Bill Miller bounces back

And so have some other famous stock pickers. Is it time to get back into their funds?

EMAIL  |   PRINT  |   SHARE  |   RSS
google my aol my msn my yahoo! netvibes
Paste this link into your favorite RSS desktop reader
See all RSS FEEDS (close)
By Penelope Wang, Money magazine senior writer


(Money Magazine) -- Last year it looked as if the era of the celebrity fund manager was finally, definitively over. The best and brightest had not only failed to avoid the financial meltdown but did worse than the market as a whole. Now some are staging a comeback.

Take Bill Miller of Legg Mason Value, knocked from his perch by a 55% loss in 2008. This year through June 15, Miller has gained 12.1%, vs. 3.6% for the S&P 500. Harry Lange's Fidelity Magellan, which fell 49.4%, is now up 16.6%. And Wally Weitz of Weitz Hickory, down 41.6%, rebounded 13.9%.

No, these short-term gains don't come close to making up for last year's losses. But if you pulled your money out of one of these marquee funds during the market collapse (as so many shell-shocked investors did), you may be feeling a few pangs of regret right now. And you're probably wondering whether it's time to jump back into one of these funds.

Do you need a star? Maybe

Here's a better question: Do you belong in any actively managed fund? Most of the evidence says that a stock picker is unlikely to beat a passively run index fund over time. And star fund managers tend to fade out or move on. Just look at Michael DiCarlo, Mark Holowesko, or Blaine Rollins. If those names don't ring a bell, trust me - they used to be famous.

When you look beyond the notion of market-beating returns, however, there still are some plausible reasons to opt for an active portfolio. Perhaps you want a manager who will minimize market volatility by buying only cash-rich, blue-chip stocks, or maybe you want someone who will aim for big gains by investing in tiny but fast-growing companies. In other words, you can use active funds to fine-tune your portfolio so that it fits with your taste for risk.

The rules to follow

If you opt for the active approach, it's important to do it the right way.

Know the strategy. The main way funds outperform the market is to take more risks. That may mean holding a concentrated portfolio of stocks or making big bets on two or three industries. Either way, the fund is bound to perform differently from the overall market. If you can't handle that kind of risk, stick with funds that hold more broadly diversified portfolios instead. Or just buy a low-cost index fund.

Be patient. Even the best managers are likely to go through long periods of poor performance. A study last year by Baird Advisory Services found that top stock pickers often lagged comparable funds for three-year periods, while still ending up with above-average 10-year track records.

"Most managers will go through periods when they look stupid," says Baird's Timothy Byrne. To succeed with active funds, you have to have some tolerance for failure.

Know when to be impatient. When does it make sense to dump a fund? If the boss or a key member of the team leaves, you should consider moving on too. Finding really smart managers is hard enough - why take a chance on an unknown?  To top of page

Send feedback to Money Magazine
They're hiring!These Fortune 100 employers have at least 350 openings each. What are they looking for in a new hire? More
If the Fortune 500 were a country...It would be the world's second-biggest economy. See how big companies' sales stack up against GDP over the past decade. More
Sponsored By:
More Galleries
10 of the most luxurious airline amenity kits When it comes to in-flight pampering, the amenity kits offered by these 10 airlines are the ultimate in luxury More
7 startups that want to improve your mental health From a text therapy platform to apps that push you reminders to breathe, these self-care startups offer help on a daily basis or in times of need. More
5 radical technologies that will change how you get to work From Uber's flying cars to the Hyperloop, these are some of the neatest transportation concepts in the works today. More
Worry about the hackers you don't know 
Crime syndicates and government organizations pose a much greater cyber threat than renegade hacker groups like Anonymous. Play
GE CEO: Bringing jobs back to the U.S. 
Jeff Immelt says the U.S. is a cost competitive market for advanced manufacturing and that GE is bringing jobs back from Mexico. Play
Hamster wheel and wedgie-powered transit 
Red Bull Creation challenges hackers and engineers to invent new modes of transportation. Play

Most stock quote data provided by BATS. Market indices are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer. Morningstar: © 2018 Morningstar, Inc. All Rights Reserved. Factset: FactSet Research Systems Inc. 2018. All rights reserved. Chicago Mercantile Association: Certain market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved. Dow Jones: The Dow Jones branded indices are proprietary to and are calculated, distributed and marketed by DJI Opco, a subsidiary of S&P Dow Jones Indices LLC and have been licensed for use to S&P Opco, LLC and CNN. Standard & Poor's and S&P are registered trademarks of Standard & Poor's Financial Services LLC and Dow Jones is a registered trademark of Dow Jones Trademark Holdings LLC. All content of the Dow Jones branded indices © S&P Dow Jones Indices LLC 2018 and/or its affiliates.