Bill Miller's old fund starts a new streak

Legg Mason Capital Management Value Trust, the fund legendary stock picker Bill Miller famously steered to 15 consecutive years of outperformance, is back to its winning ways. The $2.4 billion mutual fund (LGVAX) returned 30.73% over the one-year period ended May 24, beating the S&P 500's 27.77%. That one-year period is notable because it marks the first 12 months of the fund's existence without Mr. Miller as a portfolio manager. He had managed the fund since its inception in 1982. Mr. Miller's honorific was upgraded to “legendary” thanks to his 15-year streak of outperforming the S&P 500 from 1991 to 2005. Once the streak ended, however, 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 bail, and assets in the fund shriveled to less than $3 billion, down from a peak of $12.5 billion. The underperformance and loss of investor confidence led to what previously had seemed anathema: a Miller-less Value Trust. But the changing of the guard at the fabled fund has turned out to be a boon for investors who have stayed the course. Sam Peters, who succeeded Mr. Miller as the lead manager of the fund May 1, 2012, so far has been able to turn performance around.

TOP 20%

His one-year return ranked him among the top 20% of large-cap mutual fund managers over that period, according to Morningstar Inc. More importantly, Mr. Peters 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 about 18% year-to-date, about 150 basis points better than the S&P 500. Still it will be hard to convince financial 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.