Top fund managers can't catch a break

Some formerly hot hands like Legg Mason's Bill Miller have gone cold

Feb 10, 2016 @ 4:23 pm

By John Waggoner

Some very well-known mutual fund managers are having years they probably would rather forget.

Consider Bill Miller, co-manager of Legg Mason Opportunity fund (LGOAX). Mr. Miller, one of the top managers before the financial crisis, lost his halo when his flagship fund, Legg Mason Capital Value Trust, plunged 55% in 2008.

Mr. Miller clawed his way back with Legg Mason Opportunity, driving the fund to a 40% gain in 2012 and a 68% gain in 2013. But the current market correction has clobbered the fund, sending it down 27.9% this year through Monday, according to Morningstar Inc. The Standard & Poor's 500 is down 9.19% the same period, assuming reinvested dividends.

“He's a financials and tech guy, and that was perfect for the 1990s but a disaster for the oughts,” said Russel Kinnel, director of mutual fund research at Morningstar. That same approach of overweight positions in tech and financials has hurt Mr. Miller's fund this year, he added.

Another big name with big losses: G. Kenneth Heebner, manager of CGM Focus fund (CGMFX), which is down 25.10%. Mr. Heebner, one of the top managers of the 1990s, has had a rotten decade. The fund has gained an average 0.69% a year over the past 10 years, trailing the S&P 500 by an average 5.44 percentage points a year.

Baron Partners fund (BPTRX), the eponymous $1.6 billion fund run by Ron Baron since 1992, has shed 23.47% this year. Baron's annual Investment Conference featured Lady Gaga and Tony Bennett during lunch and Alicia Keys at dinner. The fund's picks haven't exactly been boffo, however. It started the year with a 12.94% stake in Tesla Motors Inc. (TSLA), which has short-circuited to the tune of 38.23% this year, as well as an 11.96% stake in CoStar Group Inc. (CSGP), which is down 25.49%.

Federated Kaufman fund (KAUFX), overseen by legendary small-cap investor Hans Utsch, has fallen 20.68% this year. A Federated spokesperson noted that the fund "has a substantial position in the biotech sector, which had its third-worst month ever in January. Management continues to have confidence in its biotech holdings over the long term."

Jacob Small Cap Growth Fund (JSCGX), run by former dot-com investing star Ryan Jacob, has plunged 26.79% this year and 40.87% over the past 12 months, according to Morningstar. (Jacob Internet, in contrast, has fallen 22.55% in 2016 and 14.71% the past 12 months).

It's been a rough ride for Jacob. The fund has not risen above the 99th percentile for the past one, three and five years. Its biggest holdings at the start of the year were a 7.75% stake in LogMeIn Inc. (LOGM), down 35.35% this year, and Yelp Inc. (YELP), down 45.52%.

Not everyone has had a terrible year. Irving Levine's Copley fund (COPLX) has gained 2.65%, thanks in part to a 34% cash stake, according to Morningstar. Hussman Strategic Dividend Value Fund (HSDVX) is up 2.79%, a nice benefit from its covered call-writing policy. And American Century Equity Income (TWEIX), which favors stocks with higher dividend yields than the S&P 500, has kept its losses to 2.64%.

Messrs Miller, Heebner, Baron, Jacob and Levine could not be immediately reached for comment.

Some of the funds that are having miserable years aren't doing much for the notion that active management works well for investors in the long run. But managers, like all of us, have good years and bad. And predicting when a manager will be hot or cold remains as difficult as it always has been.

Correction: This story was updated to reflect the performance of the Federated Kaufman fund, not the Federated Kaufman Small Cap fund.

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