Group Case 1: “Bill Miller and Value Trust”

1. How well has Value Trust performed as of the date of the case?
By almost any measure, Bill Miller’s Value Trust had been a remarkable success over the past 15 years. Over this time, the Value Trust had an average return of 14.6%, beating the S&P 500 by 3.67%. Miller took the long approach to investing, rarely beating out the whole market of fund managers in any particular year, but consistently outperforming them over the last 15 years. In 2005, Miller’s Value Trust had beat the S&P’s 500 Index for 14 years in a row, while no other manager had ever been able to beat it for more than 7 years. Sadly, Miller’s fund has trailed the S&P 500 in four out of the past five years.
2. What might explain the fund’s performance?
Bill Miller’s investment strategy at Capital Management Value Trust has always sought long-term growth of capital. Value Trust’s assets were invested primarily in 10 large-capitalization companies with some additional investments in riskier growth stocks at higher price-to-earnings ratios that paid little to no dividends. The fund’s strategy was to focus on equity securities that offered potential for capital long-term growth. The reason for the fund’s poor performance since 2004 is likely attributable to its significant investment in equity securities. Likely, some of this investment included mortgage-backed securities, i.e. investment in the subprime mortgage market; thus significant fund holdings of such assets likely resulted in considerable losses which and presumably caused the fund to take a second hit if a significant portion of investors withdrew investments out of fear in the market or lost confidence in Miller’s investing strategy. (Exhibit 1)

3. What would Miller say in response to the claim that his success is luck? What is his investment style and how does it vary from