In October Janus Capital Capital Group, Inc. (JNS) and Henderson Group PLC announced they were merging to create Janus Henderson Global Investors. While the two firms complement each other very well, there is some overlap among their funds.

The objective of the merger is to create a global asset management firm that will capitalize on cost reduction by combining overlapping resources while at the same time expanding the reach of the company. Active management has become harder to profit from with the increased popularity of index investing and exchange-traded funds (ETFs) driving expense ratios down. (For more, see: Janus Capital Management (JNS): A Profile of People and Products.)

Henderson, which is based in the United Kingdom, has most of its assets under management (AUM) in the U.K. and Europe, while U.S.-based Janus has most of its AUM in the United States and Japan. In the U.S. retail market, Janus has U.S. $116 billion in AUM, while Henderson has U.S. $12 billion under management. In the U.K., Henderson has approximately $66 billion AUM and Janus $3 billion AUM. In Japan, Janus has $16 Billion AUM, while Henderson only has about $500 million under management. Looking at Europe and Latin America, Henderson has more AUM with $28 billion, while Janus has $7 billion.

Since the merger has yet to take place, there have not been any announcements of fund consolidation. Here is a look at where they overlap and where there may be potential for fund mergers or closures.

Potential Candidates

If a fund has less assets under management than a comparable fund at the other firm, it could be a likely candidate for consolidation. The lower the assets in a fund, the more expensive it is to run so it would make sense to combine any overlapping funds where one fund is bigger than the other. (For more, see: Henderson Global Investors: Investment Manager Highlight.)

Also, if a fund has historically low performance compared to other similar funds in the new line up, it could be closed or merged with another fund. The poor record of one fund goes away when it is closed. If they are similar enough in investment style that shareholders opt to move over to the new fund, then they maintain the assets but keep the good track record.

Using the Morningstar Premium Fund Screener you can get a list of all funds from both companies. After you sort by category you will see where there are similar funds at both companies. You can then use the two factors from above to attempt to determine which ones may be consolidated. However, remember there are other factors such as the fund manager, the overall objective for each fund and whether they each may be serving different markets. (For more, see: What Bill Gross's Arrival Means to Janus Capital.)

An Example

In the bond category both companies have a high-yield offering. Janus has the Janus High Yield Fund (JNHYX), while Henderson has the Henderson High Yield Opportunities Fund (HYOAX). The returns are comparable, both have multiple class options and both have experienced managers. However, the Janus fund has $1.99 billion under management, while the Henderson fund has U.S. $44.6 million. All else being equal, this would be a good example of a fund that has potential to be consolidated under the Janus name.

The Bottom Line

The merger between Janus and Henderson will result in overlapping funds which have the potential to be consolidated. If any fund consolidation or closures take place, it would be announced after the merger occurs. But for the time being, advisors can consider the above factors to get a sense of the types of funds that could be candidates for consolidation. (For more, see: Law Firm Investigating Janus.)

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