Janus Funds: New Expense Ratio "Limits"

I just received a notification from my brokerage about changes to several Janus Funds (JNS).   I dutifully clicked on the provided link to see this practically illegible document.

Intrigued by the few words I could actually decipher, I went to the Janus website and searched for a more legible copy of the Supplement, alas, to no avail.  Nevermind.  The quality of the printing wasn’t my real concern, it was the content of the text.

The Supplement lists the expense ratio limits adopted by some of the Janus funds.  In principle, limiting the expense ratio is a great idea, since it provides a target for the fund’s management.  But let’s read the fine (if murky) print. (Comments are mine.)

Certain expenses are excluded from the expense limit … including:

• transfer agency fees, (I admit I don’t know what these are, but why are they excluded?)
• any applicable performance adjustment to an investment advisory fee, (Translation:  Fund advisors’ bonuses are excluded.)
• as well as the amount of any items not normally considered operating expenses such as interest, dividends, taxes, brokerage commissions, and extraordinary expenses (including but not limited to, legal claims and liabilities and litigation costs, acquired fund fees and expenses, and any indemnification related thereto) paid or payable by the Fund.  (Since when aren’t brokerage commissions operating expenses?  And let me get this straight, if Janus gets sued, the fundholder gets to pay the expense — not Janus. )

So far, I don’t see why they’re setting a limit with so many exclusions — perhaps it would be simpler to list what is included.

But, wait, it gets worse.

Of the twenty funds listed, twelve are getting “limits” for the first time.  Of the eight funds that already had “limits,” three of them are raising the expense ratio limits.  And not by a small amount — the new “limits” are almost a factor of two higher!

And then the coup de grâce.

“It is important for you to know that a decline in a Fund’s average net assets during the current fiscal year, as a result of market volatility or other factors, could cause the Fund’s expense ratio to be higher than the fees and expenses shown…”

Meaning, if the funds underperform, and investors pull out, it’s still ok to charge a high management fee as if everyone was happy and stayed with the fund.

Give me a break, Janus.  There is no substance to these “limits”.  There are multiple exclusions, lots of definitional wiggle room (e.g. can management pay be redefined as a bonus?), there is no penalty for missing the target, and the targets can be reset every year.

I’ve always wondered why Janus chose a two-faced god for its corporate symbol.  Now, I’m beginning to understand.

Tags: expense ratio limits, Janus funds, JNS