Portfolio Commentary

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4Q17 Portfolio Commentary

Diversified Alternatives Fund Investment Environment U.S. stocks pushed higher during the quarter, fueled by strong third quarter earnings and supportive economic data. The nomination of Jerome Powell as the next chair of the Federal Reserve (Fed) signaled to investors that the Fed would likely continue its slow and measured normalization of monetary policy. At its December meeting, the Fed took a widely anticipated step along that path by raising interest rates for the third time in 2017. Equities were further boosted late in the period as markets priced in the likelihood that tax reform would be signed into law.

John Fujiwara Portfolio Manager

The bond market, as represented by the Bloomberg Barclays U.S. Aggregate Bond Index, returned 0.39% in the fourth quarter. Investment-grade corporate credit was the strongestperforming asset class in the index. Greater-than-expected supply created volatility during the quarter, but investment-grade spreads ultimately tightened approximately nine basis points. Highyield corporate credit spreads tightened modestly. The Treasury curve flattened as the Fed’s welltelegraphed rate hike put upward pressure on front-end yields. The yield on the 10-year note finished December at 2.41%, up from 2.33% in September.

Performance Discussion The Fund outperformed its primary benchmark, the Bloomberg Barclays U.S. Aggregate Bond Index, and its secondary benchmark, LIBOR + 3%, during the quarter. Over time, the Fund seeks to provide positive absolute returns and offer true diversification with low correlation to stocks and bonds by investing in a portfolio of risk premia strategies. Three of our equity strategies were the leading contributors to returns during the quarter as the trend of coordinated global growth continued to play out. The equity value strategy, which aims to capture the potential return associated with holding value equities while also being short growth stocks, was the leading contributor. Value stocks outperformed growth stocks in the second half of the quarter as investors priced in the increasing likelihood that tax reform would come to pass, and also benefited from its eventual passage in December. Since value companies tend to pay high effective corporate tax rates, value stocks are expected to be bigger beneficiaries of the tax bill than growth stocks. The equity momentum and equity emerging strategies also aided returns as the quarter saw equity markets around the world experience continued strong growth. The equity momentum strategy seeks to capture directional momentum in equities through the quantitative analysis of equity index price movement. It outperformed as it was able to capture the strong upward trend in equities during the quarter. The equity emerging strategy looks to capture the potential return

Highlights • The Fund outperformed its benchmarks during the quarter. • Three of our equity strategies contributed to returns as the trend of coordinated global growth continued to play out. • The equity size strategy detracted: small caps underperformed large caps during the quarter despite their rally late in the period after it became clear that the U.S. tax bill would pass. Page 1 of 3

Ashwin Alankar, Ph.D. Portfolio Manager

4Q17 Portfolio Commentary specifically associated with holding equities in companies of lessdeveloped economies. This strategy is constructed by investing in a basket of emerging market equities versus a short position in a basket of developed market equities. Emerging markets delivered strong returns during the quarter, which aided the strategy’s performance. Although most of the Fund’s equity strategies were able to capitalize on trends during the quarter, the equity size strategy delivered negative returns. This strategy invests in a basket of small-cap equities versus a short position in a basket of large-cap equities. Small caps, which typically pay a higher effective corporate tax rate, outperformed large caps in

December as it became apparent that the U.S. tax bill would pass. However, weakness early in the quarter led them to underperform over the course of the quarter, which weighed on the strategy’s returns. Two of our momentum strategies also underperformed. The currency momentum strategy, which looks to capture long-term movements in the U.S. dollar versus a basket of foreign currencies, detracted as the dollar traded in a range-bound fashion. The commodity momentum strategy also detracted. This strategy looks to capture the persistence in the price movement of commodities. It detracted because of volatile but largely range-bound commodity markets over the course of the quarter.

For detailed performance information, please visit janushenderson.com/performance.

Outlook The Fund’s model undergoes a monthly rebalancing in which it adjusts its allocations to the 11 risk premia strategies according to the market conditions experienced during the month. This rebalancing process is designed to optimize the weightings of the strategies in order to deliver consistent, absolute returns with low correlation to stocks and bonds and a targeted volatility of 5% to 7%. While operating in today’s abnormally low volatility environment, the model has become increasingly sensitive to any sudden movements in asset classes while undertaking the monthly rebalancing. In fact, the correlations between many of the strategies have dropped to zero – meaning they are not correlated – or negative – meaning they are inversely correlated. Given these relationships, the model is signaling that it needs more leverage in order to meet its volatility target. However, the Fund has already reached the maximum amount of leverage allowed (i.e., its leverage cap).

While this may seem problematic, we value that this cap can help minimize the potential impact from the reversal of an overly levered trade between strategies that are negatively correlated. For example, the commodity curve strategy (which looks to generate return by providing liquidity to the most “crowded” section of the commodity futures curves, and is typically short the active contract), is currently negatively correlated with the equity emerging strategy. The impact of winter temperatures on the price of natural gas has been one of the driving factors of returns in the commodity curve strategy. Given the negative correlation, one could erroneously infer that winter temperatures are a natural hedge to equity emerging markets. Our common sense, however, makes us question this relationship. Therefore, the leverage cap is currently playing an important role by keeping the Fund’s model from rebalancing based on distorted correlation data. The relative weightings of the strategies will therefore be less important until volatility returns to normal levels – whether from the normalization of global interest rates or because of an exogenous geopolitical event.

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4Q17 Portfolio Commentary

For more information, please visit janushenderson.com. 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 800.668.0434 or download the file from janushenderson.com/info. Read it carefully before you invest or send money. Past performance is no guarantee of future results. Call 800.668.0434 or visit janushenderson.com/performance for current month-end performance. Discussion is based on the performance of Class I Shares. The opinions are as of 12/31/17 and are subject to change at any time due to changes in market or economic conditions. 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. Risk premia contribution is based on a model portfolio, and may differ from actual contribution. It is internally calculated and is gross of trading costs, fees and expenses. Risk premia contribution is intended to demonstrate the impact of each risk premia strategy within the portfolio. Performance may be affected by risks that include those associated with nondiversification, portfolio turnover, short sales, potential conflicts of interest, foreign and emerging markets, initial public offerings (IPOs), high-yield and highrisk 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. There is a risk that the Fund’s investments will correlate with stocks and bonds to a greater degree than anticipated, and the investment process may not achieve the desired results. The Fund may underperform during up markets and C-1217-14398 04-15-18

be negatively affected in down markets. Diversification does not assure a profit or eliminate the risk of loss. Derivatives can be highly volatile and more sensitive to changes in economic or market conditions than other investments. This could result in losses that exceed the original investment and may be magnified by leverage. There are special risks associated with selling securities short. Stocks sold short have the potential risk of unlimited losses. Commodities, commodity-linked notes, foreign securities and investments through a nonregistered subsidiary provide exposure to special risks, including greater volatility and loss of interest and principal, and may not be appropriate for all investors. Commodities are speculative and may fluctuate widely based on a variety of factors, including market movements, economic events and supply and demand disruptions. Holding a meaningful portion of assets in cash or cash equivalents may negatively affect performance. Bloomberg Barclays U.S. Aggregate Bond Index is a broad-based measure of the investment grade, U.S. dollar-denominated, fixed-rate taxable bond market. LIBOR (London Interbank Offered Rate) is a short-term interest rate that banks offer one another and generally represents current cash rates. Index performance does not reflect the expenses of managing a portfolio as an index is unmanaged and not available for direct investment. 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. Funds distributed by Janus Henderson Distributors

188-42-28991 01/18

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