Bill Miller, the Legg Mason Inc. (LM) manager famous for beating the Standard & Poor's 500 Index for a record 15 years through 2005, will step down from his main fund after trailing the index for four of the past five years.
Miller, 61, will be succeeded by Sam Peters as manager of Legg Mason Capital Management Value Trust (LMVTX) on April 30, which is the 30-year anniversary of the fund, the Baltimore-based firm said today in an e-mailed statement. Miller will remain chairman of the Legg Mason Capital Management unit while Peters will be chief investment officer.
Miller, a value investor known for his bullish views of the economy and stock markets, became mired in the worst slump of his career as he wagered heavily on financial stocks during the 2008 credit crisis. Value Trust lost 55 percent that year as the S&P 500 dropped 37 percent, including dividends, prompting a wave of withdrawals. The fund's assets have plunged from a peak of $21 billion in 2007 to $2.8 billion.
“April 2012 is the right time for Sam to take over,” Miller said in the statement. “Over the past year, Sam and I made important adjustments to the fund's portfolio construction and characteristics, and we're both very pleased with how it is positioned.”
A manager of Value Trust since its 1982 inception, Miller last year named Peters, a former Fidelity Investments stockpicker who joined the firm in 2005, to become his co- manager and eventually his successor. Miller initially co- managed Value Trust with Ernie Kiehne, then took sole responsibility in 1990, the year before his winning streak started. Research firm Morningstar Inc. named him fund manager of the decade for his performance in the 1990s.
Betting on Recovery
As markets rebounded in 2009 and 2010, Miller bet the U.S. economy would return to its old strength by investing in financial stocks and consumer-oriented companies. The fund topped peers and the S&P 500 with a 41 percent return in 2009 as markets rebounded, only to fall behind benchmarks again last year with a 6.7 percent gain. Value Trust declined 5.5 percent this year through Nov. 16, trailing 60 percent of similar funds, according to data compiled by Bloomberg.
Over the past five years, the fund has fallen at an average annual pace of 9.6 percent, ranking near the bottom of its peer group.
Miller will continue as manager of the $964 million Legg Mason Capital Management Opportunity Trust, which has slumped 34 percent this year, according to data compiled by Bloomberg. Over the past five years, that fund has declined at an annual pace of 13 percent.
Stock Pickers' Woes
The inability of famed stock pickers such as Miller to protect investors from the market declines has spurred $537 billion in withdrawals from actively managed U.S. equity mutual funds since 2006, as clients shifted money into bonds and index products.
Miller's underperformance contributed to 16 straight quarters of net redemptions at Legg Mason, the parent company. Chief Executive Officer Mark Fetting has said improving fund performance at all affiliates is a priority after returning the firm to profitability from a $2 billion loss in fiscal 2009.
Activist investor Nelson Peltz, who took a stake in 2009 and is on Legg Mason's board, said in an interview last month that he expects the Western Asset Management fixed-income division, the firm's biggest, to lead the turnaround.
Legg Mason fell 1.3 percent to $25.21 at 10:07 a.m. New York time. The shares have declined 30 percent this year, compared with the 23 percent decline in the S&P index of asset managers and custody banks.
Rival firms have revamped their portfolio-management teams this year in an effort to improve returns and win back customers. In September, Boston-based Fidelity named Jeffrey Feingold to run the Magellan Fund, replacing Harry Lange after the stock fund trailed 85 percent of competitors over the previous five years.
Miller worked in the research unit of Legg Mason before being named portfolio manager of Value Trust. He earned an economics degree from Washington & Lee University, where he graduated in 1972. After graduating, Miller served as a military intelligence officer overseas and then pursued graduate studies in philosophy in the Ph.D. program at Johns Hopkins University.