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The Bill Miller Era: A Look Back at a 30-Year Record

AMG buys stake in Yacktman and more. 

Morningstar Fund Analysts, 04/19/2012

As of April 15, 2012, Bill Miller has been part of the Legg Mason Capital Management Value Trust LMVTX management team for 30 years, a time span that includes his legendary run of beating the S&P 500 for 15 straight years. His stint makes him one of the industry's longest-serving portfolio managers on a single fund. The average portfolio manager has five years of tenure. Miller and the late Ernie Kiehne launched Value Trust on April 16, 1982, and managed it together for more than eight years. Miller ran the fund solo between November 1990 and November 2010, when his named successor, Sam Peters, joined as a comanager. Miller steps off the fund this month, clearing the way for Peters to take sole control of it on May 1, 2012. Mary Chris Gay, who has served the fund as its assistant portfolio manager since early 2006, will continue in that role.

Just as notable as Miller's extended tenure on Value Trust is his performance record there. Through the 1980s he and Kiehne struggled at times and ended the decade without fanfare: Between the fund's inception and November 1990, when Kiehne retired from the fund, the fund gained an annualized 16% versus 17.1% for the index. However, Miller really made a name for himself in the 1990s, particularly in the latter half when he showed his willingness to step outside traditional value areas and into the technology, media, and telecom stocks that fueled the raging bull market. The addition of growth stocks allowed the fund to keep pace while the rest of the value world stumbled. When the tech bubble popped in early 2000, Value Trust suffered, but Miller kept the fund ahead of the S&P 500 Index as the bear market endured through 2002. Overall between November 1990 and early October 2002, the fund gained 14.5% on average annually, a full 4 percentage points more than the S&P 500 Index. During this period, Miller was also well on his way to establishing his celebrated 15-year streak (1991-2005).

Miller's record has since taken a turn for the worse. An aversion to energy stocks hurt the fund in the mid-2000s (Miller and Peters can and do own energy stocks today). He also failed to recognize the big changes that occurred to some of the 1990s growth darlings. The fund really suffered during the financial crisis. Miller's bold contrarian streak led him to a basket of financials and other stocks that continued to plummet. While the fund had a spectacular 2009, it wasn't enough to repair what had become a weak five-year record. Today, the fund's essentially flat 10-year return through April 15, 2012, lands in the large-blend category's bottom decile and well behind that of the S&P 500 Index.

While the ride the past 30 years hasn't been very smooth, Miller can boast success. The full 30-year 11.5% annualized return is smaller than that of the benchmark's 11.6% gain, but Miller's cumulative record since late 1990 still looks impressive, especially considering he had to contend with an expense ratio that ranged between 1.68% and 1.90%. Although investors who joined Miller in 1990 have had to endure plenty of volatility, a $10,000 investment since then has grown to $73,845 compared with $68,950 in Vanguard 500 Index VFINX.

Peters says that while he isn't Miller, he will continue Miller's tradition of bold, contrarian investing in a valuation-based framework. Since his addition to the management team through April 15, 2012, the fund's 9.2% cumulative return compares with the S&P 500 Index's 19.4%. Miller loyalists shouldn't fret: He still runs the smaller Legg Mason Capital Management Opportunity Trust LMOPX.

AMG Buys Stake in Yacktman Funds' Advisor
Affiliated Managers Group AMG is buying a majority ownership stake in Yacktman Asset Management, the Austin, Texas-based advisor to the Yacktman Funds. Financial terms of the deal weren't disclosed, but it does address succession-planning issues at the firm and it provides liquidity to equity holders. For Yacktman YACKX and Yacktman Focused YAFFX shareholders, the deal clears up concerns about management continuity. The firm's senior investment officers, including managers Don Yacktman, Stephen Yacktman, and Jason Subotky, all signed 10-year employment agreements. Yacktman will also retain full investment authority, so there should not be any change in strategy for the two funds.

Yacktman chose an accommodating partner. AMG, which specializes in buying boutique investment firms such as Third Avenue and Tweedy, Browne (see the table), has historically taken a hands-off approach to its acquisitions. Its strategy is reminiscent of Berkshire Hathaway's BRK.B purchases of closely held firms. AMG provides firm owners with a liquidity event while incentivizing them to stick around in their current roles for years to come. This makes AMG an attractive partner for those looking to cash out while still retaining their independence.

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