Financial-Stock Portion of the S&P 500 Value Index: 22.5%

By Simeon Hyman | November 22, 2011
  • What's Happening

    What Happened

    Some critics of mutual fund manager Bill Miller tie his downfall to a misplaced faith in financial stocks. Miller recently resigned from his flagship fund, Legg Mason Capital Management Value Trust, which beat the Standard & Poor's 500-stock index for 15 years running through 2005. His departure comes after a long decline in which his performance trailed that of the S&P 500 -- badly -- for four of the past five years. Value Trust shrank from $21 billion in assets in 2007 to $2.8 billion as of last week.

    Photograph by Tim Boyle/Bloomberg

  • Why It Matters

    Why It Matters

    A disproportionate number of financial stocks are considered value stocks according to the classic definition: underpriced relative to their accounting books. While financials make up about 13 percent of the S&P 500, their share of the S&P 500 Value Stock Index is nearly double that. Value Trust held about the same percentage of financials as the value index. Miller may have compounded the problem by investing in the wrong financials (he famously bought -- and held -- big stakes in AIG and Fannie Mae as those companies foundered).

  • What It Means for Your Portfolio

    What It Means for Your Portfolio

    One lesson to take from the fall of the House of Miller: If you own a value fund, you may own more financial stocks than you think. It's up to the academics and accountants to argue their points in the long-running debate as to whether it's right or wrong to classify financial companies as value stocks. However, the fact that so many of these stocks end up in these value funds has important implications for investors, who may not know their portfolios are so heavily exposed to financials.

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