A terrible 2006 rank doesn't mean a manager has lost his touch.
Bill Miller of Legg Mason Value
Investors know they should not attach much significance to one-year results, but when a fund they own (or have considered owning) has sunk to the bottom of the year's performance chart, it's understandable that they'd want to know what's up. In short, what accounts for the lousy showing, and more importantly, is the fund still worth owning?
We certainly don't believe that Miller has lost his touch, this year's results notwithstanding. Here, we'll take a look at three other domestic-stock funds with highly respected managers who currently find themselves in the same situation. The good news for shareholders of these funds, as with owners of Legg Mason Value, is that there is no reason to panic about any of them.
As Rodriguez explains in his just-released shareholder report, this year the culprits have been a high cash stake, which held back performance as the stock market rallied, and poor showings from several energy-related holdings (a large percentage of the portfolio), such as Rowan Companies
We're confident that this closed fund will continue to reward investors over the long run. True, as this year's showing confirms once again, it's almost guaranteed to trail well behind its rivals from time to time. But long-term investors should focus on the long term--not yearly rankings.
In general, the problem has been that manager Ron Muhlenkamp, who incorporates a significant amount of big-picture thinking into his analysis, has been optimistic about economic growth, and that's reflected in the makeup of the portfolio. Many stocks that relied on that trend performed quite well in recent years, helping propel the fund to great returns from 2003 through 2005, but they took it on the chin in 2006. In fact, the portfolio's top 25 sports seven different double-digit losers. Like Rodriguez, Muhlenkamp has been bullish on energy, which has hurt this fund in 2006 as it has FPA Capital. Housing-related stocks have been another drag.