As the global pandemic sent the economy into a tailspin this year, hundreds of U.S. companies canceled plans to buy back shares. Janus Henderson Group wasn’t among them.
The mutual fund giant announced plans in March to acquire $200 million of its stock over the next year and has been in the market on average once every three trading days since then. That’s a pace matched by no other firm that has disclosed such plans since then, data compiled by Bloomberg show.
Janus Henderson appears to be rewarding shareholders the only way it can. The firm, which manages $294 billion, has suffered at least nine straight quarters of net outflows in large part due to its focus on actively managed funds. Looking ahead, Morningstar estimates organic growth will average negative 3% to 6% this year through 2024.
“Investors expect buybacks — they rely on them as a return of value and as a signal that management is confident in the firm’s prospects,” said Andrew Korz, a research analyst at FS Investments in Philadelphia, which manages $24 billion of alternative assets.
The buybacks may be key for shareholders given that the company’s share price has plunged 31% since Janus Capital Group of Denver merged with London-based Henderson Group in May 2017. By contrast, the S&P 500 index gained 31% in that period.
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Janus Henderson is under no obligation to buy its shares and its plans are consistent with previous years.
Richard Weil, the company’s CEO, explained the buyback strategy on a call with investors in April, saying that in addition to dividends it’s “how our investors have told us they like to get that incremental return of capital.” While outflows peaked in the first quarter, Weil also said gross sales reached the highest since the merger, and that redemptions slowed in April.
A company spokeswoman declined to elaborate.
The deal that created Janus Henderson was intended to produce an international firm capable of competing with industry giants. It was part of a consolidation trend across the asset management industry driven by intense pressure on fees.
While Janus Henderson has made strides improving the performance of its lineup of actively managed funds that has not been enough to earn back loyalty, according Connor Young, an analyst at Morningstar. The Janus name still carries connotations of volatility earned back in the 1990s during the tech bubble, and the turnover in senior executives and departure of portfolio managers since the 2017 merger may have hurt its reputation, he said.
Repurchases Wane
With the fund industry facing shrinking profit margins and outflows from active strategies, the allure of low share prices has been too hard for some companies to resist. In March, Federated Hermes and SEI Investments updated their plans for buybacks this year.
Repurchases are waning in the U.S. as the economic impact of the coronavirus has led many companies to scale back or suspend them amid cash shortfalls.
U.S.-traded companies announced plans to acquire about $225 billion of their own shares in the first five months of this year, 40% less than the same period a year earlier, according to data compiled by Birinyi Associates.
"It's now June and if you’ve been on a deserted island for the last five months you couldn’t have fathomed the movements we’ve seen," an expert says.
Political considerations have also driven the decline. After the corporate U.S. tax cut of 2017, buybacks soared, sparking criticism. This year when Congress passed a stimulus package in response to the coronavirus, lawmakers barred companies from using money from the Paycheck Protection Program to acquire their own stock. Major banks also made an agreement with the Fed to suspend their programs.
As Janus Henderson shares plunged — falling 37% in the first quarter — the firm began buying small lots on the NYSE. It also acquired securities that convert into depository instruments that trade in Australia, The timing proved prescient. The stock has almost doubled after hitting a 12-month low of $11.98 on March 23. The shares closed at $21.01 in New York on Tuesday.
As Young of Morningstar sees it, Janus Henderson may have another motivation to keep buying shares. “There’s a belief by management that they should be able to turn things around,” he said. — Additional reporting by Lu Wang
