After outpacing Standard & Poor's 500-stock index for 13 straight years, 14 may be manager Bill Miller's unlucky number. Legg Mason Value's 5 percent gain through mid-November trailed the S&P by three percentage points.
Miller's consistency has translated into big long-term gains. Value (symbol LMVTX, 800-577-8589) has returned an annualized 17 percent since 1990, five points per year ahead of the S&P.
Miller's acumen as a manager isn't in question, and he's the first to admit his errors — such as not jumping into energy stocks in 2004. Moreover, don't expect Miller, 54, to perform last-minute contortions to keep his streak going. He usually holds stocks for four or five years, and he says he's sticking with portfolio anchors Nextel, Amazon.com and IAC/InterActive.
Low turnover may be indicative of Miller's biggest problem: He may have too much on his plate. In total, he manages some $30 billion in the same style he employs in Value.
Miller himself suggests that asset bloat may be a problem. In a recent letter to shareholders, he acknowledged that his decision not to trim big positions in Amazon, Nextel and IAC — all performed poorly in 2004 after advancing sharply in 2003 — was due in part to concerns that selling might "have created substantial market-impact costs."
Baron switcheroo
With so many mutual fund managers bolting to join hedge funds, it's refreshing to see one take a different tack. In mid-2003, Ron Baron, head of the $9 billion Baron fund family, converted a hedge fund into a mutual fund. As a regular fund, Baron Partners is on a tear: It gained 32 percent in 2004 to Nov. 15, putting it on course to be the year's top diversified U.S. stock fund.
Partners (symbol BPTRX, 800-992-2766) retains the trappings of hedge funds. It is concentrated: 42 percent of its assets are in three stocks. It can borrow money to boost returns, and it can bet on stocks declining in price.
"This isn't something you should put a large percentage of your net worth in," says Baron, 61, who has $70 million of his own money in the $380 million fund.
Investors get a fairer shake with Partners as a mutual fund than as a hedge fund. As a hedge fund, it extracted an annual fee of 1 percent of assets and 20 percent of yearly profits. As a mutual fund, it levies below-average annual fees of 1.35 percent. For a little spice in a well-rounded portfolio, Partners might be just the thing.