We revisit comments made by Craig Callahan, ICON Advisers founder and president, in last month's feature, "Where are top portfolio managers finding alpha?"
Said Callahan, "In order to find the best value, you have to go right into the thick of the bad areas, such as consumer discretionary and financials. You demonstrate leadership to your investors by doing so."
It seems more value managers are bailing on this leadership. The Wall Street Journal reports big-name mutual fund managers who thought they bought low are now selling far lower and are posting big losses because of the credit crisis. Legg Mason's Bill Miller, John Rogers at Ariel Investments and Oakmark's Bill Nygren are unloading traditional holdings that have disappointed.
"The sudden downside moves are something I've never seen before" and are difficult to "research and predict," Rogers, Ariel's chairman, told the paper. According to Morningstar, large-stock value funds are down 11.8 percent overall this year, worse than the market. The Standard & Poor's 500-stock index's total return is off 10.2 percent.
The Journal notes at the end of December, Ariel Focus Fund highlighted its Citigroup Inc. position, saying that "critics are excessively pessimistic and not giving credit to the underlying strength of Citigroup's diversified business model." The financial behemoth's balance sheet has "stabilized," Ariel said at the time.
But in recent months, Ariel Focus dropped its Citigroup stake because of "discomfort with the risk embedded in its fixed-income portfolios," according to the paper. In the three years the fund owned Citigroup, the stock fell 42 percent.