Bill Miller and Value Trust
17 Pages Posted: 21 Oct 2008
Set in the autumn of 2005, this case recounts the remarkable performance record of Value Trust, a mutual fund managed by William H. "Bill" Miller III at Legg Mason, Inc. The case describes the investment style of Miller, whose record with Value Trust has beaten the S&P 500 14 years in a row. The tasks for the student are to assess the performance of the fund, consider the sources of its success, and decide on the sustainability of Miller's performance. Consistent with the introductory nature of the case, the analysis requires no numerical calculations. The instructor should not be deceived, however: the absorption of capital-market background and the implications of financial concepts in the case will fully occupy the novice. This case updates and replaces "Peter Lynch and the Fidelity Magellan Fund" (UVA-F-0777) and "The Fidelity Magellan Fund, 1995" (UVA-F-1126). The case is intended for use in the opening stages of a finance course. It provides a nontechnical introduction to the U.S. equity markets and lays the foundation for some basic concepts in finance.
BILL MILLER AND VALUE TRUST
Bill Miller's success is so far off the charts that you have to ask whether it is superhuman. Quite simply, fund managers are not supposed to be this good. Is it mortal genius, or is it celestial luck?
By the middle of 2005, Value Trust, an $ 11.2-billion mutual fund managed by William H. (Bill) Miller III, had outperformed its benchmark index, the Standard & Poor's 500 Index (S&P 500), for an astonishing 14 years in a row. This record marked the longest streak of success for any manager in the mutual-fund industry; the next longest period of sustained performance was only half as long. For many fund managers, simply beating the S&P 500 in any single year would have been an accomplishment, yet Miller had achieved consistently better results during both the bull markets of the late 1990s and the bear markets of the early 2000s.
Over the previous 15 years, investors in Value Trust, one of a family of funds managed by the Baltimore, Maryland–based Legg Mason, Inc., could look back on the fund's remarkable returns: an average annual total return of 14.6%, which surpassed the S&P 500 by 3.67% per year. An investment of $ 10,000 in Value Trust at its inception, in April 1982, would have grown to more than $ 330,000 by March 2005. Unlike the fund's benchmark, which was a capitalization-weighted index composed of 500 widely held common stocks, Value Trust only had 36 holdings, 10 of which accounted for nearly 50% of the fund's assets. Exhibit 1 presents a summary of Legg Mason Value Trust, Inc., as it stood in August 2005.
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Keywords: investing, efficient markets hypothesis, capital markets, investment performance, mutual funds
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Bill Miller and Value Trust
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