December 28, 2010

Bill Miller, Jeremy Grantham to Stay the Course in 2011

Legendary fund managers stick with allocations despite tough 2010

Jeremy Grantham (left), Bill Miller and Donald Yacktman told mutual-fund investors that 2010 was the year to buy the biggest stocks. They’re sticking with the prediction even after getting drubbed by most of their peers.

The Yacktman Focused Fund trailed 75% of rivals this year, according to data compiled by Bloomberg. Grantham’s $14.9 billion GMO Quality Fund is up 5.7%, worse than 99% of rivals, even though its top holding, software firm Oracle Corp. of Redwood City, Calif., is up 29%.

The news service notes two of the top five holdings in the Yacktman Focused Fund−Microsoft Corp., the Redmond, Wash.-based software maker, and pharmaceutical company Pfizer Inc. in New York−are among its worst performers.

The flagship large-cap fund run by Miller (left), the $4 billion Legg Mason Capital Management Value Trust, gained 6.6% this year, trailing 98% of similarly managed funds, Bloomberg data show. Miller’s mid-cap fund, the $2 billion Legg Mason Capital Management Opportunity Trust, rose 17%.

In November, Grantham’s firm, Boston-based Mayo Van Otterloo Co., predicted that the highest-quality stocks, known as blue chips, will return 5.1% a year above inflation over the next seven years, compared with an annual loss of 0.8% for small stocks.

“I believe (once again speaking for myself) that high-quality stocks should have an even bigger win over low quality than our GMO numbers suggest,” Grantham, the company’s chief investment strategist, wrote in a newsletter.

As Bloomberg notes, Grantham, 72, is best known for his gloomy and often accurate long-term forecasts. In 2000, he predicted that U.S. stocks would lose money in the coming decade.

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