100%(4)4 out of 4 people found this document helpful
This preview shows page 1 - 3 out of 5 pages.
Bill Miller and Value TrustIntroductionWilliam H. Miller III or Bill Miller is the Chairman and former Chief Investment Officer of Legg Mason Capital Management. He is also the former portfolio management for the Legg Mason Capital Management Value Trust, a mutual-fund company, where he beats the benchmark index, the Standard & Poor’s 500 Index (S&P 500) for 14 consecutive years from 1991 through 2005. Miller consistently received a better result than the index during both the bull market on the late 1990s and the bear market on the early 2000s. Over the 15 years, the Value Trust has gainremarkable returns with an average of annual total return of 14.6% which is 3.67% higher than the S&P 500. Over the short-term period, some fund managers can beat Miller’s record and get the bestoverall performance. However, no one can beat his consistency in index-beating record. Miller’s result also contradicts to the conventional theories in the mutual fund markets which has high competition, easy entry, and informational efficiency. The theories say it would be very difficult to beat the market in the long-run, but Miller did it using his own strategies. Problem DefinitionThe Efficiency Market Theory states that the security price is fully reflected by all available information in the market. The theory means that most money managers cannot beat a buy and hold policy on a risk adjusted basis, and a portfolio manager without superior analyst should measure the risk-preferences, risk asset, risk free asset and hope the best. The theory simply suggests that perhaps Bill Miller is just lucky in beating the market for 14 years. The Efficiency Market Theory is indeed true, but Bill Miller’s outstanding performance cannot be solely based on luck to beat the market. He used the information that the market has provided, and did extra research to get additional information about the company securities’ condition.
Most of his investments were value stocks which sometime has higher risk, and he was not averse to taking large positions in the stocks of the growing companies.