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Do call it a comeback: Bill Miller's old fund starts a new streak

Legg Mason Value Trust far outstripping S&P 500; meanwhile, Miller on a roll of his own

May 28, 2013 @ 5:45 pm

By Jason Kephart

Legg Mason Capital Management Value Trust, the fund legendary stock picker Bill Miller famously steered to 15-years of outperformance, is back to its winning ways.

The $2.4 billion mutual fund (LGVAX) has a return of 30.73% over the one-year ending May 24, besting the S&P 500's 27.77% return over the same time period.

That one year period is notable because it marks the first 12-months of the fund's existence without Mr. Miller listed as a portfolio manager.

Mr. Miller had managed the fund since its inception in 1982. His honorific was upgraded to “legendary” thanks to his 15-year streak of beating the S&P 500 from 1991 to 2005.

Once the streak ended though, the party came to a screeching halt. From January 2006 to October 2011, Value Trust lost 36%, while the S&P 500 gained 13%. Not surprisingly, shareholders began to bale, and assets in the fund shriveled to less than $3 billion, down from a peak of $12.5 billion.

The underperformance, coupled with the loss of investor confidence, led to what had previously seemed anathema: A Mr. Miller-less Value Trust.

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But the changing of the guard at the fabled fund has turned out to be a boon for investors who've stayed the course,. Sam Peters, who succeeded Mr. Miller as the lead manager of the fund on May 1, 2012, has so far been able to turn performance around.

His one-year return ranks him among the top 20% of large cap mutual fund managers over the one-year period, according to Morningstar Inc. More importantly he's got Value Trust on pace to do something it hasn't done since 2005 —beat its benchmark index over a full calendar year. The fund has returned 18% year-to-date, 133 basis points better than the S&P 500.

Still it has a long way to go to convince advisers that the times really are changing. The fund's three- and five-year returns still rank near the bottom quartile of large-cap funds, according to Morningstar.

As for Mr. Miller, he's recently been providing investors with glimpses of his earlier brilliance. Now focused solely on the Legg Mason Opportunity Fund (LGOAX), which he's run since 1999, Mr. Miller has quietly piloted that fund to new heights, Indeed, since Mr. Miller stepped down from Value Trust and focused on the Opportunity Fund, that fund has been the top performing non-leveraged mutual fund.

In fact, its 66.58% return is almost 1,000 basis points better than the $47 million Oberweis International Opportunities Fund (OBIOX), the second best performing non-leveraged fund over that time period.



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