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TWST: What is your recommendation on Stilwell (NYSE:SV)? How does it fit into the trends and issues you’ve described in this grouping? What is your assessment based on?

Mr. Brewington: Stilwell Financial is a holding company that was spun off from Kansas City Southern Industries (NYSE:KSU). SV owns the Janus Funds, the Berger Funds, and has an equity ownership in DST Systems (NYSE:DST), which is an electronic process or that processes mutual fund transactions, in addition to a small money management firm, Nelson, in the UK. Ninety percent of Stilwell’s earnings are generated by Janus, which had recorded tremendous growth here in the 1998 and 1999. A lot of companies live and die by investment performance, and Janus had been one company that showed eye-popping gains in 1999. While investment performance during the last couple of quarters has suffered, and retail redemption rates have increased, I would expect the retail redemptions to slow as the larger funds in the complex start showing better relative investment returns moving into the second half of the year. The fastest growing component of the company’s business platform is their 401(k) and Supermarket Advisory business, which has grown 36% and 82%, respectively, over the past three years. Supermarket and advisory WRAP assets have grown from 11% of the asset base since the beginning of 1998 to 25% of the asset base at the end of 2000. Janus is just not a retail complex any longer. They have aggressively moved to expand their distribution channels, and they’ve really more than doubled the asset levels of the Aspen series of funds, which have been designed for the wrap and variable annuity programs. Look for significant growth from its emerging European and Asian platforms over the next two years. They continue to look for distribution partners in continental Europe.

Their operating margins continue to remain solid. Generally the asset management industry’s margins are relatively healthy, ranging between 33% and 38% on a median basis; some companies have in excess of 45% margins, such as Stilwell. They’re achieving those operating margins despite the pressure on top-line revenue as asset levels have been impacted by market depreciation over the past two quarters. The stock has been under severe pressure over the past six months for a couple of major reasons, as we see it. One is the perception of Janus as being a growth fund manager with a lack of diversification within their fund group, and cross-holdings of the same stocks across all of their funds. Secondly, because of their great success in early 2000 in terms of net new inflows, the risk of huge client outflows are casting a black cloud over the stock. In addition, there is the sale of Janus shares back to Stilwell or back to the parent from the various portfolio managers and the largest single shareholder, Tom Bailey. All that news, in addition to the continued weakness of the NASDAQ, has continued to pressure and keep a lid on any sort of stock price expansion at Stilwell. Stilwell has indicated that their number one priority is to continue to grow the company’s existing businesses through marketing initiatives to strengthen the individual brand name image of each autonomous company, and to continue to provide equity incentives for the retention of key employees. The other worry at Janus would be the defection of the key portfolio managers. Now that many of the managers have diversified their personal wealth by selling back some of their Janus shares to either Janus or Stilwell, that allows the company to distribute more equity throughout the firm to retain key employees moving forward. With a Buy rating on Stilwell and a 12-month target price of $52, and because of the uncertainty surrounding it, we view Stilwell as the cheapest stock in our asset management universe in terms of valuation levels.