Time to Buy Bill Miller
Legg Mason Value's record of beating the S&P 500 for 15 straight calendar years is imperiled, thanks to horrible performance so far this year. But the best time to buy this fund is when it's sagging.
The vultures are already circling over Bill Miller. His Legg Mason Value, which has beaten the SP 500 a record-breaking 15 consecutive years, is trailing the benchmark by nearly 13 percentage points so far this year. That's so awful that his fund ranks in the bottom 1% among large-cap blend funds.
Believe it or not, even that understates what a horrific year Miller has been having. This year's performance is so wretched that Legg Mason Value (symbol LMVTX) now lags the SP 500, as well as the average fund in its category, over both the past three and five years. Vanguard founder Jack Bogle and other proponents of index investing have cause to celebrate.
What should you do? If you own shares, it's a good time to buy more. If you don't, it's an ideal time to open an account with probably the best investor of our time. It's also probably a great time to scoop up some of the Miller stocks that have been creamed. (More on those in a bit.)
Sign up for Kiplinger’s Free E-Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
Why buy Miller now? Because despite his phenomenal streak, Miller has hit rough patches before. What's happened this time is that several parts of his portfolio have imploded at the same time. The rebound may well be just as sharp.
Miller is a long-term investor, typically holding stocks five years or longer. He usually buys early. Then, when a stock declines, he buys more, "averaging down" with the kind of courage (backed by painstaking analysis) that I've never witnessed in another manager. Indeed, Miller pinpoints his willingness to buy more of a stock as it falls as the single most important reason for his long-term success.
And make no mistake: His long-term numbers are terrific. Over the past ten years, his fund has beaten the SP by an average of eight percentage points per year. Over the past 15 years, he has beaten the SP by nearly 11 percentage points per year. The fund ranks in the top 2% among its peers over both periods.
When evaluating a manager, the long-term number is always the one to focus on. One- and three-year results can be pure happenstance.
In his newly issued quarterly report, Miller is forthright, but confident -- as you'd expect a good manager to be. "We had a dreadful second calendar quarter," he writes. But he adds, "We have been doing this a long time and have been here before (way behind the market)."
The chief reason for Miller's plunge is his big weighting in Internet stocks such as Amazon (AMZN), eBay (EBAY), Expedia (EXPE) and Yahoo (YHOO). The best of this off-key quartet has lost only one-third of its value so far this year. Miller still likes them all. "The market's myopic, obsessive focus on what is going on for the next three or six months doesn't alter their business value."
Managed-care stocks haven't been any prettier. After soaring almost 300% the past five years, Aetna (AET) and UnitedHealth (UNH) have lost more than 30% and 20% respectively. "Momentum money has exited these names," Miller writes.
Nor have homebuilders helped. Miller recently bought homebuilder Pulte (PHM), and it has proceeded to fall more than 25%. "We clearly made a mistake by initiating positions too early." But Miller thinks housing stocks will do much better than expected longer term.
Last but not least, Miller has avoided energy. "We were clearly wrong," he concedes. His rationale then and now: All the good news is already reflected in the stocks' prices.
I'd be a buyer of this fund -- especially now -- even though it has an expense ratio of 1.68% annually and even though Miller is managing $45 billion in this fund and other similarly run accounts.
But given the girth of Legg Mason Value, I'm more enthusiastic about Miller's other fund: Legg Mason Opportunity (LMOPX). Yes, it has an expense ratio of 2.08%. But it also has assets of only $5.5 billion. That gives it more flexibility and allows it to own stocks of smaller companies. Indeed, Opportunity has held up slightly better than Value this year and has still beaten the SP by four percentage points per year over the past five years.
Miller is down, but a long way from out. Will the streak end this year? Probably. But will he continue to be a great fund manager? Bet on it.
Get Kiplinger Today newsletter — free
Profit and prosper with the best of Kiplinger's advice on investing, taxes, retirement, personal finance and much more. Delivered daily. Enter your email in the box and click Sign Me Up.
-
Your Guide to Open Enrollment and Health Insurance for 2025
Open enrollment starts on November 1. With health care costs on the rise, it’s critical to select a plan that fits your needs at the right price.
By Laura Petrecca Published
-
Which States Will Bear the Brunt of Trump's Tariff Plan?
Tariffs The presidential candidate’s campaign proposal would substantially increase prices in as many as 20 states.
By Gabriella Cruz-Martínez Published
-
ESG Gives Russia the Cold Shoulder, Too
ESG MSCI jumped on the Russia dogpile this week, reducing the country's ESG government rating to the lowest possible level.
By Ellen Kennedy Published
-
Morningstar Fund Ratings Adopt a Stricter Curve
investing Morningstar is in the middle of revamping its fund analysts' methodology. Can they beat the indices?
By Steven Goldberg Published
-
Market Timing: The Importance of Doing Nothing
Investor Psychology Investors, as a whole, actually earn less than the funds that they invest in. Here’s how to avoid that fate.
By Steven Goldberg Published
-
Commission-Free Trades: A Bad Deal for Investors
investing Four of the biggest online brokers just cut their commissions to $0 per transaction. Be careful, or you could be a big loser.
By Steven Goldberg Published
-
Vanguard Dividend Growth Reopens. Enter at Will.
investing Why you should consider investing in this terrific fund now.
By Steven Goldberg Published
-
Health Care Stocks: Buy Them While They're Down
investing Why this sector should outperform for years to come
By Steven Goldberg Published
-
Buy Marijuana Stocks Now? You'd Have to Be Stoned.
stocks Don't let your investment dollars go to pot
By Steven Goldberg Published
-
4 Valuable Lessons From the 10-Year Bull Market
Investor Psychology Anything can happen next, so you must be mentally prepared.
By Steven Goldberg Published