3Q: Rock and Roll


Jun 30, 2015 - Today, a greater number of large-cap stocks trade within a narrow band of the S&P 500 Index multiple than at nearly any point ... The s...

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MARKET PERSPECTIVES SERIES

3Q: Rock and Roll Equities can keep rolling … if you pick the right rock.

GLOBAL SECTOR VIEWS FROM THE JANUS EQUIT Y TEAM

3Q 2014

u COMMUNICATIONS



A world on demand

4

u CONSUMER



Building the cross-channel experience

u ENERGY + UTILITIES



Prolific production

u FINANCIALS

Beyond banks

u HEALTH CARE



Promising product launches

u INDUSTRIALS + MATERIALS



Gaining momentum

u TECHNOLOGY



New trends emerging

6 8 10 12 14 16

For four decades, fundamental, bottom-up research has been at the core of the Janus investment process. Our team of nearly 40 equity analysts covers approximately 1,500 stocks around the globe. Each takes a do-ityourself, unconstrained approach to research. We believe this differentiates us from our peers and drives results for our clients and the investors they serve. Every quarter, our seven global sector teams share their bottomup perspective on key themes in the equity markets and how those themes impact their sectors and areas of coverage.

GLOBAL SECTORS

C O M M U N I C AT I O N S

CONSUMER

ENERGY + UTILITIES

FINANCIALS

H E A LT H C A R E

I N D U S T R I A L S + M AT E R I A L S

TECHNOLOGY

The opinions are those of the authors as of July 2014 and are subject to change at any time due to changes in market or economic conditions. The comments should not be construed as a recommendation of individual holdings or market sectors, but as an illustration of broader themes.

3Q: Rock and Roll Pushing a rock uphill is better than it rolling over you. While most major stock indices slogged forward in the quarter and were ahead for the year, the second quarter showed some slippage before moving higher. Sisyphus was doomed to fail in his repeated attempts to push a boulder over a hill, but equity investors are not if they push the right rock. In a not-cheap, not-expensive market, the play goes to stock selection. Overall, it’s hard to argue for broader multiple expansions or massive shifts in risk tolerance. What we will see, however, is more differentiation at the company level. Today, a greater number of large-cap stocks trade within a narrow band of the S&P 500 Index multiple than at nearly any point in at least 20 years. If businesses are priced alike but perform differently, you can make money on the companies that outperform their competitors. That is why we see stock picking opportunities. The small-cap market is also setting up to be more favorable for stock picking. Small-cap companies in hypergrowth industries had achieved a huge multiple over the past year, while many companies with steadier growth potential were undervalued. That trend reversed itself last quarter, as lower-multiple stocks rallied and highermultiple stocks slipped. There may be more slippage to come for some of small-cap’s highest fliers – going from 10 times revenues to six times makes a stock cheaper, but doesn’t mean it is priced rationally. In general, however, the small-cap sector is becoming more favorably valued. It is not cheap, but closer to average, and that will help us as stock pickers. Risk levels are down around the globe. Statistics confirm that, but so do headlines. While investors ran for cover when Cyprus twitched two years ago, the conflicts in Iraq and Ukraine hardly slowed the rally. And with Spanish sovereign debt trading near the levels of U.S. Treasurys, it is clear the market’s euro-obsession is a thing of the past. As macro concerns in Europe dissipate, the focus turns to which companies can do more with less. Economic growth remains slow in Europe, but businesses there have room to expand margins through efficiency improvements. U.S. margins have recovered from the global financial crisis while European margins lag. Naturally, not all businesses have the ability or determination to drive margin expansion. It is important to pick those that can. In the global environment of lower risk and slow, but improving, economic growth, companies with strong competitive advantages and ones that can create growth internally can do well. Investors are willing to pay more for these businesses, which encourages us, as markets do not seem to be differentiating among companies. The investors we speak of include companies with flush balance sheets looking for major acquisitions. To us, nothing speaks more about the mix of low economic growth, increasing risk tolerance and company differentiation than the flurry of M&A deals this year. Deal levels in the U.S. are up from recent years but below the 2007 pace. While some transactions, especially in health care, reflect an effort to lower tax rates, the buyouts broadly reflect that businesses are more optimistic and willing to spend money to grow. We expect to see more deals, including more trans-Atlantic deals outside of health care driven by tax planning, which could be a boon to equity markets. If the market feels like pushing a rock, find the companies that can roll in the right direction. Those are the businesses with the competitive strengths, the balance sheets or the efficiency gains needed to drive returns. The macro risks today are ones we can understand: global military tensions, tapering quantitative easing and overall slow economic growth. By definition, risks are unpredictable, but none seems oversized or outside of the norms of equity investing. Choosy investors can navigate them.

Jim Goff, CFA Director of Research

Adam Schor, CFA Director of Global Equity Strategies Global Sector Views | 1

Janus Global Equity Research Sector Summary This sector-by-sector review provides a snapshot of how Janus analysts are applying their research insight — including favored industries, themes, potential sector risks and challenges — to their stock selections. While the views and recommendations of Janus analysts drive our research strategies, they may not be reflected in all Janus equity strategies due to varying portfolio objectives and stock-selection criteria.

CONSUMER u

COMMUNICATIONS u

u

Branded consumer staples companies are losing market share to retailer-owned brands and startups with organic products.

u

We are investing in retail companies that are building a superior multichannel distribution platform.

Improvements in video-on-demand offerings are leading to increased viewing of hit content.

u

Online search activity is rapidly evolving to place a desired product or service at a consumer’s fingertips more quickly.

u

We are investing in global content companies, and Internet service companies that are innovating to keep pace with evolving Internet search trends.

p4

p6

ENERGY + UTILITIES u

Without the ability to ship the glut of oil from U.S. hydraulic fracturing sites overseas, U.S. oil prices could fall later this year.

u

The threat of low natural gas storage levels has abated for now, due to prolific production of the Marcellus and Utica shale areas.

u

2 | 3Q 2014

Retailers are investing to create a better multichannel shopping experience. The investments are a short-term headwind but have positive long-term implications.

We are investing in U.S. refiners, which benefit from a wide spread between domestic and international oil prices.

p8

INDUSTRIALS + MATERIALS u

u

u

European companies are poised to expand capacity, which would benefit a broad range of industrial companies. In the U.S., many industrial companies are poised to make strategic acquisitions and shareholder-friendly capital allocation decisions. We are investing in select European auto manufacturers, and also European industrial companies that have restructured their cost base.

p14

TECHNOLOGY

FINANCIALS

A paradigm shift in IT spending is underway, as companies move data from on-premises servers to the cloud.

u

Growth prospects for many U.S. and European banks are somewhat muted, but we see other opportunities within the financial sector.

u

u

U.S. household wealth is at an all-time high, creating an opportunity for companies that advise wealthy individuals and families.

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The stage is set for the proliferation of electronic devices that connect to the Internet and interact with one another.

u

We are investing in insurance brokers and consultants that operate private health care exchanges.

u

We are investing in a number of companies that provide the infrastructure and building blocks that allow electronic devices to communicate.

p10

p16

HEALTH CARE u

Improvements in genetic analysis have led to better understanding of diseases and more effective therapies.

u

The growing insured population in the U.S. is beneficial for hospitals and managed care companies.

u

We own a number of pharmaceutical and biotechnology companies developing novel immuno-oncology therapies.

p12

Global Sector Views | 3

C O M M U N I C AT I O N S

A world on demand Content owners and cable distributors are working together to accelerate the amount of content that can be viewed in a time-shifted (on-demand) setting. New cable boxes have a simpler user interface that encourages more on-demand viewing, and early results show these new boxes have led to a roughly 20% to 25% increase in video on-demand usage and a 30% to 40% increase in the number of channels viewed by consumers. Content owners, meanwhile, are making more of their content available in the on-demand setting. Many studios have started offering their entire current season of a show on demand. The increased viewing in both the on-demand and online settings should lead to better monetization of hit content. These capabilities will also increase the value of pay-TV subscriptions to consumers. We are still in the earliest stages of innovation in search advertising. Online search activity is evolving from simple keyword searches to more convenient voice-activated searches, and to contextual searches that utilize personal information about the consumer and the world around them to place a desired item at the potential customer’s fingertips more seamlessly. For example, select Internet service companies are

We are still in the earliest stages of innovation in search advertising.

4 | 3Q 2014

working to integrate information about the consumer based on their browsing and purchase history, and marry that information with the inventory in stores that are nearest to the consumer’s real-time location to essentially recommend what a consumer should buy, and where. Internet service companies that can continue to innovate and make search activity more convenient for the consumer and effective for the merchant will continue to gain digital advertising market share.

Investment Implications We are investing in large cable operators. Their stronger broadband capabilities are a competitive advantage over satellite and telecom providers. That competitive advantage will become stronger as increased video-on-demand usage requires more bandwidth. We are also investing in several global content owners that have shown an ability to repeatedly launch and market popular programs. We continue to hold Internet service companies that are innovating to keep up with the evolving nature in which consumers interact with the Internet.

CONTENT … WHENEVER, WHEREVER Monthly Time Spent Watching Content Through New Mediums Consumers are taking advantage of new ways to view content.

1:00

4Q 2012

1:23

4Q 2013

Watching Video on a Smartphone

5:54

7:34

Watching Video on Internet

12:38

14:40

Watching Time-Shifted TV (On-Demand)

0.00

4:48

9:36

14:24

19:12

Time Watching (hour:minute) Source: Nielsen: The Cross-Platform Report. March 2014.

THEMES-IN-ACTION u COMMUNICATIONS u u u

MONETIZATION OF HIT CONTENT THE GLOBAL MOBILE INTERNET CABLE DISTRIBUTION NETWORKS

Online travel agencies are taking share of hotel reservations as consumers look for an easier process for booking rooms. Growth in North American online travel agency bookings grew 9.2% year over year in the first quarter of 2014.

Global Sector Views | 5

CONSUMER

Building the cross-channel experience Retailers and consumer brands are improving the multichannel shopping experience across stores, web sites, social media and mobile applications. The 2013 holiday season highlighted the growth in shopping outside of physical stores. Retail companies have responded quickly, making heavy investments in technology platforms and inventory management systems that will allow consumers to access similar advertising, pricing and promotion of products across each distribution platform, while being able to purchase the product at a local store, or have it delivered. Such investments are a short-term headwind, but a better multichannel experience should increase consumer interaction, and sales, over the long term. New online brands are also working toward a multichannel experience, with many of the most successful online brands now opening physical stores. The environment remains tough for a number of branded consumer staples companies as developed market consumers rationalize their spending on staples products to spend more on travel, entertainment, or big-ticket purchase items they held back on during the recession. The demand for ingredient transparency and more natural and organic food products has also been a challenge for name-brand packaged food products. The trend has

Retail companies are making heavy investments to improve the shopping experience across stores, web sites, social media and mobile applications.

6 | 3Q 2014

benefited many start-up brands and retailer-owned brands that are more trusted by consumers. Within the beverage industry, smaller brands are taking share from mass brands through product innovation and savvy marketing.

Investment Implications We are selective of retail and branded companies, investing in those companies we believe are doing a superior job of building an omni-channel distribution platform. Many of the brands we own have global brand awareness, but are in the early stages of building their physical presence internationally. Such companies are able to use data from their mobile and online sales to carefully plan their international expansion with a better picture of where sales are coming from. Within the consumer staples segment, we are investing in retailers whose private label brands continue to grow by taking share from branded food products. We are also investing in select smaller beverage brands that are taking market share from large competitors.

SHOPPING MOVES BEYOND STORES Projected Growth in e-Commerce and Mobile U.S. Retail Sales $600 As more shopping takes place online or through mobile

Total e-commerce sales

devices, retailers are investing to create an omni-channel

Total sales on mobile devices*

$491.50

shopping experience.

$440.40 $392.50

$400

Sales In Billions

$347.30 $304.10 $263.30 $225.30 $200

$132.69 $98.12

$114.50

$76.41 $24.78

$42.13

$57.79

$0 2012

2013

2014(E)

2015(E)

2016(E)

2017(E)

2018(E)

Source: eMarketer. As of 4/10/14. *Includes tablet.

THEMES-IN-ACTION u CONSUMER u u

STRONG GLOBAL BRANDS TECHNOLOGICAL EDGE

Brown Forman spirits continue to gain traction overseas, with year-over-year growth of 13% in Germany, 14% in France and 36% in Russia.

Global Sector Views | 7

ENERGY + UTILITIES

Prolific production While geopolitical tensions caused a recent rise in oil prices, we expect a drop in U.S. prices later this year or in early 2015, as the glut of oil produced from hydraulic fracturing oversupplies domestic processing facilities. Refineries have made great strides in productivity and efficiency in recent quarters, allowing them to process more of the light sweet crude produced at horizontal drilling sites, but refinery utilization is now near historical highs. Meanwhile, storage at some of the largest U.S. distribution hubs is already trending above average. Unless a ban on U.S. oil exports is lifted to ship some of this oil overseas, we believe U.S. oil prices could drop as low as the $80 a barrel range before it encourages less production at many of the U.S. shale sites. The drop in prices would widen the spread between U.S. and international oil, which would benefit U.S. refiners. Coming out of an abnormally cold winter that substantially reduced natural gas in storage, there were concerns about whether storage levels could be normalized before next winter. However, pure natural gas producers have been able to tap prolific natural gas sites in the Marcellus and Utica shale areas in the eastern U.S. to help refill storage. Drilling at these sites is profitable well below the current price of $4.50 mcf, which means the threat of low storage levels and a spike in prices has been abated, as long as the U.S. experiences normalized weather patterns this summer.

8 | 3Q 2014

Investment Implications Given the potential of lower U.S. oil prices, we are investing in low-cost U.S. exploration and production companies that are focused on improving efficiency and productivity. We are also investing in U.S. refiners, which benefit from a wide spread between domestic and international oil prices, and also benefit from cheaper domestic natural gas, which is used to heat oil and turn it into refined products. Going forward, we see opportunity with a few U.S. natural gas production companies, which have exposure to extremely cheap and prolific shale areas. We are also investing in select service companies whose revenue is less subject to price or exploration risk.

Natural gas producers have been able to tap prolific natural gas sites to help refill gas in storage.

SUPPLY BUILDUP Oil Storage Levels at the Gulf of Mexico's Distribution Hub 250 Storage levels at the Gulf's distribution 2014

hub are well above normal due to the glut of oil produced through horizontal drilling.

5-Year Average

We expect storage to back up in other U.S. distribution hubs later this year, causing a drop in domestic oil prices.

Millions of Barrels

225

200

175

150 1/2014

2/2014

3/2014

4/2014

5/2014

Source: Janus, U.S. Energy Information Administration. As of 6/1/14.

THEMES-IN-ACTION u ENERGY + UTILITIES u u u

TIGHT OIL SUPPLY HORIZONTAL DRILLING GROWTH NORTH AMERICAN ENERGY INDEPENDENCE

Core Laboratories’ technology is being used in roughly 1,250 oil fields today. The company projects that number to grow to 2,000 as production companies seek better analysis about the land they are drilling.

Global Sector Views | 9

FINANCIALS

Beyond banks Historically low interest rates, a slow-growth economic environment, and higher capital and liquidity requirements have been a challenge to equity returns for both U.S. and European banks. Various financial penalties sought by U.S. regulators against European banks and the upcoming Asset Quality Review tests have been a further overhang for European banking stocks.

Given these near-term headwinds, we believe many of the best growth opportunities in the financial sector lie outside the banking industry. For instance, we believe select global insurance companies are poised for considerable growth in Asia, as greater income levels encourage consumers to seek health and life insurance, and also as local governments enact programs that encourage citizens to seek insurance products. In the U.S., household wealth has reached an alltime high. But in the wake of the last financial crisis, individuals are more concerned about financial risk, and are seeking more advice from financial firms around their wealth. This has created opportunities for financial firms that advise wealthy families. The complexities and taxes associated with the

U.S. household wealth has reached new highs, but individuals are more risk-aware and are seeking advice around their wealth.

1 0 | 3Q 2014

Affordable Care Act are also benefitting select financial companies. Many employers are considering new options for health care benefits, including moving employees to private health care exchanges. The move would provide a considerable growth opportunity for insurance brokers that have built and operate private health care exchanges for employers.

Investment Implications We have been selective with banking stocks. In the U.S., we favor banks with good management teams that have shown an ability to grow their customer base. These banks can do well even in a low-interestrate environment but could have even more upside, in our view, if interest rates rise. In Europe, we are investing in banks in countries such as Portugal, Greece and Spain, where local economies are seeing a recovery, and where we believe the market has not given enough credit to the strides banks have made to strengthen their balance sheets. We also own insurance brokers with private health care exchanges that encourage competition among insurance carriers. We see another opportunity in companies that can take market share in the growing wealth management industry by offering innovative products and services addressing client needs.

EXCHANGE MIGRATION Employees Estimated to Enroll in Private Health Care Exchange Insurance brokers that operate private health care exchanges are expected to see growth in those exchanges as employers migrate their employees to exchanges to choose health care.

Estimated to Enroll in

2018

40 million

2017

30 million

2016 2015 2014

19 million 9 million 1 million

Source: Accenture analysis, based on data from: U.S. Census, Bureau of Labor and Statistics, Kaiser Employer Health Benefits 2012 Annual Survey.

THEMES-IN-ACTION u FINANCIALS u u

PAN-ASIAN INSURANCE ELECTRONIC PAYMENTS GROWTH

MasterCard experienced purchase volume growth of 21.7% in Latin America during the first quarter.

Global Sector Views | 11

H E A LT H C A R E

Promising product launches Product pipelines look promising for a number of biotechnology companies. Clinical success rates are running above historical norms, the regulatory environment remains conducive to rapid approval of breakthrough therapies, and many product launches are exceeding expectations.

Given the improvements in genetic analysis over the past decade (which have led to a better understanding of many diseases), we expect these trends to continue. These advances are also benefiting select pharmaceutical companies developing novel immuno-oncology therapies that harness the immune system to kill cancer cells. Several companies offering these promising new drugs have attracted potential acquirers, and we expect more merger and acquisition (M&A) activity in the coming months. Cheap debt, strong balance sheets and the desire to rationalize manufacturing, selling and research and development costs have all played a role in heating up M&A activity. The tax benefit of re-domiciling a U.S. corporation into a lower tax structure overseas has also driven activity. While there is concern that the U.S. government could eventually change rules around these tax inversions, we think comprehensive tax reform is unlikely in the near term. We also believe tax changes would not affect the tax status of companies that have already completed inversions. Another tailwind for the health care sector is the reduction of the uninsured population in the U.S. The Affordable Care Act has led 12 million individuals to gain insurance coverage. The growing insured population means new customers for managed care companies, and ultimately, less debt for hospitals as more patients have insurance to cover their bills.

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Improvements in genetic analysis have led to a better understanding of the underlying causes of many diseases. Investment Implications We are investing in a number of biotechnology companies with innovative therapies and select large-cap pharmaceutical companies with novel immuno-oncology drugs. We are also focusing on companies with strong drug pipelines or products with long-term sales growth potential that will likely be attractive acquisition targets. We see another investment opportunity in select hospitals that are poised to benefit from the expansion of insured populations. Among managed care companies, we favor those companies that are working with health care providers to encourage lower health care costs. We believe such companies will be more competitive on the new consumer-driven health care exchanges.

SEEKING COVERAGE U.S. Uninsured Rate 20% The number of Americans without insurance is declining. The trend benefits hospitals and select managed care companies.

19%

18.0% 18%

17.1% 17%

U.S Uninsured Rate

16.2% 16%

15.6% 15.0%

15%

14%

13.4% 13%

12% 3Q 2013

4Q 2013

1/2014

2/2014

3/2014

4/2014

Source: Gallup. As of 5/5/14.

THEMES-IN-ACTION u HEALTH CARE u u

COST-SAVING BUSINESS MODELS INNOVATIVE NEW DRUGS

Biogen Idec’s TECFIDERA, a new multiple sclerosis treatment, achieved sales of nearly $1.4 billion in the first 12 months of its launch.

Global Sector Views | 1 3

I N D U S T R I A L S + M AT E R I A L S

Gaining momentum Europe’s economy is stabilizing and many companies may be reaching an inflection point where they will make investments to grow their businesses. Capacity utilization in Europe stands at 79.5%, just under the 80% level where companies have historically made investments to expand capacity. Europe touched this level in 2011, but companies held off on expanding capacity because the increase in demand stemmed from government stimulus efforts. This time, the increased capacity utilization has been spurred by end-market demand. As companies invest to grow capacity, it would broadly benefit a number of companies in the industrial supply chain. We believe an improving auto industry will help propel Europe’s economy forward in the coming months. Management teams of auto manufacturers are reporting the first significant upturn in their order books since before the European Crisis. In the U.S., where an economic recovery is already in tow, companies are increasing their mid-year capital budgets to start hiring, embark on new research and development projects and increase capital expenditures. With management teams’ outlook continuing to improve, we are also seeing a number of companies make strategic acquisitions, or meaningful capital allocation decisions to increase dividends or buy back stock. In the coming quarters, we expect earnings per share growth for a number of industrial companies as they experience more growth from an improving economy while also reducing share count.

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Investment Implications In Europe, we are investing in a number of companies that underwent restructuring efforts during the downturn and should now see earnings growth as the economy recovers. We are investing in auto manufacturers who are gaining market share and should benefit as auto demand picks up. We also see opportunity for several U.S. and European transport companies, which benefit from a broad economic recovery. In the U.S., we see upside for petrochemical companies, which benefit from cheap domestic natural gas, and seed companies, which are making genetic innovations that should improve farmers’ agricultural yields.

We believe an improving auto industry will help propel Europe’s economy forward.

GEARING UP Euro-Zone Capacity Utilization 100% When capacity utilization reaches 80%, many industrial companies reinvest to Capacity Utilization

grow their business. Capacity expansion in Europe would benefit a broad range of industrial companies.

Capacity Utilization Rate

90%

80%

70%

60% 6/2006

6/2007

6/2008

6/2009

6/2010

6/2011

6/2012

6/2013

6/2014

Source: Bloomberg. As of 6/24/2014.

THEMES-IN-ACTION u INDUSTRIALS + MATERIALS u u

BALANCE SHEET STRENGTH INTERNAL GROWTH DRIVERS

Monsanto is expanding margins for its agricultural seed business as farmers pay more for seeds with genetic enhancements that improve agricultural yields.

Global Sector Views | 1 5

TECHNOLOGY

New trends emerging We believe businesses are in the early stages of a paradigm shift in enterprise IT spending, moving spending from on-premises hardware and servers to spending on applications employees can access in a private or hybrid cloud. Enterprises had held off on spending for several years, knowing the change was coming.

Security concerns about on-premises data centers and the emergence of tools that make shifting data from on-premises servers to the cloud easier have now sprung the transition into action. Investing around the trend is challenging, however, as many cloud computing companies or companies designing applications for businesses trade at lofty valuations.

components needed to make the Internet of Things viable has come down dramatically. Improvements in the ability to use data collected by connected devices is also pushing the concept forward.

Another important innovative development in the technology sector is the emergence of the Internet of Things, the idea that all our devices in personal and business life will connect to the Internet and interact with each other. While the concept has been discussed for more than a decade, it has become much more tangible today. Dominant consumer electronic companies are creating the platforms on which many devices will interact. The cost of key

We are selectively investing in companies tied to mobile computing, the cloud and big data. We are often taking smaller positions in these stocks, however, given the high valuations at which they trade and the inherent risk in their newer business models. We see opportunity in many legacy enterprise resource planning (ERP) vendors. These companies trade at historically low valuations due to fears their services will be displaced by the cloud, but we believe some of these companies are actually positioning their offerings quite well for the transition to the cloud, and could continue to be dominant franchises. Finally, we also hold a number of companies we believe will benefit from the Internet of Things including microcontroller, connector and semiconductor manufacturers, and companies that have built infrastructure platforms that allow our devices to communicate.

Businesses are in the early stages of a paradigm shift in enterprise IT spending.

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Investment Implications

GAINING STEAM Responses From a Global Survey of Business Executives Asked About the Impact of the Internet of Things The world has reached a tipping point that has made the futuristic concept of the Internet of Things more tangible. Many executives believe we are at a point where the Internet of Things will begin having a major impact on their businesses.

6% 15% 40%

8% 18% 40%

6% 14%

6% 15%

46%

36%

Just tech industrygenerated hype Big impact only for a small number of global players

% of Respondents

Some impact on few markets or industries

38%

43%

35%

34% Major impact in most markets and most industries

Overall

North America

Europe

Asia-Pacific

Source: The Economist Intelligence Unit. As of 6/1/13.

THEMES-IN-ACTION u TECHNOLOGY u u u

CLOUD COMPUTING EXPANSION MOBILE DEVICE GAINS INTERNET OF THINGS

Semiconductor manufacturer Xilinx experienced 30% year-over-year growth for its communications business, due largely to increased demand from China as Chinese mobile carriers upgrade to 4G networks.

Global Sector Views | 17

Equity Research Survey Takeaways An important component of Janus’ intensive bottom-up research approach is the development of independent and differentiated views supported by in-depth primary research. We conduct over 200 ongoing proprietary surveys — many of which have been conducted for multiple years — providing a valuable time series of grass-roots-level information. Following is a sampling of our latest survey findings.

BUSINESS INSIGHTS

Air and ocean shipping growth remains low, indicating the global economic recovery is still slow.

Trucking capacity is at its highest level since we began surveying freight forwarders in 2010. Increased trucking capacity typically means trucking companies can command favorable pricing. Our survey of commercial truck dealers shows sales and foot traffic both grew during the quarter, indicating companies are increasing spending.

Robotics sales are showing improvement over last year, with the machinery and metal industries showing the most strength.

Robots with a vision system continue to show solid sales growth, as companies are demanding more from robots on the assembly line.

1 8 | 3Q 2014 1 8 | 3Q 2014

CONSUMER INSIGHTS

The most popular running and basketball shoe companies are gaining market share as an increasing number of their different brands become best sellers at shoe retailers.

Online pet retailers are becoming more competitive on price with brick and mortar pet stores.

The majority of corporate travel managers in our monthly survey expect their company’s travel budget to increase this year compared to 2013. Expectations for increased travel signal that while economic growth has been slow, the economy is improving.

Foreign infant formula brands and powdered milk continue to gain market share in China due to consumer concerns about safety.

Janus proprietary research surveys (“surveys”) are not conducted for each security Janus analyzes. Surveys are not scientific and are a single element of the Janus research process that may or may not be implemented. The insight(s) gained as a result of research efforts presented were a single factor in analyzing each particular company and were not the only factor used in Janus’ analysis.

Janus Global Equity Sector Team Leaders

C O M M U N I C AT I O N S

C O M M U N I C AT I O N S

CONSUMER

CONSUMER

Jean Barnard, CFA

Alan Bezoza

Jeremiah Buckley, CFA

Eileen Hoffmann

ENERGY + UTILITIES

FINANCIALS

FINANCIALS

H E A LT H C A R E

Kris Kelley, CFA

John Jordan

Carmel Wellso

Andy Acker, CFA

H E A LT H C A R E

I N D U S T R I A L S + M AT E R I A L S

I N D U S T R I A L S + M AT E R I A L S

TECHNOLOGY

Ethan Lovell

Guy Scott, CFA

Kenneth Spruell, CFA

Brinton Johns

TECHNOLOGY

Garth Yettick, CFA

Global Sector Views | 1 9

Guiding Principles of Janus Research

20 | 3Q 2014

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Invest with our clients’ interests first.

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Develop a deep understanding of the companies we research.

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Employ a strong valuation discipline focused on quality growth.

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Develop independent and differentiated views on our companies, supported by in-depth primary research.

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Spend as much time thinking about what could go wrong as about what could go right.

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Take a long-term view.

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Seek to anticipate change, don’t just analyze it.

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Attract the best and brightest analysts in the business, and foster an environment in which they can succeed on behalf of our investors.

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Please consider the charges, risks, expenses and investment objectives carefully before investing. For a prospectus or, if available, a summary prospectus containing this and other information, please call Janus at 877.33JANUS(52687) or download the file from janus.com/info. Read it carefully before investing or sending money. Past performance is no guarantee of future results. Investing involves market risk. Investment return and value will fluctuate, and it is possible to lose money by investing. The value of equity securities fluctuates in response to issuer, political, market and economic developments. In the short term, equity prices can fluctuate dramatically in response to these developments, which can also affect a single issuer, issuers within an industry or economic sector or geographic region, or the market as a whole. There is no assurance that the investment process will consistently lead to successful investing. In preparing this document, Janus has relied upon and assumed, without independent verification, the accuracy and completeness of all information available from public sources. Statements in this piece that reflect projections or expectations of future financial or economic performance of the markets in general are forward-looking statements. Actual results or events may differ materially from those projected, estimated, assumed or anticipated in any such forward-looking statements. Important factors that could result in such differences, in addition to the other factors noted with such forward-looking statements, include general economic conditions such as inflation, recession and interest rates. Janus makes no representation as to whether any illustration/example mentioned in this document is now or was ever held in any Janus portfolio. Illustrations are only for the limited purpose of analyzing general market or economic conditions and demonstrating the Janus research process. They are not recommendations to buy or sell a security, or an indication of holdings. Funds distributed by Janus Distributors LLC FOR MORE INFORMATION CONTACT JANUS 151 Detroit Street, Denver, CO 80206 I 800.668.0434 I www.janus.com C-0614-67021 06-30-15

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