Bill Miller Value Trust

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Bill Miller and Value Trust In 2005, it was documented that Bill Miller’s Value Trust, an $11.2 billion mutual fund, had outpaced the Standard and Poor’s Index for 14 years in a row. It is every fund manager’s goal to beat the S&P index each year but to do so for 14 straight years is truly incredible. However, there are several academics who question the skill and talent of Miller. They argue that much of his success is purely based on luck. In fact, some have simplified his returns to a basic flip of a coin. Many conclude that markets are efficient citing the EMH thus negating any value Miller would bring to his clients. Basically this means that investors are being lured into his fund based on previous results only to let Miller collect his management fees. Whether an investor believes in weak, semistrong or strong efficiency, it is difficult to comprehend the track record of 14 consecutive years. For a particular company, if the market is accurately reflecting the future cash flows given all the public information available, then this would lead some to believe the stock is fairly priced and shouldn’t continue to tick higher. Furthermore, the EMH could also be discounted in that it would reduce the incentive for the management team to make the necessary business decisions to continue to grow future earnings and expand margins if everything is already accounted for in the stock’s current price. Lastly, if the logical conclusion for academics is to have every investor simply buy and hold a basket of stocks that mimic the performance of the S&P then there would be no market. Every investor would be on the same side thus reducing any efficiency in the market. A market is made as a result of buyers and sellers who analyze the information available to ultimately influence investing decisions. It is highly improbable to believe that every investor would come to the same conclusions based on the information at hand. When investors think of creating value, it is often measured by exceptional returns that are benchmarked to indices. As the calculations show (see spreadsheet), Miller’s average return net of fees from 1994-2005 was nearly 16.5% compared to the S&P return of just under 12%. The alpha generated of over 4.5% through the years is a clear fact of the value Miller has created. As well, under Miller’s watch, the fund grew fund from $933MM in 1994 to over $11.5BN assets under management. Market performance aside, that is value creation Miller generated for Legg Mason. While the Forbe’s study back in 1967 showed that by randomly picking 28 stocks to buy and hold from a period of 1967-1984 beat the broad market averages showing that luck is indeed an element of investing, which is something Miller has
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