Idea

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INVESTMENT IDEA

1Q18 U.S. Equity

Today’s Risks Might Be Opportunities for Small Cap Value Small Cap Value Fund A: JDSAX

C: JCSCX

I: JSCOX

N: JDSNX

R: JDSRX

S: JISCX

T: JSCVX

Most investors need growth in their portfolios and small-cap companies have been a great area to invest over the last 20 years, outperforming the broad equity market. Unfortunately, the ride in small caps is not always smooth sailing as the asset class is often volatile and can be prone to both large upswings and steep downturns. With interest rates starting to rise and the reemergence of market volatility, the future will most likely stay bumpy, but opportunities will present themselves and investors should consider small-cap value companies for their long-term growth potential. Small Caps Have Outperformed Broad Equities Over Time

369.25% vs. 249.54% (Small-Cap Value)

(Broad Equities)

20 Year Cumulative Return (as of 3/31/18). Russell 2000® Value Index vs. S&P 500® Index Source: Morningstar, Inc.

Rising Rates Have Traditionally Lifted Small Cap Value An increase in rates traditionally has signaled an accelerating economy and small-cap companies’ performance has been linked with the success of the economy. In fact, the small-cap value asset class has a strong history of outperforming broad equities in periods immediately following a Fed Funds increase.

Boosted By The Fed – Small Cap Value Outperformed Broad Equities Post-Rate Hike Russell 2000® Value Index

S&P 500® Index

Past Fed Hike Dates Aug. 7, 1980

Oct. 1, 1986

Feb. 1, 1983

Jun. 30, 1999 Feb. 4, 1994

Jun. 30, 2004

Average Index Return (%) After Fed Rate Hike Dates 3 Months After

6 Months After

12 Months After

3.22 2.70 11.35 10.86 16.84 15.39

18 Months After

11.03 7.52

Source: Morningstar, Inc. Returns greater than one year are annualized.

While small-cap value companies have performed well coming out of rate hikes, these periods often lead to volatility in the market. Investing in high quality companies may offer investors some insulation from that volatility.

Page 1 of 4

Small Cap Value Fund Now May Be The Time for Higher Quality Companies Lower quality companies outperformed for a prolonged period of time and have continued to do so recently, especially within the small cap asset class. As small-cap stocks, and in particular lower quality small-cap stocks, rallied strongly on post-election sentiment, it might serve investors well to invest in a strategy that focuses on investing in high-quality stocks with lower volatility in this type of market environment where fundamentals do ultimately matter.

Quality Counts in Today’s Market Relative Strength: Higher-Quality vs. Lower-Quality Stocks (3/30/90 – 3/31/18) 350 High/Low Quality Relative Strength Ratio

Defining Quality The Fund’s sub-adviser, Perkins Investment Management measures stock quality based on strict evaluation criteria around: „„ Balance sheet strength „„ Competitive position „„ Earnings stability „„ Management skills „„ Re-occurring free cash flow

High Quality Outperformed

High Quality Outperformed

300 250 200

Low Quality Outperformed

Low Quality Outperformed

150 100 50

2018

2016

2014

2012

2010

2008

2006

2004

2002

2000

1998

1996

1994

1992

1990

0

Source (Relative Strength Ratio): The Leuthold Group. Leuthold assigns a quality rank to the largest 1500 stocks in their coverage universe based on average rank of trailing 5 year return on equity, debt/assets ratio, and sales and earnings trends. The top quintile is the high quality basket and the bottom quintile is the low quality basket. The high quality/low quality ratio is a ratio that compares the monthly returns of the high quality and low quality baskets (returns are cumulative with dividends and other earnings reinvested), multiplied by 100. The ratio began at 100 at its inception (12/85).

A Strategy to Consider When examining today’s markets, the increase in potential risk may end up offering opportunity for active small-cap value managers. During these types of environments, managers who focus on investing in quality companies with strong balance sheets, re-occurring cash flows and positive earnings might be able to selectively take advantage. For 35+ years, Perkins has been investing with an emphasis on defensive quality. This approach to investing intends to provide a smoother ride for investors over the long term.

This risk-conscious approach has protected capital better than peers and the benchmark in down markets and has resulted in lower volatility.” Morningstar (3/23/18)

Page 2 of 4

Small Cap Value Fund How Janus Henderson Can Help

75.32%

Consider Small Cap Value Fund The Fund focuses on high-quality, small-cap stocks that may hold up better during downturns. The Fund is constructed to weather market losses, which has generated favorable returns over a full-market cycle. Small Cap Value Fund, with its focus on mitigating downside risk, fared better than both peers and the index going into and coming out of the 2008 financial crisis.

(Class I Shares)

vs. 91.61%

(Peer Group Median) Downside Capture vs. Russell 2000® Value Index (5/31/07 – 3/31/18)

Competitive Risk-Adjusted Returns with Less Risk than the Vast Majority of Peers 3 Year Reward/Risk Measures in the Morningstar Small Value Category (385 Funds) as of 3/31/18 Small Cap Value Fund (Class I Shares)

Percentile Ranking

0

Russell 2000® Value Index

Reward

16

Risk

4

th

th

25

Small Cap Value Fund has mitigated losses better than peers going into and coming out of the 2008 crisis.

32nd

34th

35th

49th

50 75

94th

100 Excess Return

Sharpe Ratio

93rd

Standard Deviation

Beta

The Fund is constructed to weather market losses. This approach has generated more favorable returns over time. An initial $10,000 investment 10 years ago would have returned $26,466 or 16% more than the Fund’s benchmark. (Class I Shares as of 3/31/18)

Role in a Diversified Portfolio Portfolio Position:

Portfolio Implementation:

Small-Cap Allocation Within a Diversified Core

Core

Why Invest in the Fund „„ Defensive Approach „„ High-Quality Companies „„ Results with Historically Less Volatility

• Can be used as a standalone small-cap allocation • May complement an aggressive growth oriented small-cap strategy

Page 3 of 4

Small Cap Value Fund Portfolio Management Sub-advised by Perkins Investment Management LLC Justin Tugman, CFA • Fund Manager since 2009 • Industry since 2000

Performance (%) As of 3/31/18

1 yr

3 yr

5 yr

10 yr

Class I Shares

7.40

9.28

11.05

10.05

Russell 2000® Value Index

5.13

7.87

9.96

8.61

Expense Ratios (%): Gross 1.03; Net 1.03.

Returns quoted are past performance and do not guarantee future results; current performance may be lower or higher. Investment returns and principal value will vary; there may be a gain or loss when shares are sold. For the most recent month-end performance call 800.668.0434 or visit janushenderson.com/performance. Net expense ratios reflect the expense waiver, if any, contractually agreed to through 11/1/18.

Craig Kempler, CFA • Fund Manager since 2017 • Industry since 2002

About Sub-Adviser Perkins Since 1980, Perkins Investment Management has approached value investing from a unique perspective, conducting rigorous downside analysis on every potential investment prior to determining upside potential.

For more information, please 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. Performance for Class I Shares that includes periods prior to 7/6/09 reflects the performance of one or more share classes of the Fund or a predecessor fund, adjusted, where applicable and permitted, for differing fees and expenses. See the Fund’s prospectus for further details. Returns include reinvestment of dividends and capital gains. Returns greater than one year are annualized. This Fund has a performance-based management fee that may adjust up or down based on the Fund’s performance. Investing involves market risk. Investment return and fund share value will fluctuate and it is possible to lose money by investing. There is no assurance the stated objective(s) will be met. When valuations fall and market and economic conditions change it is possible for both actively and passively managed investments to lose value. Smaller capitalization securities may be less stable and more susceptible to adverse developments, and may be more volatile and less liquid than larger capitalization securities. © 2018 Morningstar, Inc. All Rights Reserved. Capture Ratio measures the percentage of index (market) performance an investment C-0318-16033 07-15-18

“captured” during periods when the index achieved gains (up capture) or declined (down capture). A capture ratio of 100% means investment performance went up or down exactly the same amount as the index. Sharpe Ratio measures risk-adjusted performance using excess returns versus the “risk-free” rate and the volatility of those returns. A higher ratio means better return per unit of risk. Standard Deviation measures historical volatility. Higher standard deviation implies greater volatility. Beta measures the volatility of a security or portfolio relative to an index. Less than one means lower volatility than the index; more than one means greater volatility. Russell 2000® Value Index reflects the performance of U.S. small-cap equities with lower price-to-book ratios and lower forecasted growth values. S&P 500® Index reflects U.S. large-cap equity performance and represents broad U.S. equity market performance. Index performance does not reflect the expenses of managing a portfolio as an index is unmanaged and not available for direct investment. Not all Funds and Share classes may be available. Please consult your financial advisor. Perkins Investment Management LLC is a subsidiary of Janus Henderson Group plc and serves as the sub-adviser on certain products. Janus Henderson and Perkins are trademarks and registered trademarks 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. Janus Henderson Distributors. 197-15-31801 04-18