Big news in the mutual fund world, as legendary investor Bill Miller of Legg Mason (NYSE:LM), has been "escorted" away from Legg Mason Value Trust. In the '90s and early 2000s Miller had an incredible streak of beating the S&P 500 -- 15 years in a row. However, the more recent past has not been very kind to him at all. This was one of the earliest examples of a good concentrated fund (i.e. the fund usually held 30-50 stocks); when the stock picking goes bad, concentration is obviously not a positive thing.
The now one-star fund still has close to $3B of assets in it (amazingly), despite a 5-year annualized returned of -9.6% and 10-year annualized return of -1.5%. Of course that is down from over $20B, partly due to losses from performance, and partly redemptions.
Actually, I am shocked to see its expense ratio is just under 1.8% for a fund with billions in assets to spread its costs over -- especially since trading activity is low (sub-50% turnover per year) and it's essentially a long only fund (no need to pay borrowing costs for shorting). On top of a front-end load, no less. Looks like a nice cash cow for Legg Mason.
Miller will still be with the company and stay managing the 1-star (1.92% expense ratio, plus load) $1B Legg Mason Opportunities fund.
Bill Miller, the Legg Mason Inc. manager known for beating the Standard & Poor’s 500 Index for a record 15 years through 2005, will step down from his main fund after trailing the index for four of the past five years.
Miller, 61, will be succeeded by Sam Peters as manager of Legg Mason Capital Management Value Trust on April 30, the Baltimore-based firm said today in an e-mailed statement. Miller will remain chairman of the Legg Mason Capital Management unit while Peters will assume the role of chief investment officer.
Miller, known for picking stocks he deems cheap based on financial yardsticks such as earnings, became mired in the worst slump of his career as he wagered heavily on financial stocks during the 2008 credit crisis. Value Trust lost 55 percent that year as the S&P 500 dropped 37 percent, including dividends, prompting a wave of withdrawals. The fund’s assets have plunged from a peak of $21 billion in 2007 to $2.8 billion as of Nov. 15.
Miller, who has been a manager of Value Trust since its 1982 inception, in 2010 named Peters, a former Fidelity Investments stockpicker who joined the firm in 2005, to become his co-manager and eventually his successor. Miller initially co-managed Value Trust with Ernie Kiehne, then took sole responsibility in 1990, the year before his winning streak started. Research firm Morningstar Inc. named him fund manager of the decade for his performance in the 1990s.
As markets rebounded in 2009 and 2010, Miller bet the U.S. economy would return to its old strength by investing in financial stocks and consumer-oriented companies. The fund topped peers and the S&P 500 with a 41 percent return in 2009 as markets rebounded, only to fall behind benchmarks again last year with a 6.7 percent gain. Value Trust declined 5.5 percent this year through Nov. 16, trailing 60 percent of similar funds, according to data compiled by Bloomberg.
The inability of famed stock pickers such as Miller to protect investors from the market declines has spurred withdrawals from actively managed equity funds as clients shift money into bonds and index products.