It was the story that for a long time always wrote itself: the calendar year ended, the performance statistics obtained and the confirmation granted that Bill Miller had for the nth consecutive year outperformed the S&P 500.
In all, Miller managed to beat the stockmarket index – notorious for slaying active investors over periods longer than 36 months – for 15 straight years, from 1991 to 2005, on his American-domiciled Legg Mason Capital Management (LMCM) Value Trust, using his high-conviction, deep-value stock picks. Morningstar named Miller fund manager of the decade for his performance during the 1990s, when his value style benefited from the bull market in equities.
However, Miller underestimated the severity of the liquidity crisis that was about to blight markets, something he readily admits. The run came to an abrupt end in 2006. Holdings in several large American banks crippled performance in 2008, a year in which the fund fell some 50%. The portfolio has not managed to beat the S&P in any calendar year since 2006, with Miller sticking to banks and consumer stocks as he bet the economy would recover.
The result, according to Morningstar, is that over five years to November 16, 2011, the Value Trust is down 25.25% versus the S&P, which has risen 17.73% in sterling terms. (Comment continues below)
However, if you had the insight to pop £1,000 into the fund at the end of April 1982, close to the fund’s launch date, you would now have a nest egg of £27,255.58, according to Morningstar. The same amount invested in the S&P 500 – hypothetically, as you would have to deduct the investment management fees charged by your index fund – would have given you back £26,178.86.
On the other hand, the same amount invested five years ago, on November 16, 2006, would have resulted in your £1,000 falling to £747.49 versus the S&P, which would have given back £1,177.26.
For British investors, such figures are mere speculation, as the Value Trust is only open to American clients. Legg Mason created a British-domiciled US Equity fund in 2003, following on from the Irish-domiciled LMCM Value fund, which was opened in 1998. The lead manager on both is LMCM’s Mary Chris Gay, but they are to all intents and purposes mirrors of the Value Trust. It is not surprising the Legg Mason US Equity fund suffered large losses in 2008, leaving the £65m fund bottom out of 48 funds in the IMA North America sector since launch, falling 4.27% against a gain for the S&P 500 of 64.42%.
As Miller prepares to hand over the reigns of the Value Trust to Sam Peters next April, these numbers mark a sobering end to a tenure on the fund for a man once hailed as an S&P beater.