Janus is an equity fund, but it's not stuck on the stock markets

Isn't a stock-based mutual fund supposed to invest in stocks?

Most stock, or equity, funds usually keep all - or nearly all - of their assets in the stock markets. As an executive at one large mutual fund company says: ''A fund manager here can get fired for having less than 90 percent of his fund's money in stocks.''

That philosophy obviously doesn't apply at the Denver-based Janus Fund Inc. Until the recent sharp jump in the stock market, Janus had as little as 40 percent of its approximately $50 million in assets invested in equities. The rest was in cash equivalents, like short-term corporate-debt instruments and Treasury bills. During the first week of the market boom, however, the fund did increase its stock position to over 60 percent and rising.

''We ask the same question any individual investor should ask,'' says Gordon Yale, secretary-treasurer of the fund. ''That is, if you cannot profitably own stocks, why should you?''

This defensive position, Mr. Yale says, keeps Janus from copying the performance of many other smaller funds and showing a big gain in its net-asset value in bull markets and getting clawed in bear markets.

''Any reasonable money manager can do well in a bull market,'' he said in an interview during a recent visit to Boston. ''We make an aggressive use of cash in bad markets.''

While that strategy may seem odd for what is supposed to be a stock-oriented mutual fund, it did win Janus a vote of approval a few weeks ago when Forbes magazine gave the fund its highest performance rating in a survey of mutual funds. The Forbes criteria for measurement fit Janus nicely. The magazine looked at the performance of the funds in three up and three down markets over a 12 -year period beginning in May 1970 - three months after Janus started offering its shares.

In that period, Forbes said, Janus averaged an average annual total return of 18.4 percent.

If stock prices continue the upturn they began in August and stay up there for a while, the fund could become almost fully invested in stocks. ''In a good, strong market, we'll be up to 90 or 100 percent,'' Mr. Yale says.

With its $50 million in assets, Janus is bigger than some of the so-called ''small'' funds, some of which are basically one-man operations, buying and selling stocks and bonds from a single office, or even the fund manager's home. Some of these funds manage $5 million to $10 million or less. But by industry standards, where there are several multibillion-dollar funds, Janus is still considered fairly small.

''In the mutual fund business, $50 million is really tiny,'' Mr. Yale says.

Still, there are advantages to being ''tiny,'' he says. A small fund can put a bigger percentage of its assets in a single firm and get a proportionally greater return on the investment. ''If you have too much money, you can't take significant positions in a stock that looks good to you.''

Of course, Mr. Yale admits, a bad stock choice can have a similarly negative effect. This is why, he says, Janus president Thomas Bailey is often quick to yank a stock out of the portfolio if it shows signs of slipping. If a stock does start to drop very much, Mr. Bailey prefers not to wait until he can see the reason why, ''he just sells it,'' Mr. Yale says.

This does lead to a fairly high rate of turnover, he acknowledges - sometimes as high as 150 to 200 percent a year.

When it does buy stocks, the fund tends to favor smaller companies and firms that have good reserves of capital to pay for future growth. It also looks for firms that have new products, services, or processes to give them a good shot at growth.

Its holdings have included American Greetings and McDonald's Corporation in consumer stocks, Lockheed and Hazeltine in defense, MCI Communications and Telex Corporation in technology issues, and Peoples Express Airlines and Piedmont Aviation in transportation stocks.

The Janus Fund also recognizes that some its 6,200 investors may want to take defensive positions on their own, getting out of their stock fund when stock funds look weak. For them, Mr. Yale says, Janus has established a telephone exchange arrangement with the Kemper Money Market Fund; so people can simply switch some of their Janus money into Kemper - and then wait for the next bull market.