Bill Miller's Down in the Dumps Again

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If any portfolio manager needs a good year of performance, it has to be Legg Mason Capital Management's Bill Miller. Unfortunately, he didn't get it in 2010.

For the year to date through Dec. 22, Legg Mason Capital Management Value Trust LMVTX is up 7.08%. That's not bad in absolute terms, but it is less than half the S&P 500 Index's 15.14% gain. It also puts the fund well in the large-blend category's worst decile--for the fourth time in the past five years.

The sluggishness continues to take a toll on the fund's longer-term results. Its 10-year return, a 1.61% annualized loss, also sits in the category's worst decile. And while its 7.09% annualized gain over the past 15 years is just outside the category's best quartile, it beats the index by only 27 basis points--which hardly seems enough considering the volatility fund shareholders have endured.

The past decade doesn't seem befitting of the manager who gained fame with his remarkably consistent performance throughout the 1990s and early 2000s--when he managed to beat the S&P 500 Index for 15 consecutive calendar years . . . or is it?

Downside Matters
The year's performance continues a pattern of volatile performance--in part reflecting the market's own roller-coaster ride. To Miller's credit, he did manage to bring down the fund's standard deviation this year (though it's still higher than that of the S&P 500 Index), as he's moved into higher-quality, larger-cap, lower-beta stocks because of their more attractive valuations. As the markets vacillated between the beginning of the year and late April, the fund stayed roughly in line with the S&P 500 Index.

During the setback from late April to late August, though, the fund lost well more than the S&P 500 Index, as some of Miller's tech picks, including Hewlett Packard HPQ and Cisco Systems CSCO took a beating. Top pick AES AES, which has been part of the portfolio for more than 10 years, also dropped a great deal as investors have fretted about a dilutive stock sale to a subsidiary of China's sovereign wealth fund, as well as weakness in its North American power generation.

As the market has turned up since late August, the fund has gained nearly 18%. But that's actually behind the 20% return of the S&P 500 Index and thus not enough to keep the fund competitive for the full year.