Could Bill Miller's Abandonment of Flagship Fund Be a Fresh Start?

Could Bill Miller's Abandonment of Flagship Fund Be a Fresh Start?

Bill_MillerBill Miller, the once-revered manager at Legg Mason who amassed an enviable record of beating the S&P 500 for over 15 calendar years, from 1991 to 2005, has stepped down from his post as chief investment officer and portfolio manager of his flagship Legg Mason Capital Management Value Trust (LMVTX), the company said in a statement. Although his PM responsibilities won’t go to Sam Peters (who has worked on the fund since November 2010) until April 2012, could this be a fresh start for the fund? Could it be time for advisors to take another look at the fund? That depends.

“Everyone has to hang up their cleats at some point,” said Jeff Tjornehoj, head of research at Lipper. For a man who was so adept at what he did, it’s unfortunate his career as a manager had to end on such as sour note, Tjornehoj added. Of course he’d likely prefer to go out with a bang. (To be clear, Miller has not left the firm; he is staying on as chairman and helping out on other funds.)

We wrote about Bill Miller in April 2009, after the Value Trust fund had plummeted 58 percent during the financial crisis, sending avid Miller fans into shock. Back then, we argued that Miller’s 15-year track record of good performance was more luck, than skill. Where does the fund stand today?

“The asset flows tell the story,” Tjornehoj said.

Since the fund’s peak in May 2007 of $21.5 billion, assets are down 85 percent, according to Lipper data. (American Funds has seen significant outflows over the last year.) According to S&P Capital IQ, returns are down 5.5 percent this year through Nov. 16. S&P Capital IQ also says the fund’s beta and standard deviation are higher than its peers, which indicates greater performance risk.

Those assets are not likely to come back to Miller, but if the fund takes on a different manager and style, it might start to pull some of that money back, Tjornehoj believes. In fact, Todd Rosenbluth, S&P Capital IQ fund analyst, says the fund’s holding include a number of stocks with attractive valuations and low risk characteristics, such as Microsoft, PepsiCo, and Wells Fargo.

But Rosenbluth believes the change will add more risks for the fund’s investors:

For some investors, a new manager can be welcome, since a change in leadership could result in better fortunes. However, while Sam Peters has worked on the fund since November 2010, S&P Capital IQ views manager changes as adding risk to a fund, since a new leader could shift the investment strategy in a way that may not fit with investors' expectations. With Miller having been with the fund, as co- or sole manager since 1982, investors have been able to gain comfort in the fund's stock selection approach.

Miller ran the fund with a more momentum-driven style, and those type of stocks are hard to find in the current market uncertainty, Tjornehoj said. Post 2008, Miller thought the strategy would take off, but the better value managers have been out of place in this recovery because stocks can stay undervalued for a long time, he said.

Financial advisors are not going to come crashing down the door waiting to invest their clients’ money; they’ll likely take a wait-and-see approach, Tjornehoj believes. Most FAs aren’t familiar with Sam Peters, and he’ll have to show them how he’s going turn the ship around and how his technique is different from Miller’s. How willing are you to take a second look?


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