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Bill Miller Analysis

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Bill Miller and Value Trust Case Analysis

Case Facts:

 By middle 2005, Leg Mason Value Trust managed by Bill had outperformed S&P 500 index for 14 years in a row. This was longest successful run by any fund manager.  The average return on the fund was 14.6% which surpassed the S&P by 3.67% per year.  The value trust only had 36 holdings, 10 of which accounted for 50% of the fund’s assets.  No manager had matched Miller’s consistent index beating record.  Miller’s results were in contradiction to the conventional theory which suggests that it is extremely difficult to beat the market on a sustained basis as it is characterized by high competition, easy entry and informational efficiency.

Problem Statement:
 The Lag Mason Value Trust has been able to outperform the S&P 500 index for 15 consecutive years till 2005. Will the trust to able to consistently deliver similar performance in future?  Should a rational investor buy shares in Value Trust as on middle of 2005?  What can be possible reasons for the exemplary record of the Value Trust?  Can the reasons of the trust’s success can be only attributed to the trading skills and style of Bill Miller or is it sheer luck?

US Mutual Fund Market:
 The mutual fund market in the US has seen exponential growth in the last 30 years. The numbers of mutual funds have increased from 361 to 8,044 in between 1970 to 2005.  By 2004, Mutual fund owned nearly 20% of the outstanding stocks of US companies.  The value of each share was called Net Asset Value (NAV) NAV = (Market Value of fund assets – liabilities) / fund shares outstanding Annual total return = (Change in net asset value + dividends + capital gain distributions)/ NAV (at the beginning of the year)  Annual payments were collected as a percentage of the fund’s total assets and was called expense ratio.  The expense ratio covered the fund’s...

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