Larry Swedroe presents 10 year results for Legg Mason funds in a post on Arianna Capital Management entitled "Legg-Mason: Does it Add Value?" The answer he finds is no. Compared to similar Dimensional Fund Advisor (DFA) passively managed funds, the Legg funds underperform in 6 out of 6 asset class comparisons. Equally weighted by asset class, the underperformance averages to 2.4%.
Over 10 years, 2.4% takes a chunk out of the bottom line. DIY Investor looked at the impact of just management fees over the long term in "What is the Cost of Investment Management?"
Swedroe quotes his co-author (The Only Guide You'll Ever Need for the Right Financial Plan: Managing Your Wealth, Risk, and Investments (Bloomberg)) Kevin Grogan as saying, "If this were a fight, it would be stopped."
Legg's Chief Investment Officer, Bill Miller, is a brilliant, experienced investment manager and knows stocks inside and out. And yet he produces the results presented by Swedroe. The question that Swedroe asks is: how can they still have $700 million under management? He offers a number of explanations ranging from failure to admit their error to hope for a turn around. Wes Wellington of DFA argues that Bill Millers intellect carries the day. It is hard to believe that someone as smart as Bill Miler can't beat a "...simple market index".
I would offer a couple more reasons. First, many investors have never seen the comparative results as shown by Swedroe. Legg is obviously not out there touting the fact of their underperformance. Secondly, many investors are offered Legg Funds in 401(k) plans where they may be the the least poor of the available choices.
As a final point to ponder: if you have an advisor trying to beat the market do you think he or she is smarter than Bill Miller?
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