Should I Give Up on Janus?

My Janus funds are down $200,000. Do you see much hope for this fund family?

QUESTION: I had a sizable investment with Janus mutual funds. My investments with this company are now down approximately $200,000. Once the economy turns around, do you see much hope of this family of funds turning around?

ANSWER: The past two years haven't been kind to growth-oriented fund families like Janus -- or to the investors who held their funds. And given the large loss you've suffered, it's certainly understandable to question the company's future. But even if you've lost your faith in the once-mighty Janus, what you probably do not want to do is bolt from your funds right now -- at least not completely. Remember, the idea here is to buy low and sell high -- not vice versa.

So has Janus truly gone from a first-rate fund company to a dud? Of course not. Given what many of their funds were holding coming into this bear market (i.e., growth stocks -- and more specifically, tech stocks), the fund company's more recent performance shouldn't come as much of a surprise to investors. The question is: Did you fully understand what you were buying in the first place or were you simply chasing returns? If it was the latter, you certainly weren't alone.

But while growth funds may be in the doghouse, that doesn't necessarily mean they don't belong in your portfolio. During times when the economy is rapidly growing, these funds should offer fantastic returns, which is why most experts believe that a solid growth fund should indeed be part of a diversified portfolio. Unfortunately, it's impossible to predict exactly when growth will return to favor. While an economic recovery is indeed underway, few experts (if any) are predicting dramatic expansion over the next year or so. And some anticipate that the market could continue to move sideways -- which means you could still have a while to wait before you start to dig yourself out of that $200,000 hole.

What to do? The first step is to review your asset allocation. You should consider how much growth and value you have in your portfolio as well as how diversified you are in terms of asset class. (Our asset allocator can help.) If you have too much invested in growth, then you'll want to reallocate. This is especially true if several of your Janus funds have similar holdings, says Brian Portnoy, an analyst at fund-tracking firm Morningstar. While Janus has backed off its more-aggressive tech and telcom holdings, you're still likely to find "family favorites like AOL Time Warner (AOL) and Nokia (NOK)" within many of its funds, says Portnoy. And clearly, one fund with these stock picks should do the trick.

That said, as you rebalance your portfolio, you probably shouldn't sell all of your Janus funds at once. After all, you'll simply be locking in your losses. And for what it's worth, many experts say that at this point, growth funds probably aren't likely to fall much further. "At this point, the upside potential exceeds further downside risks," says Sheldon Jacobs, editor of the No-Load Fund Investor based in Ardsley, N.Y.

There is, of course, an opportunity cost of letting this money languish. So if you don't believe that the economy will dramatically turn around this year (or if your entire portfolio is with Janus), you may want to begin dollar-cost averaging out these funds and into other groups. Alternatively, you could simply funnel new investments into other sectors, which should also balance out your portfolio (depending on how much you have to invest this year). Just make sure that with your new investments, you aren't chasing returns. So here's a hint: If you find yourself seriously considering a gold fund, move on.

Remember, too, that you may reap tax benefits from taking some of your losses, especially if you have gains elsewhere in your portfolio.