Bear Bites Star Fund Managers

Two venerable mutual funds are smarting big-time now that JP Morgan Chase is buying Bear Stearns in a fire sale. Legg Mason Value and Vanguard Windsor II are two of the largest Bear Stearns shareholders, and both are run by star fund managers. The Bear Stearns stake in the $45 billion Windsor II fund was 1.4% of assets at the end of 2007. Over at Legg Mason, it was 1.2% in the $13.2 billion Legg Mason Value fund.

Karen Dolan, director of mutual fund analysis at Morningstar, isn’t concerned that Jim Barrow of Vanguard Windsor II and Bill Miller of Legg Mason Value are caught up in the mess. “These are both good managers that own Bear Stearns,” Dolan says. “It was obviously a mistake call.” Both funds are diversified, so while the Bear holdings are hurting performance, investors have exposure to plenty of other sectors and securities.

For more Morningstar commentary as well as a list of other funds with big Bear stakes, check out this Morningstar piece.

Bear Stearns itself is actually not a player in the mutual fund industry, although it does have a sizable ($1.13 billion) separately managed account business, according to Morningstar. So far, those accounts appear to be safe. “There’s no reason to rush for the exits,” Dolan says.