Q. What has happened to Bill Miller’s Legg Mason Value Fund? Should I sell my shares?
K.R., via the Internet
A. This fund run by much-admired longtime portfolio manager Miller had beaten the Standard & Poor’s 500 index for 15 consecutive calendar years before 2006 rolled around.
Disappointing holdings such as Amazon.com, Yahoo, eBay, UnitedHealth Group and Pulte Homes erased its chance of extending that string.
As Miller attempts to right the course, he must cope with a high annual expense ratio of 1.68 percent and an enormous portfolio of $21 billion. That means investors should consider its prospects more carefully than in the past.
Results have tumbled: Legg Mason Value Fund (LMVTX) gained 6 percent over the past 12 months to rank in the lowest 2 percent of large growth and value funds. Its three-year annualized return of 8 percent puts it in the lowest 20 percent of its peers.
“Legg Mason Value can be a core holding, but investors must be aware of its volatility and be able to ride out short-term bumps such as this one,” said Greg Carlson, analyst with Morningstar Inc. in Chicago, who still considers the fund attractive. “Because it is such a concentrated portfolio–with 45 percent of assets in its top 10 holdings–there is also some concern about flexibility.”
Consumer services comprise nearly one-fifth of Legg Mason Value’s assets. Other significant concentrations are financial services and health care. Largest holdings recently were AES, Tyco International, Qwest Communications International, Sprint Nextel, UnitedHealth Group, JPMorgan Chase, Google, Sears Holdings, Amazon.com and Aetna.
This “no-load’ (no sales charge) fund requires a $1,000 minimum initial investment.
Q. How should I decide whether to keep my 401(k) retirement plan with my former employer or move it to an individual retirement account?
D.W., via the Internet
A. The IRA will likely provide more investment choices and greater overall control of your money.
“With the IRA, you’ll have the freedom to use your own financial adviser and can customize a plan with your own interests in mind,” said Ed Slott, a certified public accountant and publisher of Ed Slott’s IRA Advisor of Rockville Centre, N.Y.
But if your former company does offer you the option of keeping the money with it, weigh carefully whether to do that or roll it over into an IRA. The quality of the 401(k) makes a big difference, but there are other considerations.
For example, the funds in your 401(k) can’t be touched in personal bankruptcy or by lawsuits. Only some states protect IRAs. In addition, if you expect to borrow from your account, IRAs do not permit loans.
If you withdraw funds from an IRA before age 59 1/2, you’ll be charged a 10 percent penalty. With the qualified plan, you can withdraw funds penalty-free at age 55 provided you have “separated from service” with the employer.
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Andrew Leckey is a Tribune Media Services columnist. E-mail him at [email protected].
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