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Value Trust is a mutual fund that has performed well against various indexes in the years
leading up to 2005. Value Trust takes S&P 500 as its benchmark index, which it has
outperformed for the last 14 years. Prior to 2005, Value Trust had an average annual total
return of 14.6%, which was 3.67% higher than S&P 500’s average annual returns. From
exhibits 1 and 5 we can see that the return was much higher for Value Trust (15.04%)
compared to the S&P 500 (9.48%) over a ten year period. The NAV was consistently
increasing from 1994 to 2000 up until the market crash when the NAV decreased but then
again increased consistently until 2004. The NAV is an investment measure and increase
indicates a better performance. Also from exhibit 1 we can see that the annual return of
Value Trust was higher than the S&P 500’s over the years. According to the case Value
Trust uses S&P 500 however we should make some analysis on what kind of shares S&P
500 deals with versus what kind of shares Value Trust deals with. S&P comprises of 500
widely held common stocks in other words large cap stocks. On the other hand 50% of
Value Trust’s assets were of only 10 large cap companies and Value Trust was open for
investing in growth companies. This made the beta of Value Trust (1.31 as taken from
Exhibit 1) higher than S&P’s beta indicating that Value Trust is riskier. In this case to make
the benchmark more comparable to Value Trust we chose to use other benchmarks, such as
the S&P 400 mid-cap. Although this benchmark may give the impression that Value Trust
did not perform as well as it should have against its peers (Value Trust’s 10-year
annualized return is 15.95%, compared to the S&P mid-caps’ 14.13%), the fact that the
fund still outpaced this smaller S&P fund is remarkable.
Value Trust’s superior performance in the past could be traced back to Bill Miller’s
investment philosophy. Bill Miller's approach combined the necessary fundamental and
technical research along with his understanding of the overall economy and most
importantly, a view of the future. He believed in judging a stock based on its intrinsic
capabilities as opposed to what the market thought of it. That many a times meant taking
positions in stocks with least promising outlook, but that was in cohesion with his strategy
of "buying for less is better than buying for more". With a view towards the future, Bill
