Bill Miller’s impending departure offers a blueprint for how to react to the news.
Bill Miller will be stepping down from Legg Mason Capital Value LMVTX in April, and while his departure is a particularly high-profile one, “Should I stay or should I go?” plagues any client invested in a fund that’s seen a manager change. Take time to evaluate the implications of the change—for the fund’s positioning, performance, and role in your clients’ portfolios.
1 How active was the fund manager?
A manager change shouldn’t be a huge cause for concern if the fund’s strategy is highly mechanistic. Jensen Quality Growth JENSX, for example, looks for companies that have had returns on equity of 15% or better for the past 10 years; its turnover is also minuscule. Thus, even though some of Jensen’s comanagers have retired in recent years, we’ve continued to like the fund. Legg Mason Value Trust, by contrast, employs a highly active strategy, with relatively high weightings in sectors like financials and next to nothing in basic materials. For this and other highly active funds, a manager change merits more scrutiny.
2 How big is the change?
While critics assail multimanager vehicles as being subject to mediocrity and groupthink, it’s safe to say that manager changes are less of a big deal for them than is the case for solo-run funds. At LMVTX, Miller’s successor, Sam Peters, has worked alongside Miller as a comanager for the past year, but he’ll be running it solo once Miller steps down. Thus, while there is some continuity, Peters had only been aboard for a short while, and the fund will sink or swim on his watch.
3 What do you know about the new person?
Does previous experience on another fund provide any clues about the new manager’s investment style and, in turn, the implications for performance? Unfortunately, it’s not common for a manager’s past track record to be directly applicable to the new charge. Peters’ previous experience provides a good example: He’s been working as a comanager on Value Trust for only a year, and his stints as solo manager have been on different types of funds-Legg Mason Capital Special Fund LMASX, which focuses on mid-cap funds, and some Fidelity sector funds before that.
4 How good is the firm as a steward?