(Bloomberg News) Bruce Berkowitz, Kenneth Heebner and Bill Miller, three of the best-known U.S. stock pickers, are competing for last place this year after their bets on an economic expansion backfired.
Funds run by Berkowitz of Fairholme Capital Management LLC, Heebner of Capital Growth Management LP and Miller of Legg Mason Inc. 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.
"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."
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, fell 10 percent on concerns that the housing slump, litigation over mortgage bonds and foreclosures and new fee-crimping rules will depress bank earnings.
Betting On Banks
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.