Janus Henderson Growth And Income Managed Account Q2 2024 Commentary

Growth and Income Managed Account Performance – USD (%) (as of 06/30/24)

	Cumulative			Annualized
Returns	2Q24	YTD	1 Yr	3 Yr	5 Yr	10 Yr	Since Inception (01/01/93)
Composite (pure gross*)	1.83	9.29	15.98	8.15	12.30	12.05	11.19
Composite (NET)	1.08	7.71	12.63	5.01	9.05	8.80	7.96
S&P 500® Index	4.28	15.29	24.56	10.01	15.04	12.86	10.48

Past performance cannot guarantee future results. Investing involves risk, including the possible loss of principal and fluctuation of value. Returns greater than one year are annualized. Returns are expressed in U.S. dollars. All returns reflect the reinvestment of dividends and other earnings.

*Pure gross performance results do not reflect the deduction of any trading costs, fees or expenses and returns will be reduced by such advisory fee and other contractual expenses as described in the individual contract and Form ADV Part 2A. Pure gross returns are supplemental to net returns.

Net returns are calculated by subtracting the highest applicable Managed Account fee (3.00% annually, or 0.25% monthly) from the pure gross or gross composite return. The Managed Account fee includes all charges for trading costs, portfolio management, custody and other administrative fees. Actual fees may vary depending on, among other things, the applicable fee schedule and portfolio size. The fees are available on request and may be found in Form ADV Part 2A.

Investment environment

Following a very strong first quarter, U.S. equities continued gains in the second quarter. Inflation moderated but remained above central bank target levels. This led to uncertainty over the timing of potential Federal Reserve (Fed) rate cuts. However, the 10-year Treasury bond yield retreated off April highs as investors grew more hopeful that slower economic growth and easing core inflation could lead the Fed to cut interest rates in the coming months. The market advance was relatively narrow, driven by mega-cap technology stocks with AI exposure. That said, first-quarter earnings and guidance for the second quarter were broadly solid and supportive of market gains.

While economic news was generally positive, there were signs that higher living costs were putting a strain on consumer spending.

Portfolio review

In the second quarter, dividend stocks continued to lag the broader market. Our emphasis on high-quality, dividend-growth stocks hindered relative performance in a momentum-driven market, led by non- or lower-dividend- paying mega-cap technology stocks. Not owning a leading chip manufacturer, primarily because its immaterial dividend did not align with our strategy’s process, hurt relative performance since the stock was a significant contributor to benchmark performance. Similarly, Google (GOOG,GOOGL) parent Alphabet’s gains occurred before it began paying dividends and before it aligned with our strategy.

In terms of stock-specific performance attribution, semiconductor manufacturing equipment company KLA (KLAC) was a top contributor. The company delivered solid earnings results and an even more impressive outlook with growth set to accelerate through the remainder of 2024 and into 2025. Broadly, the outlook for wafer fabrication equipment is constructive, fueled by enthusiasm for the industry’s role in enabling the AI ecosystem. KLA is viewed as a beneficiary of the demand for leading-edge chips, many of which require the company’s process and controls services for production.

Enterprise software company Oracle (ORCL) was also a top contributor. The company reported revenue and bottom line metrics that were in line to slightly below consensus; however, it also reported record bookings for new business. This accelerating revenue growth outlook is being driven by AI cloud infrastructure deals and boosted sentiment in the stock. Also, the company continues to do a good job returning capital back to shareholders through dividends and stock buybacks.

Consulting firm Accenture (ACN) was a top detractor from performance. The company’s growth has slowed due to a shift in IT spending toward AI and away from legacy software projects. Although the company’s effort to grow new generative AI consulting business has been successful, it hasn’t offset declines elsewhere in the business.

Starbucks (SBUX) was another top detractor. Broadly, the restaurant industry is facing challenges from reduced sales as consumer spending has weakened among certain household segments. More specifically, efforts to cover increased labor, food, and beverage costs through price hikes have met resistance with lower- and middle-income customers.

Additionally, Starbucks has struggled to attract more customers due to internal problems, which factored into our decision to exit the position.

Manager outlook

As we enter the second half of the year, there is a lot to be positive about in the U.S. economy, with unemployment remaining low and solid job growth. Households are feeling the impact of inflation and are being more selective in their consumption, however, we still believe consumer balance sheets remain relatively healthy and should contribute to a strong overall economic backdrop.

Equity markets have embraced this optimism, pricing in a soft landing scenario. Year-over-year S&P 500 (SP500, SPX) earnings estimates are up over 10% for this year and next, which appear realistic based on our company interactions.

However, we believe the realization of these estimates hinges on two critical factors: productivity and innovation.

Recent gains in U.S. labor productivity are particularly encouraging. Nonfarm labor productivity has increased from 2.4% to 2.9% year over year in each of the past three quarters, significantly above the 1.5% 10-year average. This uptick bodes well for corporate margins and may help mitigate inflationary pressures. The productivity gains are particularly evident among tech and internet firms, many of which streamlined operations while maintaining or growing revenues.

To capitalize on productivity trends, we’re focused on two key areas: AI infrastructure providers, which offer enabling technologies like semiconductors and AI services, and large-scale companies leveraging these technologies to improve productivity, product development, and customer service.

Companies across various sectors are finding new ways to leverage AI to improve efficiency and focus on growth potential.

While AI dominates innovation discussions, we see breakthroughs extending beyond tech into sectors like health care. Innovations are emerging in gene editing, AI-based diagnostics, and genetic screening technologies. The continued investment in R&D within healthcare is expected to drive growth and differentiation among companies in the sector.

Looking at other sectors, we see opportunities in consumer discretionary and capital markets. E-commerce continues to grow rapidly, and companies exposed to global travel trends remain favorable. We anticipate an improvement in capital market activity as interest rates stabilize, benefiting investment banks and companies facilitating these transactions.

Key economic risks we are watching include consumer spending trends and the dampening effects that higher interest rates can have on long-cycle capital spending. Consumer spending, while still resilient, has shown signs of a slight slowdown in certain areas. High-income consumers with strong asset positions continue to spend, particularly on travel and experiences, while more leveraged consumers are being selective in their spending choices. The construction industry is another area of focus, with weakening data outside of data centers. This includes housing, multifamily homes, and manufacturing capacity. However, government and nonresidential spending has remained robust, due to data center and chip manufacturing plant buildouts.

Our focus remains on companies providing attractive current income and growth potential. We believe our emphasis on companies with consistent cash flows and healthy balance sheets can help buffer shareholder returns in the event economic demand is weaker than anticipated.

Representative Portfolio

Top Contributors (%)	Average Weight	Relative Contribution	Top Detractors (%)	Average Weight	Relative Contribution
Kla Corp	3.97	0.44	Accenture Plc Ireland	3.72	-0.68
Texas Instrs Inc	2.33	0.15	Alphabet Inc	1.63	-0.56
Broadcom Inc	1.95	0.13	Nike Inc	1.74	-0.35
Oracle Corp	1.85	0.12	Apple Inc	4.36	-0.32
Applied Materials In	1.25	0.10	Starbucks Corp	0.66	-0.27

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 Products – US Advisor.

Relative contribution reflects how the portfolio’s holdings impacted return relative to the benchmark. Cash and securities not held in the portfolio are not shown.

Top Holdings (%)	Rep Acct
Microsoft Corp (MSFT)	10.45
Apple Inc (AAPL)	5.78
KLA Corp	3.98
Alphabet Inc	3.06
JPMorgan Chase & Co (JPM)	2.93
American Express Co (AXP)	2.83
Meta Platforms Inc (META)	2.81
Visa Inc (V)	2.73
UnitedHealth Group Inc (UNH)	2.65
Broadcom Inc (AVGO)	2.38
Total	39.60

Definitions

10-Year Treasury Yield is the interest rate on U.S. Treasury bonds that will mature 10 years from the date of purchase. Please see the last page for important GIPS® disclosures.

To receive a complete list and description of composites and/or a presentation that complies with the requirements of the GIPS® standards, please contact Janus Henderson at 800.668.0434. The opinions are as of 06/30/24, are subject to change and may not reflect the views of others in the organization. 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.

Growth and Income Managed Account Composite, benchmarked to the S&P 500 Index, includes portfolios that invest primarily in larger, well-established companies selected for their long term growth as well as current income potential. A typical portfolio will contain 60 to 80 mostly dividend-paying equity securities. Prior to October 1, 2018, returns for the composite are for the Growth and Income Composite, which consisted of separately managed institutional accounts, proprietary mutual funds as well as sub-advised pooled funds. The composite was created in October 2018.

Information relating to portfolio holdings is based on the representative account in the composite, which reflects the typical portfolio management style of the investment strategy. Other accounts in the strategy may vary due to asset size, client guidelines and other factors.

Portfolio holdings are as of the date indicated, and are subject to change. This material should not be construed as recommendation to buy or sell any security. Holdings are subject to change without notice.

For equity portfolios, relative contribution compares the performance of a security in the portfolio to the benchmark’s total return, factoring in the difference in weight of that security in the benchmark. Returns are calculated using daily returns and previous day ending weights rolled up by ticker, gross of advisory fees, may exclude certain derivatives and does not represent actual performance.

There is no assurance the stated objective(s) will be met.

Investing involves risk, including the possible loss of principal and fluctuation of value.

Discussion is based on performance gross of fees and expenses.

Growth stocks are subject to increased risk of loss and price volatility and may not realize their perceived growth potential.

Value stocks can continue to be undervalued by the market for long periods of time and may not appreciate to the extent expected.

Actively managed portfolios may fail to produce the intended results. No investment strategy can ensure a profit or eliminate the risk of loss.

Actively managed investment portfolios are subject to the risk that the investment strategies and research process employed may fail to produce the intended results. Accordingly, a portfolio may underperform its benchmark index or other investment products with similar investment objectives.

S&P 500® Index reflects U.S. large-cap equity performance and represents broad U.S. equity market performance.

Index returns are provided to represent the investment environment existing during the periods shown. The index is fully invested, including the reinvestment of dividends and capital gains. Index returns do not include any transaction costs, management fees or other costs, and are gross of non-reclaimable withholding taxes, if any and unless otherwise noted.

Janus Henderson Investors claims compliance with the Global Investment Performance Standards (GIPS®). For the purpose of claiming GIPS compliance, Janus Henderson Investors defines its GIPS Firm as the following entities within Janus Henderson Group plc that directly manage assets: Janus Henderson Investors UK Limited, Janus Henderson Investors (Singapore) Limited (excluding private equity assets), Janus Henderson Fund Management UK Limited, Janus Henderson Investors US LLC and Janus Henderson Investors (AuStralia) Institutional Funds Management Limited. The GIPS firm was formed on January 1, 2018 as a result of the merger of the predecessor GIPS firms Janus Capital Management LLC and Henderson Global Investors, which previously claimed compliance since January 1, 1994 and January 1, 2009, respectively.

Janus Henderson provides investment advisory services in the U.S. through Janus Henderson Investors US LLC, together with its participating affiliates.

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