Dividend & Income Builder Fund December 31, 2017
Quarterly update and outlook Overview
Global equities rose during the fourth quarter, with the MSCI World producing a total return of 5.6% (in U.S. dollars). Within this, U.S. equities performed particularly strongly, as Republican tax reform (including a significant cut to the corporation tax rate) was successfully passed, providing a boost to U.S. corporate earnings growth in 2018.
During the quarter a new position was added in industrial and health care equipment manufacturer Siemens. Ahead of purchase, the shares had performed poorly, leaving it looking attractively valued (particularly compared to international industrial peers) while we think fundamentals are showing signs of improvement.
The oil price also rose strongly during the quarter, as global demand has proved resilient while there has been some disruption to supply from countries including Libya.
We also reduced the weighting in telecommunication services (although it remains an overweight position versus the benchmark). This was primarily a stock level decision rather than top-down asset allocation, and was driven by reducing holdings that had re-rated since purchase, where we were seeing better value opportunities elsewhere.
Fund performance The Fund rose 2.7% on a total return basis (in U.S. dollars) during the quarter. The fixed income allocation, while positive in absolute terms, was a detractor relative to the benchmark (which is an equity benchmark) as fixed income did not keep pace at a time of strong equity market returns. At the sector level, the largest positive contributor (relative to the benchmark) was the overweight position in energy as a result of the recent rise in the oil price. The reason for the overweight position is that an improvement in cash flows for the sector is increasing dividend cover. The recent increase in the oil price further supports the investment case, and there is scope for dividend yields to compress as the market gains confidence in the sustainability of dividend payments. The largest detractors from performance at the sector level included industrials and financials. The Fund’s underweight position in information technology also impacted performance as a number of low dividend yield shares such as Apple and Alphabet (which the Fund does not own) performed strongly.
Outlook The Fund remains quite defensively positioned, with overweight positions in sectors including telecommunication services, consumer staples (food, beverage & tobacco) and pharmaceuticals. This is partly as a result of the high income objectives of the Fund, as these more defensive sectors tend to have more stable free cash flow generation that lends itself well to paying an attractive dividend to shareholders. It is also a factor of current valuation levels. As the global economy is growing well, cyclical sectors performed strongly in 2017 and we are tending to find better value among defensive sectors. Within the fixed income allocation, the default environment remains benign although the range and speed of industry disruptions is something we continue to pay close attention to. Against this backdrop we retain a focus on seeking out quality businesses with sustainable cash flows. We expect coupons to provide the main source of returns for the fixed income portfolio going forward.
At the regional level, Europe ex UK performed well, but the underweight position in the U.S. was a detractor from returns. This is partly a structural underweight as the U.S. pays a low dividend yield.
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Dividend & Income Builder Fund December 31, 2017 Asset allocation
% of Fund
Top 10 holdings
% of Fund
% of Fund
Royal Dutch Shell
Top Relative Contributors and Relative Detractors (Equity Allocation) Held for the Quarter Ended 12/31/17 Ending Weight (%) Top Relative Contributors
Relative Contribution (%) Top Relative Detractors
Ending Weight (%)
Relative Contribution (%)
Royal Dutch Shell
The holdings identified in this table, in compliance with Janus Henderson policy, do not represent all of the securities purchased, held or sold during the period. To obtain a list showing every holding as a percentage of the portfolio at the end of the most recent publicly available disclosure period, contact 800.668.0434 or visit janushenderson.com/info. Relative contribution is the difference between the contribution of a security to the portfolio’s performance versus that security’s contribution to the benchmark’s performance. It reflects how the portfolio’s holdings impacted return relative to the benchmark. Cash and securities not held in the portfolio are excluded.
For more information, visit janushenderson.com. 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 Henderson at 800.668.0434 or download the file from janushenderson.com/info. Read it carefully before you invest or send money. Past performance is no guarantee of future results. Call 800.668.0434 or visit janushenderson.com/performance for current month-end performance. Discussion is based on the performance of the Fund's Class I Shares. Holdings are subject to change without notice. The opinions are as of 12/31/17 and are subject to change at any time due to changes in market or economic conditions. Janus Henderson may have a business relationship with certain entities discussed. The comments should not be construed as a recommendation of individual holdings or market sectors, but as an illustration of broader themes. Relative contribution for equities is calculated by comparing the daily returns for securities in the portfolio relative to those in the index. It is based on returns gross of advisory fees, and may differ from actual performance. Increased portfolio turnover may result in higher expenses and potentially higher net taxable gains or losses. Performance may be affected by risks that include those associated with non-diversification, portfolio turnover, short sales, potential conflicts of interest, foreign and emerging markets, initial public offerings (IPOs), high-yield and high-risk securities, undervalued, overlooked and smaller capitalization companies, real estate related securities including Real Estate Investment Trusts (REITs), derivatives, and commodity-linked investments. Each product has different risks. Please see the prospectus for more information about risks, holdings and other details. Fixed income securities are subject to interest rate, inflation, credit and default risk. The bond market is volatile. As interest rates rise, bond prices usually fall, and vice versa. The return of principal is not guaranteed, and prices may decline if an issuer fails to make timely payments or its credit strength weakens. High-yield or "junk" bonds involve a greater risk of default and price volatility and can experience sudden and sharp price swings. Foreign securities are subject to additional risks including currency fluctuations, political and economic uncertainty, increased volatility, lower liquidity and differing financial and information reporting standards, all of which are magnified in emerging markets. MSCI World IndexSM reflects the equity market performance of global developed markets. Index performance does not reflect the expenses of managing a portfolio as an index is unmanaged and not available for direct investment. Janus Henderson is a trademark of Janus Henderson Investors. © Janus Henderson Investors. The name Janus Henderson Investors includes HGI Group Limited, Henderson Global Investors (Brand Management) Sarl and Janus International Holding LLC. Funds distributed by Janus Henderson Distributors C-1217-14710 04-15-18