If a 5 Star fund manager can't beat market, how can you expect to beat the market? Bill Miller, fund manager with Legg Mason Inc, had almost $200 million invested in Bear Sterns with his Legg Mason Value Mutual Fund. As of Thursdays close, the value of the Fund's holding was down to $15 million, a loss of 90%.
Legg Mason Value has hit a bit of a rough patch lately. Since 2006 the fund has lagged the S&P 500. Below is a table of the funds returns:
| Investment | YTD (1) | 3 Month (1) | 1 Year (2) | 3 Year (2) | 5 Year (2) | 10 Year (2) |
| Legg Mason Value | -17.70% | -17.35% | -9.31% | 1.33% | 10.83% | 7.92% |
S&P 500 | -9.05% | -9.68% | 5.49% | 8.62% | 12.83% | 5.91% |
- Returns as of February 29, 2008
- Returns as of December 31, 2007
- Source: Legg Mason
From 1990 to 2005, Bill Miller had beat the S&P 500, and over the inception of the fund it has beat the S&P 500 by 3.72%, annualized. (These returns are through December 31, 2007 and no not account for taxes, fees or expenses.) Towards the end of ever year during the streak, a news story would pop up noting the streak and asking the question 'Will he beat it again?". In 2006 the Fund's streak ended.
So what has changed for the fund? As far as I can tell, Mr. Miller is sticking to his stock picking approach, looking for stocks that are undervalued with good growth prospects. He also maintains a fairly concentrated portfolio, which increases the volatility. As of December 31, 2007 the Value Trust fund held just 48 stocks, with 47% of the funds assets in the top ten holdings.
The fund has almost 40% of its assets in Consumer Services and Financial Services. These two sectors have been hit really hard due to the current problems with the economy. Mr Miller jumped into some of his stock picks too early, and did not anticipate the severity of the credit crisis. This fault is easy to pick up with the benefit of hindsight.
An article in the WSJ notes:
Regarding recent missteps, Mr. Miller is essentially re-employing his strategy from the early 1990s -- an important reference point that's informed some of his boldest buys.
Back then, a similar crisis was unfolding in financial markets and Mr. Miller eventually swooped in to buy money-center banks like Chase Manhattan and Citicorp that he thought were underpriced, as well as insurance companies and mortgage lenders. Financials made up as much as 45% of Mr. Miller's portfolio by the mid-1990s, and helped drive his 15-year winning streak as they rallied over the years.
In his latest shareholder letter, Mr. Miller notes "the past two years are a lot like 1989 and 1990," with a "reasonable probability the next few years will look like what followed those years."
Source:
http://www.leggmason.com/individualinvestors/products/mutual-funds/performance/LMVT.aspx
http://prospectus-express.newriver.com/pnet/get_template.asp?clientid=legg&userid=&fundid=524659109&doctype=pros
http://online.wsj.com/article/SB120605842099153423.html?mod=todays_us_money_and_investing
Additional Reading:
"Where Art Thou Bill Miller", Motley Fool
"Bear Stearns's Demise" Felt by Many Fund Holders", Smart Money
"Stick with Bill Miller", Market Watch
No comments:
Post a Comment