market.

Our stock selection in the health care sector contributed to relative performance. Celgene, one of our larger holdings within the sector, reported strong earnings, driven by growth of Revlimid, its multiple myeloma therapy. We also avoided a couple of companies within the benchmark that reported disappointing clinical results and suffered large losses.

Our underweight to the consumer staples sector was a large contributor to relative outperformance. We've had a structural underweight to the sector for some time now, and that underweight helped this quarter as many of the defensive sectors sold off. We do find companies within the sector that meet our typical criteria for investing, such as a strong competitive advantages and highly cash generative business models. Our issue with the sector over the past couple years has come down to one main point: excessive valuations. Before the fourth quarter, a defensive market environment and a quest to find any kind of yield had pushed up valuations in the consumer staples sector. It's been much easier to find durable growth businesses that are reasonably valued in other sectors. At the margins, it's also worth noting that for at least some mid-cap consumer staples companies, disruption and innovation are eroding their competitive advantage.

We were underexposed to some of the more cyclical growth companies and this detracted from relative performance during the quarter, particularly within the industrial sector. As we noted in the third quarter, we had actually started to invest in a few more cyclical businesses, not as a call on the direction of the economy, but because it was easier to find more reasonably valued companies that fit our investment style in the cyclical areas of the market. Increasing that exposure meant the cyclical rally didn't hurt as much as it would have six months ago.

Within the industrial sector, we tend to favor companies with more sustainable earnings growth that benefit from a stronger economic backdrop but are not dependent on it to thrive. For example, our largest positions are with a sensor manufacturer, which we believe will benefit from content growth within a car rather than just strong auto sales, and an analytics company that has a subscription-based business model. While these companies underperformed the more cyclical industrials this quarter, we continue to like our positioning over the long term.

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