Janus Total Return strategy seeks to maximize total return relative to a core U.S. fixed income benchmark by complementing a top-down approach with structural alpha opportunities.

The investment process begins with the assessment of secular trends in the macro economy, including growth, inflation, and the long-term neutral level of interest rates. A shorter, cyclical assessment of interest rate movements, credit spreads and the level of volatility in different financial markets complements the assessment of secular trends. Based on the ongoing secular and cyclical assessments, Bill Gross and the Global Macro fixed income team forms views on duration, yield curve positioning, sectors, volatility and relative value between different sectors and securities predominantly in the U.S. fixed income market. Government bonds, corporate credit and securitized credit form the core of the portfolio. This core is supplemented with structural alpha opportunities intended to further enhance returns over the benchmark.

Investment Approach

1 World-Renowned Investor: Bill Gross is one of the world's foremost thought leaders on fixed income. His macro style of investing offers investors an exceptional approach to navigating today's markets, which are deeply affected by central banks and macroeconomics.
2 A combined top-down and bottom-up approach: Ongoing assessment of macro themes, both secular and cyclical, guide the portfolio positioning while bottom-up security analysis and structural alpha opportunities seek to enhance risk-adjusted returns over the benchmark.
3 Structural alpha: The strategy's differentiated approach identifies and targets alpha generation from structural financial market mispricing.

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 outperformed its benchmark, the Bloomberg Barclays U.S. Aggregate Bond Index. The strategy seeks to maximize total return relative to the benchmark by complementing a top-down approach with Structural Alpha opportunities. Portfolio management seeks to limit potential downside and avoid areas of the market where we see disproportionate risk.

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 five years represent an attractive source of income that is often overlooked by the market. Given the tightening of credit spreads during the period, our positioning in securitized credit instruments and, to a lesser extent, corporate bonds, contributed to performance.

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. Many of these same instruments are also employed with the aim of lowering volatility's impact across a range of asset classes. During the period, the Portfolio sold interest rate volatility using options strategies, with the expectation that rates would stay within a particular range. In the wake of the post-election risk-on environment, our positioning against falling rates generated positive returns. However, the Portfolio's positioning against rising rates detracted from performance, given the aggressive sell-off that occurred during the latter part of the period.

A key detractor from performance was the Portfolio's duration positioning. Given the uncertainty of the market's reaction to the U.S. election, along with the expectation of a Fed interest rate hike in December, we maintained a duration lower than that of the benchmark. This underweight positioning resulted in losses lower than what would have occurred during the rate selloff had duration matched – or exceeded – that of the benchmark.

The Portfolio often hedges segments of its core bond allocation using derivatives. As high-yield credit spreads significantly narrowed during the period, some hedges we used in this manner resulted in a loss. Not all risky assets benefited from improving market sentiment. While investors rallied around the possibility of improving growth prospects in the U.S., they recognized that a strengthening dollar, along with much of the incoming administration's rhetoric, could be headwinds for emerging markets.

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