It's time for the permabullish broken clocks to move back to their default position. Very much in line with common sense, Bloomberg reports that Bruce Berkowitz, Kenneth Heebner and Bill Miller, "three of the best-known U.S. stock pickers" (perhaps, if one equates daily CNBC appearances with popularity), are competing for last place this year after their bets on an economic expansion backfired. More: "Funds run by Berkowitz of Fairholme Capital Management LLC, Heebner of Capital Growth Management LP and Miller of Legg Mason Inc. (LM) are the three worst performers among large diversified U.S. mutual funds in 2011, according to data from Chicago-based Morningstar Inc. The funds lost 11 percent to 12 percent through June 9, compared with a gain of 3.4 percent for the Standard & Poor’s 500 Index." Ironically, this "totalitarian troika" would not even be in business, if the government had not bailed out the permabull brigade whose entire career has been based on doubling down first on the Greenspan and then on the Bernanke put, and decided to implement central planning along the way. But that is obvious: "People assume because certain managers have had good streaks that they are always going to be a step ahead of the market,” Russel Kinnel, director of mutual fund research at Morningstar, said in a telephone interview. “It never works out that way."
More from Bloomberg:
The three managers are known for concentrating money in a small number of industries, said Kinnel, a strategy that can produce market-beating gains when the investments work out and large losses when they fail. Berkowitz, Morningstar’s fund manager of the decade, and Miller, known for beating the S&P 500 for 15 straight years through 2005, are wagering on a rebound in financial stocks. Heebner, manager of the best-performing diversified U.S. stock fund over a 10-year period until this year, was betting on automakers.
The two industries are the worst performers this year in the S&P 500 out of 24 groups. Bank stocks, as measured by the KBW Bank Index (BKX), fell 10 percent on concerns that the housing slump, litigation over mortgage bonds and foreclosures and new fee-crimping rules will depress bank earnings.
Berkowitz’s $14.8 billion Fairholme Fund had 74 percent of its equity holdings in financial stocks as of Feb 28, Morningstar data show. The fund fell 12 percent through June 9, ranking it last among 870 diversified U.S. stock funds with at least $500 million in assets.
Berkowitz didn’t respond to a request for comment. In a June 9 interview, Berkowitz said he was “more certain” than ever that his investments in financials made sense.
“The trends are getting better,” he said in the interview with Bloomberg Television’s Erik Schatzker. “The balance sheets are getting better and the cash flow is there to take care of the problems.”
Berkowitz said Brian Moynihan, chief executive officer of Bank of America, was doing “a good job” and that the bank “was making all the right moves.” Bank of America, based in Charlotte, North Carolina, fell 19 percent this year, including dividends.
And while the totalitarian troika is betting on greener pastures courtesy of another several trillion in free Fed money, and promises that "this time it really is different" investors are not hanging around to see the results:
“Berkowitz may be right, but I thought it was prudent to reduce our concentration in the distressed financial sector,” Sugameli said in a telephone interview from Wellesley, Massachusetts.
Investors pulled $2.3 billion from Fairholme Fund (FAIRX) in April and May, according to Denver-based Lipper. The fund attracted deposits of $11 billion in the four years ended Dec. 31.
Miller’s $1.5 billion Legg Mason Capital Management Opportunity Fund lost 11 percent through June 9, third-worst among large funds, Morningstar data show. The fund had 36 percent in financial shares at March 31.
In an April letter to shareholders, Miller wrote that the first quarter was a good one, “for almost everyone except us.” He said technology, health care and financial stocks were attractive. Miller, 61, declined to comment for this story, Maria Rosati, a spokeswoman for Legg Mason, wrote in an e-mail.
The bigger problem is that should these lambs finally start selling to preserve their record low cash levels, then not even the HFT permabid algos will do much if anything to prevent Waddell and Reed to be 2011's market crash scapegoat du jour all over again.