Janus Henderson Global Technology trounces its peers with big stocks like Alphabet and Facebook and dozens of much smaller ones.

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1 % THE DOW JONES BUSINESS AND FINANCIAL WEEKLY SEPTEMBER 19, 2017 Q&A 18 Stocks to Capture the Next Tech Boom Janus Henderson Global Technology trounces its peers with big stocks like Alphabet and Facebook and dozens of much smaller ones. The following has been excerpted By JOHANNA BENNETT Brad Slingerlend, manager of the $2.1 billion Janus Henderson Global Technology fund, looks for the tech stocks that are going to power the next tidal wave of growth. Apple (ticker: AAPL), he says, isn t one of them. Yes, Slingerlend, 39, holds the stock in his fund (JNGTX). It s among the top 10 holdings, in fact, accounting for more than 3% of the portfolio. But the fund s benchmark the MSCI ACWI Information Technology Index has an 11.6% weighting in Apple. That makes the tech titan Slingerlend s biggest underweight position. Why? Apple, he says, is resting too comfortably on its laurels. He would rather put that extra capital to work in innovative companies, in particular semiconductor makers such as Microchip Technology (MCHP) and Xilinx (XLNX), which, he says, are poised to profit from a tech-sector boom being fueled by the rise of smartphones and cloud computing, as well as artificial intelligence and greater connectivity. Janus Henderson Global Technology has returned 33.4% since the start of the year. The no-load fund, which charges 0.88% in annual fees, has beaten the MSCI index by 2.73 percentage points over the same span. Up 36.2% over the past 12 months, the fund has topped the MSCI index s 33.5% gains. And for the three- and five-year periods, its annualized returns of 17.5% and 18.2%, respectively, have beaten the benchmark s 15.8% and 16.1% gains. A self-professed bottom-up stockpicker, Slingerlend looks for companies with durable competitive business models that can increase sales and profit at a robust clip for years. He will hold a stock for three years, often longer. At first glance, it looks like he is willing to pay up significantly for some of those names. Strong platforms and innovation can fuel robust growth for a decade or two, Slingerlend says but the market is often shortsighted when gauging not just how fast a company can grow, but also for how long it can sustain that growth. If a company can generate long-duration growth fueled by a variety of factors, we are willing to pay what the market might consider an expensive multiple, he explains. The biggest mistake the market makes is undervaluing the duration of growth. The fund s biggest positions are what Slingerlend calls all-weather names that can compound returns over time, such as Alphabet (GOOGL), Facebook (FB), and Alibaba Group Holding (BABA). But it also holds between 40 and 50 small positions comprising 1% or less of the fund that are higher-risk, higher-reward plays. Slingerlend recently spoke with Barrons.com about why the market underestimates Intel (INTC), why he exited Nvidia (NVDA), and why he owns Walt Disney (DIS). Here are some highlights from our conversation. Manager s Bio Name: Brad Slingerlend Age: 39 Title: Portfolio manager Education: B.A. in astrophysics and economics, Williams College Hobbies: Astronomy; avid consumer of technology Barrons.com: What do you dislike about Apple? Slingerlend: We ve seen virtually no innovation out of the company. Apple sells the same few products it was selling five or six years ago. The company is falling behind in areas such as cloud services and (over please) The Publisher s Sale Of This Reprint Does Not Constitute Or Imply Any Endorsement Or Sponsorship Of Any Product, Service, Company Or Organization. Custom Reprints DO NOT EDIT OR ALTER REPRINT/REPRODUCTIONS NOT PERMITTED 54193

2 Fund Facts (as of Sept. 7, 2017) Janus Henderson Global Technology (JNGTX) Assets: 2.1 billion Expense Ratio: 0.88% Front Load: None Annual Portfolio Turnover: 42% Yield: None Source: Morningstar.com Top 10 Holdings (as July 31, 2017) Microsoft Alphabet Salesforce.com Tencent Holdings Alibaba Group Holding Facebook Amphenol Apple Samsung Electronics Adobe Systems MSFT GOOGL CRM 0700.HK BABA FB APH AAPL Korea ADBE Source: Janus Henderson Investors media, and the value of its iphone operating system as a lock-in for the consumer is eroding, albeit at a slow pace. On top of all that, we re worried about Apple s exposure to China. The Apple ecosystem remains huge and healthy in the U.S. and Europe, which is why we still own the stock. Also, the iphone 8 should do well. On a relative basis, however, the stock doesn t look attractive compared to other companies that are clearly innovating. Granted, underweighting Apple hasn t helped our portfolio this year, but putting that capital to work in other growth companies certainly hasn t hurt our portfolio. What is your outlook for the technology sector? Over the past three years, the S&P 500 Information Technology Index has generated annualized returns of better than 22%, and it hit an all-time high last month. Is the sector s outperformance warranted, or is a selloff ahead? Technology companies, with their new innovative technologies and platforms, are writing a new digital operating system for the global economy that s impacting not just retail and financial transactions but also media, health care, energy, and industrials. Four major themes are changing everything and driving a huge shift in value toward the technology sector. Cloud computing and smartphones are the infrastructure on which this new digital economy will run. The other two themes are artificial intelligence and the so-called Internet of Things, or connectivity. These themes are changing everything. Everything will be connected and companies will collect data and use artificial intelligence to analyze it, gather new insights, and innovate. So a huge opportunity is being created for many companies, from the big tech giants like Alphabet, Microsoft (MSFT), and Amazon.com (AMZN) to semiconductor companies, gaming companies, and more. That is why the technology sector is leading the market. Look at a company like Alphabet. In recent quarters, it has delivered revenue and profit growth as high as 20% or more. The stock fetches a valuation that s not far off the big slow-growing consumer-goods companies. We would much rather own Alphabet, and a lot of portfolio managers are coming to that same realization. What s the best way to play these four themes? Definitely the big platform companies. We are seeing impressive innovation come out of China with companies like Alibaba, Tencent Holdings (0700.HK), and the online travel firm Ctrip.com International (CTRP). Growth and connectivity around 5G is a boon for American Tower (AMT), which operates many of the cellphone towers in the U.S. and overseas. Enterprise software plays off the cloud-computing theme, which is starting to see wide adoption. That is a big runway for companies like Salesforce.com (CRM). We are also excited about semiconductors. The industry has been underestimated by the market, which I admit is funny to say given how well the stocks have performed over the past two years. After years of decline, the industry has reaccelerated. Due to a string of mergers and acquisitions, fewer companies are fighting for business, which makes the industry less cyclical. And now there is this new growth engine created by the Internet of Things and artificial intelligence, all connecting to cloud computing. Because semiconductors are needed to make it all happen, the industry is at the center of it all. It isn t just consumer electronics but drones that monitor factory floors, and all kinds of applications we can t yet imagine. Which semiconductor stocks do you like? Microchip Technology makes small, specialized, low-power microprocessors that can be dropped into any number of new applications. Xilinx makes programmable chips and stands to benefit from the artificial-intelligence trend. Cadence Design Systems (CDNS) makes the tools used to design semiconductors. You ve already mentioned a number of stocks. Are they all attractive buys right now? The stocks in our portfolio are all leveraged to the four investment trends I mentioned. These trends are bigger and will drive the sector over a longer time span than expected by the market. That isn t to say the technology sector won t experience pullbacks. We will continue to see volatility. What you want to avoid are the tech dinosaurs that are buying back stock and raising dividends rather than investing in R&D and acquisitions. Do you still own the semiconductor company Nvidia? No. We exited the position. We see a better mousetrap problem on the horizon: The company will continue to do well selling semiconductors into the artificial-intelligence market. But we see lots of new mousetraps coming, and Nvidia could lose market share to rival companies. Look at Intel. It s one of the least-liked stocks by tech investors, but it s a big position for us because it s powering the next generation of artificial intelligence on the Microsoft cloud. Intel is better positioned in AI than the market believes. Let s talk about Alphabet s valuation for a moment. The stock trades at 23 times estimated 2018 earnings of $40 per share. How high can the price climb? Bears worry that Alphabet s growth will decelerate significantly down the road. We disagree. With Alphabet, it is all about the platforms, be it Google Search, YouTube, Google Cloud, Android, or its self-driving car unit Waymo. The company will continue to grow and possibly add upside if some of its so-called moonshots pay off. We don t talk about specific price targets. The stock trades at 20 times 2018 pro forma earnings estimates. Soon, we ll start looking at 2019 profit projections. I think Alphabet deserves a higher multiple, because 20 times earnings does not reflect the power of its platforms or the duration of future revenue and profit growth. Amazon s stock price has retreated roughly 10% since July, when it hit a record-high $1, Is the pullback warranted? Wall Street is being shortsighted. There are multiple ways to win with Amazon. We expect high returns from the company s recent investments in its distribution centers, same-day delivery, and the Whole Foods Market acquisition. What the market is really missing is Amazon s advertising business. It doesn t get talked about a lot and Amazon does not disclose exactly how

3 big it is. It is significant and growing very quickly. It is a huge untapped opportunity that the market has ignored. Your fund owns Walt Disney. Why does an entertainment stock belong in a technology fund? A few years from now, you won t ask that question, because Disney will look a whole lot like Netflix or Amazon.com. Several of the investment trends I spoke about earlier, particularly cloud, mobile, and connectivity, are being powered, in part, by premium content. No one owns better content than Disney, or can monetize it better. I am a big fan of Disney s recent plans to go direct-to-consumer with new online streaming services. It creates huge optionality for its business. One final question. Ten percent of your portfolio is in gaming stocks. Why? There is a digital transformation underway as consumers move from buying the software in a store to downloading it online and paying a subscription. Also, e-sports will be a major trend over the next decade. We have a big overweight in gaming stocks with Electronic Arts (EA), Activision Blizzard (ATVI), and the Japanese company Nexon (3659.Japan).

4 The opinions and views expressed are as of 09/19/17 and are subject to change without notice. They are for information purposes only and should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation to buy, sell or hold any security, investment strategy or market sector. No forecasts can be guaranteed. Opinions and examples are meant as an illustration of broader themes and are not an indication of trading intent. It is not intended to indicate or imply that any illustration/example mentioned is now or was ever held in any portfolio. Janus Henderson Group plc through its subsidiaries may manage investment products with a financial interest in securities mentioned herein and any comments should not be construed as a reflection on the past or future profitability. There is no guarantee that the information supplied is accurate, complete, or timely, nor are there any warranties with regards to the results obtained from its use. Past performance is no guarantee of future results. Investing involves risk, including the possible loss of principal and fluctuation of value. Performance may be affected by risks that include those associated with non-diversification, portfolio turnover, short sales, potential conflicts of interest, foreign and emerging markets, initial public offerings (IPOs), high-yield and high-risk securities, undervalued, overlooked and smaller capitalization companies, real estate related securities including Real Estate Investment Trusts (REITs), derivatives, and commodity-linked investments. Each product has different risks. Please see the prospectus for more information about risks, holdings and other details. Foreign securities are subject to additional risks including currency fluctuations, political and economic uncertainty, increased volatility, lower liquidity and differing financial and information reporting standards, all of which are magnified in emerging markets. Technology industries can be significantly affected by obsolescence of existing technology, short product cycles, falling prices and profits, competition from new market entrants, and general economic conditions. A concentrated investment in a single industry could be more volatile than the performance of less concentrated investments and the market as a whole. As of 03/31/18, returns, including reinvestment of dividends and capital gains, for the Janus Henderson Global Technology Fund (Class D Shares), S&P 500 and MSCI All Country World Information Technology Index were: 37.33%, 13.99%, 29.44% for the 1-year, 20.81%, 13.31%, 18.81% for the 5-year and 14.78%, 9.49%, 11.86% for the 10-year periods, respectively. 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 chares are sold. For the most recent month-end performance call or visit janushenderson.com/performance. Expense ratios: Class D Shares: Gross 0.85% and Net 0.85% High absolute short-term performance is not typical and may not be achieved in the future. Such results should not be the sole basis for evaluating material facts in making an investment decision.

5 Net expense ratios reflect the expense waiver, if any, contractually agreed to through 2/1/19. As of 03/31/18, the top 10 portfolio holdings of Global Technology Fund are: Microsoft Corp. (5.55%), Alphabet Inc. (5.44%), Tencent Holdings Ltd. (4.19%), salesforce.com Inc. (3.83%), Alibaba Group Holding (3.25%), Adobe Systems Inc. (3.00%), Amazon.com Inc. (2.97%), Microchip Technology Inc. (2.94%), Taiwan Semiconductor Manufacturing Co Ltd. (2.70%) and Amphenol Corp (2.63%). There are no assurances that any portfolio currently holds these securities or other securities mentioned. S&P 500 Index reflects U.S. large-cap equity performance and represents broad U.S. equity market performance. S&P 500 Information Technology Index comprises those companies included in the S&P 500 that are classified as members of the GICS information technology sector. MSCI All Country World Information Technology Index SM reflects the performance of information technology stocks from developed and emerging markets. Index performance does not reflect the expenses of managing a portfolio as an index is unmanaged and not available for direct investment. Holdings are subject to change without notice. For a complete list of holdings as of the most recent publicly available disclosure period, visit janushenderson.com/info. 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 (or if you hold shares directly with Janus Henderson). You can also visit janushenderson.com/info (or janushenderson.com/reports if you hold shares directly with Janus Henderson). Read it carefully before you invest or send money. Holdings are subject to change without notice. For a complete list of holdings as of the most recent publicly available disclosure period, visit janushenderson.com/info. Janus Henderson Distributors Janus Henderson is a trademark 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. FOR MORE INFORMATION CONTACT JANUS HENDERSON 151 Detroit Street, Denver, CO C