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Bill Freehling
Bill Freehling

Bill Miller among value gurus making comeback

Bill Miller is among the value-oriented mutual fund managers getting attention from the financial press of late for their recent comebacks.

Miller is featured on this week's cover of Barron's under the headline "He's Back!"

For many years Miller, the manager of Legg Mason Value Trust, was a media superstar for his amazing 15-year streak beating the S&P 500 index. But Value Trust lagged the S&P 500 in 2006, 2007 and 2008, and last year Miller fell hard from grace with losing bets on financial stocks including Lehman Brothers, Bear Stearns and Fannie Mae. Miller's fund had lost 72 percent of its value in the 18 months concluding with the March market lows, wiping out a decade of gains.

Now Miller is again back on top, Barron's notes. Value Trust is up 37.5 percent on the year, making it one of the top-performing funds in its peer group. And Miller notes that shareholders won't face any capital gains taxes for a while due to losses realized during the fall from grace.

Miller admits in the Barron's interview that he misread the nature of the recent financial crisis as a liquidity issue rather than one primarily caused by heaps of bad debt. He says he's made adjustments to the way Value Trust evaluates risk and constructs its portfolio. Among his current favorite picks are healthcare stocks Aetna, United Health and Aflac, as well as technology-focused eBay, IBM and Hewlett-Packard. Global power company AES is the fund's biggest holding.

Miller told Barron's that he sees "high-quality mega-caps" outperforming over the next 5-10 years. He says the stocks that have outperformed of late represent a "dash-to-trash" and thinks bargains abound among the best-in-class names.

Many investors fled Miller's fund in the wake of the massive losses. Its assets are down from $20 billion at the peak to $4.7 billion now. But Barron's says Value Trust is "worth revisiting."

Miller isn't the only value guru attracting attention for comebacks this year. Fortune magazine's Oct. 12 edition includes a piece titled "The Comeback Kids" that features five mutual funds that have bounced back. Among the names: Marty Whitman's Third Avenue Value, Mason Hawkins and Staley Cates' Longleaf Partners, and Bruce Berkowitz's Fairholme. Both Longleaf and Fairholme are now betting on Berkshire Hathaway, with Berkowitz telling Fortune that he thinks Warren Buffett will continue to use Berkshire's cash horde to take advantage of "cracks in the market."

Speaking of Fairholme, Berkowitz said during a Sept. 30 Webcast that FAIRX has now hit $10 billion in assets but has no immediate plans to close. The firm also mentioned that it was thinking about starting an income fund, which would utilize the research being done for the fixed-asset portion of Fairholme's holdings. Fairholme is now soliciting advice from investors on whether to start the second fund.

Disclosure: Long FAIRX and BRKB.

About the author:

Bill Freehling
Bill Freehling
For gurufocus.com
[email protected]

Rating: 3.0/5 (5 votes)


Sivaram - 8 years ago    Report SPAM
Bill Miller's funds are still way off from the peak, given the massive collapse in the past but it's good to see him recovering. As probably the only remaining member of the Bill Miller fan club, I am glad to see him making a come back.

The flaw with Bill Miller is that he is way too optimistic. This helps when markets do well but can be lethal at other times. It's not surprising that he is up 30%+ this year--that's an amazing return when you consider how he was down something like 70% earlier in the year!--because the recovery is strong. But it remains to be seen what happens as things stabilize or even deteriorate...
Amit Chokshi
Amit Chokshi - 8 years ago    Report SPAM
Siv, it's not surprising that Miller is up 30%+ this year at all, he lost his client's money by going heavy into s hitbox companies like LEH, WFC and other financials that have rallied the strongest off the bottom. The problem with Miller is he an egomaniac that got blindsided due to major flaws in his analysis he was unwilling to revisit or accept.
Fk - 8 years ago    Report SPAM
I wouldn't call a 37% performance this year much of a recovery after a 72% fall. Let's do the math. After being 72% down, you need to gain 257% to get back to break even. Since he only recovered 37% after the massive drop, Miller still needs 161% gain to get back to breakeven of 2007 level.

Using real dollar value so you get a better feel for Miller's performance. Say you invested 100$ with Miller at the end of 2007. by the end of 2008, that 100$ became 28$. In 2009, after the 37% gain, that would bring you back to 38$, which means you're still down 62$ from your original 100$. You still need a 161% gain to get back to 100$. Even if Miller can average 37% for a few more years, it's going to take a while to get back to break even.
PHILCIR - 8 years ago    Report SPAM
shame on you barrons for stuping so low. This is nothing more than the Legg Mason and Miller propaganda minister attempting a PR job to rehabilitate Miller's reputation. Too late for that. I hope people realize that old world media (print) like Barrons, Forbes, businessweek, Wealth, Money, Fortune, etc...are operated and in the back pocket of the industry who provides the advertising dollars. That's the reason for all the long term investing articles, stay the course, value v growth debate, glowing fluff pieces about ceos and fund managers. Every now and then they'll role out buffett on the cover with the simple promise that all there is to a successful retirement is common sense, and a buy and hold strategy. Then buffett gives the old "understanding the business" routine and the suckers are hooked. All aimed to brainwash the public Well thankfully that model is broken and these publications don't have the prominent voice that they had a decade ago. In fact most of them probably won't be around in 10 years. Good ridance.

Barrons has turned into a pure rag whose main focus is on providing stock picks made by journalists w/ no accountability. Just like the fund industry.

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