It's a star-studded cast in mutual funds - and also a shocking flop on this year's complex investing stage.
With the financial crisis playing out in ways many professionals failed to predict, and oil also surprising, some of the best and brightest of the fund business have turned into the biggest losers of the year.
They include exalted names such as Bill Miller of Baltimore-based Legg Mason Value fund, Martin Whitman of Third Avenue Value fund, David Dreman of DWS Dreman High Return, Wally Weitz of Weitz Value, Mason Hawkins and Staley Cates of the Longleaf Partners team, Christopher Davis and Kenneth Feinberg of Davis New York Venture, and the team that manages American Funds Amcap fund.
They have been positioned among the bottom fourth of all fund managers in their categories this year, a position that is surprising analysts as well as clients.
For 15 years, the managers have been at the top of the charts. Now some investors are losing confidence in them and yanking their money from the funds.
"Talk about a fall from grace," Morningstar director of mutual fund research Russel Kinnel said of Miller, perhaps the most admired fund manager over the past 15 years. Miller has performed so poorly the past 2 1/2 years that Morningstar now gives his fund one star, its lowest rating, Kinnel said.
Weitz said he shared a dinner with Miller and other value managers recently while attending a conference.
"We called it our value investor support group," he said. "This has been unprecedented." Many of the value managers, he said, were surprised by the extent of the contagion from the credit crunch that has infected the financial system. The last financial crisis, about a decade ago, which involved the Asian currency crisis and the demise of a huge hedge fund, Long-Term Capital Management, was resolved in about six months, Weitz noted.
"This time, we've had a year of it, with even the more conservative lenders having trouble," he said. "It's really startling. And the market feels like 1974, developing hopelessness among investors." The environment has been the perfect snare for the star-studded cast. Many value managers hunt for cheap stocks, and especially what appear to be cheap financial stocks that they expect will eventually climb. Buying value, however, can also be a trap.
