Fund managers who blew up their performance over the years

[opihiman2]

Hey folks,

 

Long time no post.  I thought I would make a post about fund managers who blew up their stellar track records over the years.  Please add to this list if I'm missing any:

 

Bill Miller

Legg Mason

Beat S&P for 15 consecutive years, blew his fund up in the next 5 and was ousted as the fund manager

 

Eric Sprott

Sprott Asset Management

Not that long ago (I can't remember how long), their hedge fund had 18+% CAGR.  The Sprott Canadian Equity Fund was averaging near 30% since 1997.  Being a gold bug and precious metal fan, Sprott's funds took a big dive and is now averaging 6% and 11-12% CAGR respectively.

 

Trapeze Asset Management

Up until the 2008 recession, TAM had unreal returns for 10+ years, averaging 33% CAGR.  After the major blow up, their long/short fund is now averaging about 10-11% CAGR since 2008.  They no longer post their previous performance graphs that showed their stellar performance up til 2008

 

Ken Heebner,

CGMFX

Had the best performing mutual fund there with almost 20% CAGR.  Blew up the fund a couple times the past few years ago but seems to be back on track.  Now averaging 10% CAGR.

 

Any more?

 

[OracleofCarolina]

Sellers Capital

[MrB]

Rick Guerin?

[Hielko]

Meson Capital

[zippy1]

Jim Gibson and team from Pacific Financial Research, who used to run Clipper fund.

[indythinker85]

Nice recent WSJ article on this topic http://online.wsj.com/articles/how-funds-with-5-star-morningstar-ratings-10-years-ago-have-fared-1410120116

 

Take a list of the top-rated mutual funds from years ago—those with five-star ratings from Morningstar Inc. MORN -0.06%  —and look at them now. The sobering fact: You'll see many once-proud, five-star funds have dropped to four stars, three stars or worse. And there are lessons to be learned from that.

 

[topofeaturellc]

  Pretty much any long-only manager of any style who has good ten year plus numbers has a 1,3, and 5 period where they meaningfully underperformed.  Many managers who had great 1, 3 and even 5 year numbers when looked at on a ten year basis were nothing more than coin flippers.

 

This is basically because no process works all of the time. No style or philosophy. 

 

 

[ukvalueinvestment]

Could some of the reason for the Morningstar downgrades be because the funds attracted flows, got bigger, and they had to change the sorts of stocks they were in?

[CorpRaider]

I personally still think heebner and miller are good investors and wouldn't bet against them looking pretty good in retrospect by say 2019/2020.  You have to cut people some slack when something that was perhaps worse than the great depression (especially for value investors) happens.  Part of the problem, if not most, is due to the mutual fund form and investors plowing money in at exactly the wrong time and bailing out and forcing liquidations at the bottom.  I don't know why more of these guys don't run closed end funds so they can get some durable capital, without having to take over a shitty retailer or reinsurer.  Even if the AUM wasn't big enough to suit their needs it would be nice to have that to point to as a comparable.  I would look at a CEFs from either of them.

[topofeaturellc]

Could some of the reason for the Morningstar downgrades be because the funds attracted flows, got bigger, and they had to change the sorts of stocks they were in?

 

some of that.  Also the star ratings care a lot about vol.

[yadayada]

the amount of short term and results oriented thinking in this world is mindblowing. I know we are a bunch of animals that are not wired for that because it did not serve our purpose of survival. But still. Some one time event this year? Oh let's pretend next year does not exist. Only this year counts.

 

An average? WHATS THAT? NEVER HEARD OF IT. Luck? Never heard of that concept either.

[CorpRaider]

Could some of the reason for the Morningstar downgrades be because the funds attracted flows, got bigger, and they had to change the sorts of stocks they were in?

 

some of that.  Also the star ratings care a lot about vol.

 

True.  FAIRX is good example of that.

[Guest longinvestor]

  Pretty much any long-only manager of any style who has good ten year plus numbers has a 1,3, and 5 period where they meaningfully underperformed.  Many managers who had great 1, 3 and even 5 year numbers when looked at on a ten year basis were nothing more than coin flippers.

 

This is basically because no process works all of the time. No style or philosophy.

 

Why should the mutual fund manager's lack of process or performance become the fund investee's problem? Buffett is exactly correct in suggesting that the average investor who does not have the time or inclination to pick investments would be best served by putting most of their money in a low cost index fund. Again, excessive fee avoidance is the soundest, simplest strategy for most.

 

 

[topofeaturellc]

  Pretty much any long-only manager of any style who has good ten year plus numbers has a 1,3, and 5 period where they meaningfully underperformed.  Many managers who had great 1, 3 and even 5 year numbers when looked at on a ten year basis were nothing more than coin flippers.

 

This is basically because no process works all of the time. No style or philosophy.

 

Why should the mutual fund manager's lack of process or performance become the fund investee's problem? Buffett is exactly correct in suggesting that the average investor who does not have the time or inclination to pick investments would be best served by putting most of their money in a low cost index fund. Again, excessive fee avoidance is the soundest, simplest strategy for most.

Huh?  I'm not sure what point you think I'm trying to make?  When you are looking at active managers you've already made the decision to invest actively.

 

And that fact that BRK itself has trailed the market for certain periods of time is itself evidence of what I am trying to say.

 

[opihiman2]

Interesting posts.  I semi-agree about Heebner.  I like his investing style and he's a good manager overall.  His long term performance is still pretty good.  But, I remember back in the day when people were jumping into his funds after a string of stellar performance.  It just reminds me of the obligatory caveat emptor: past performance is not indicative of future performance.

 

edit:

 

It doesn't seem very clear, but TAM blew up their fund and went from 33% CAGR to 10+% CAGR.  Not 10% since 2008.  That might imply their CAGR is still in the 20+%.

[peter1234]

Interesting posts.  I semi-agree about Heebner.  I like his investing style and he's a good manager overall.  His long term performance is still pretty good.  But, I remember back in the day when people were jumping into his funds after a string of stellar performance.  It just reminds me of the obligatory caveat emptor: past performance is not indicative of future performance.

 

Agreed.

 

I remember reading that his investors had bad performance even when his funds were doing well.

 

Since his funds were so volatile, they perfectly bought high and sold low.

:'(

[randomep]

Sellers Capital

 

+1, I think his one gets a lot of publicity because the manager was so frank despite this fund blowing up.

 

Amaranth Advisors

[topofeaturellc]

Interesting posts.  I semi-agree about Heebner.  I like his investing style and he's a good manager overall.  His long term performance is still pretty good.  But, I remember back in the day when people were jumping into his funds after a string of stellar performance.  It just reminds me of the obligatory caveat emptor: past performance is not indicative of future performance.

 

Agreed.

 

I remember reading that his investors had bad performance even when his funds were doing well.

 

Since his funds were so volatile, they perfectly bought high and sold low.

:'(

 

That's pretty much a characteristic of every high performing manager.  People tend to invest at the end of the run, not the beginning, and tend to pull assets out up until the underperformance ends.

[Guest]

CGMFX performance history is wild.

 

From inception in 1997 the fund has out performed the S&P 500. $10,000 invested in CMGFX would now be about $57,000 vs $46,500 for S&P 500 index fund. Pretty good!

 

However, if we look back in 2008, that $10,000 investment would have been worth over $101,600 vs about $16,000 for index fund!! Absolutely incredible! The level of out performance and under performance during the first 10 or so years and last 10 or so is probably unparalleled for a mutual fund.

[Spekulatius]

CGMFX performance history is wild.

 

From inception in 1997 the fund has out performed the S&P 500. $10,000 invested in CMGFX would now be about $57,000 vs $46,500 for S&P 500 index fund. Pretty good!

 

However, if we look back in 2008, that $10,000 investment would have been worth over $101,600 vs about $16,000 for index fund!! Absolutely incredible! The level of out performance and under performance during the first 10 or so years and last 10 or so is probably unparalleled for a mutual fund.

 

The problem with those kind of performances track records is that they outperform when the fund is small and underperform when the fund is large (from fund inflows). When you look at the total amount money gained and lost, CMGFX lost their customers money on average, relative to an index fund.