Bill Miller's index-beating streak should stay alive this year -- barely. A little screening underscores his significant skills and unearths some solid funds, too.
Miller, manager of the
Legg Mason Value Trust among other
funds, is widely known as the only fund skipper to beat the
in each of the past nine calendar years, though
Jeff Van Harte has quietly matched this feat with a portfolio available only through variable annuities. The streak gets a lot of hype at the end of each year, and we're sure to hear quite a bit in the next couple of weeks, but he's not far ahead of the index -- the fund is beating the S&P 500 by a little more than 2% through Thursday's close.
Some are quick to say that the vaunted streak is no big deal. After all, a slew of stock funds, 422 to be exact, boast a higher five-year average annual return than the S&P 500 after last year's boffo returns. While this view is understandable, it's also a bit misguided. It ignores, for instance, the significant value of consistency.
Most funds beat the index when their style is in favor and fall behind when its top picks fall from grace -- as the streak's singular status demonstrates. So, the funds in the index-beating club rarely stay members for long.
Since we all become short-term investors at some point, we all run the risk of needing our money when our manager's style and fund is sagging. So, for many investors, funds that are able to ring up solid returns year in and year out are hard to find and good to own -- a point we can all probably appreciate during a year like this.
In the past, we've screened the fund world for funds that haven't had a down year in the past 10 years. Today we're raising the stakes a bit, looking for funds that have beaten the S&P 500 over each of the past five calendar years. We dug up four, including Miller's fund and
Weitz Hickory, a small-cap blend fund that's closed to new investors.
Here they are ranked by their returns since Jan. 1; Miller is the only one beating the benchmark.
This is a pretty eclectic pack. Two are souped-up S&P 500 index funds. The no-load
Rydex Nova fund essentially tracks the S&P 500, but also uses index futures and options to post 150% of the index's return. This higher-high and lower-low strategy is great on the upside, but not so great on the downside.
Vanguard Growth Index fund tracks the
S&P/Barra Growth Index
, essentially comprised of the 150 biggest growth stocks in the S&P 500. At the end of September, the fund had nearly 50% of its money in tech stocks. This big tech allocation helped in recent years, but now that the sector has crashed back to earth, the fund is down more than 24% since Jan. 1.
In running the closed Weitz Hickory fund, manager Rick Lawson focuses on battered small- and mid-cap stocks. His stock-picking skills kept the fund ahead of the index, but blowups at holdings like
have held the fund back this year. This shows that even solid managers have a bad year from time to time.
Bill Miller is having a bad year, too. How bad? The fund's 10.1% loss since Jan. 1 trails 91% of its peers. Picks like
have lost more than half their value this year, but other choices like
have cushioned the blow a bit.
To put that in perspective, Miller's fund still tops all other big-cap value funds over the past five- and 10-year periods, according to
. His record and the beating his fellow index-beaters have taken show that even his bad years aren't that bad and maybe it's not so wrong to make a big deal of this streak after all.