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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.


While the deal ensures long-term stability, the timing also looks opportunistic. The firm's assets have soared in recent years after the funds turned in excellent relative showings during 2008's and 2009's challenging markets. They followed this up with another strong performance in 2011. Both funds finished in their category's top 10% in all three years. As a result, while many actively managed U.S.-stock funds have suffered outflows in recent years, investors have poured money into the two Yacktman funds. In March 2009, combined assets were just $326 million. In the three years since, assets have ballooned to $13.5 billion (as of March 2012) and nearly $17 billion for the overall firm.

To their credit, the Yacktman principals say that they will invest a significant proportion of the windfall in Yacktman Focused after the deal closes. They also plan to use the new resources to bolster the firm's analyst ranks, strengthening its bench as it prepares for the day when Don Yacktman leaves the firm. (Although the senior Yacktman has no plans to retire, he is currently 70 years old.) The firm's plan to institute an equity incentive program could aid their recruiting efforts.

Sequoia Sounds Off on Goldman Sachs
Ruane, Cunniff & Goldfarb, the advisor to Sequoia SEQUX, recently sent a letter to clients outlining its plan to vote against the re-election of Goldman Sachs GS board member James A. Johnson. The firm also said if Johnson decides to retain his seat on Target Corp.'s TGT board of directors it will also oppose that re-election bid. Both Goldman Sachs and Target are portfolio holdings in Sequoia and the firm's separately managed accounts. The firm opposes Johnson as a board member at both companies because of his role running beleaguered mortgage fund giant Fannie Mae FNMA in the 1990s. He also served on the boards of several firms that had back-dating options scandals. "Mr. Johnson has been at the center of several egregious corporate governance debacles," the letter said. A Goldman Sachs spokesperson told media outlets the company stands by his re-election.

American Funds Goes to College
American Funds is launching what it calls a College Target Date Series that will be a component of its CollegeAmerica 529 plan. The plan, which is based in Virginia but is sold nationally, is the country's most popular option for saving for higher education costs and currently receives a Top Morningstar rating.

The College Target Date Series will consist of individual funds with target dates between 2012 and 2030. They will be run by the same portfolio managers that oversee the American Funds Target Date Retirement series. And like that series, this new lineup will invest in a selection of American Funds, like Silver-rated American Funds Growth Fund of America AGTHX, Gold-rated American Funds American Mutual AMRMX, and Neutral-rated American Funds Bond Fund of America ABNDX.

The inclusion of the college series is a new direction for the 529 plan. In the past it never offered age-based or target-date options. Instead, the company allowed advisors to custom build portfolios for their clients.

Allianz Launches New Fund, Shutters Others
Allianz Funds is launching Allianz NFJ International Small-Cap Value on June 1, 2012. Like all NFJ funds, the fund will focus on dividend-paying firms trading at low price/earnings ratios. Up to 20% of assets can be invested in emerging markets. Paul Magnuson, Ben Fischer, and Morley Campbell will run the fund with lead manager Baxter Hines. Hines is also a manager on Allianz NFJ International Value AFJAX and Allianz NFJ Global Dividend Value ANUAX. Magnuson, Fischer, and Campbell currently run Silver-rated Allianz NFJ Small Cap Value PCVAX.

Allianz also announced it will soon liquidate Allianz AGIC Global and Allianz RCM Focused Growth. In addition, Allianz AGIC Pacific Rim will merge into Allianz AGIC Emerging Markets Opportunities AOTAX, and Allianz AGIC Growth PGWAX will change its name to Allianz RCM Focused Growth to reflect a change in the subadvisor.

American Century Loses Veteran Manager
Irina Torelli, a portfolio manager on the asset-allocation team that oversees American Century's Strategic Allocation funds and the firm's Livestrong target-date series, has left the firm. She was one of the longest-serving members of the team and focused particularly on asset-allocation modeling and research on new asset classes. In January 2012, Torrelli was removed as a named manager on the funds when she left for maternity leave. American Century says she decided to stay home with her family. The firm is beginning its search for a replacement.

Managers Depart Putnam
Several analyst-run Putnam sector funds have changed managers. Timothy Codrington, Christopher Stevo, and John Morgan have stepped down from Putnam Global Consumer PGCOX, Putnam Global Health Care PHSTX, and Putnam Natural Resources EBERX, respectively. Putnam's sector funds have endured a lot of turnover the past few years, although in this case the funds' existing comanagers remain in place.

Changes at Oppenheimer
Kevin Baum has stepped down from his manager duties at Negative-rated Oppenheimer Commodity Strategy Total Return QRAAX and has also resigned from the firm. Robert Baker, who has been a comanager here since 2007, will take the lead on the fund's commodity sleeve. Carol Wolfe will continue to manage the bond component. The manager departure doesn't change the outlook for this offering.

Oppenheimer also announced it will change the name of Oppenheimer Quest Opportunity Value QVOPX to Oppenheimer Flexible Strategies. The fund will also make some changes to its mandate.

mutual
Keith Walter replaced Rudolph-Riad Younes and Dimitre Genov as the manager of Artio Global Equity BJGQX.

Michael Krushena is no longer a listed portfolio manager on Munder Bond MUCAX. Comanager Edward Goard will continue to manage the fund.

Legg Mason filed to launch Legg Mason Dynamic Multi-Strategy in June 2012, which will invest in a series of Legg Mason or affiliated funds, as well as unaffiliated exchange-traded funds. Legg Mason Global Asset Allocation will manage the fund's asset allocation and risk-management strategy. Western Asset will manage the fund's cash and short-term investments.

Mutual fund analysts Kailin Liu, Kevin McDevitt, and Rob Wherry and associate director of fund research Bridget B. Hughes contributed to this report.

Morningstar fund analysts cover more than 1,700 mutual funds and write regular commentary covering fund industry news, fund investing trends, picks, portfolio planning, international investing, and more.

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