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Bill Miller Stepping Down From Value Trust Fund

Longtime manager will remain as Legg Mason Capital Management's chairman.

Jason Stipp, 11/18/2011

Legg Mason Capital Management posted a letter to clients Thursday noting that longtime Legg Mason Capital Management Value Trust LMVTX manager Bill Miller will be stepping down from that fund at the end of April 2012 but will continue to serve as LMCM's chairman and to manage Legg Mason Capital Management Opportunity LMOPX. Comanager Sam Peters will become lead portfolio manager on Value Trust and will also become chief investment officer. In May 2010, Legg Mason had named Peters as Miller's eventual successor.

In a May 2011 Fund Spy article on assessing fund management changes, Morningstar analyst Bridget Hughes, who covers the Value Trust Fund, noted:

Legg Mason Capital Management is almost synonymous with Bill Miller. He has run this fund since the early 1980s. While he's had comanagers at times, it's clear that this is mainly his record. He had an amazing run in the 1990s through 2005, when he was plying his highly concentrated, contrarian approach on his own. Overall since then, it's been tough going, and in mid-2010, Sam Peters was officially named Miller's eventual successor and was added to the fund in November that year. ... We don't know if Peters can match Miller's long-term record, but it does seem that this could be a milder fund under his watch. However, it's still early into Peters' tenure to judge his strategy and his skill here.

In a blog post to Morningstar FundInvestor readers, Morningstar director of fund research Russ Kinnel noted:

The change may be a positive one, but I can't muster much enthusiasm for the fund either way. We gave the fund a Morningstar Analyst Rating of Neutral. It's a shame to see Miller go out on a down note.

Here's what Kinnel wrote on the subject in the October issue of FundInvestor:

Bill Miller had an amazing run of 15 consecutive years of beating the S&P 500, and in a few short years he's given it all back and more. The fund is up a cumulative 500% since Miller took over in 1990 compared with 544% for the S&P 500. That's every bit as amazing as his 15-year streak. Since the streak broke, the fund has beaten the S&P 500 in only one calendar year, 2009, following a harsh 55% loss in 2008.

What went wrong? Quite a lot, but I'll cut to the chase. Over time, Miller became more of a growth manager who was tolerant of high valuations because he took a visionary's approach to valuations. He looked out five or 10 years and saw Internet companies that would be worth 10 times what they were trading for at the time. He figured, therefore, who cares if I'm paying 20 times or 40 times today's earnings? That introduced a huge element of price risk, and Miller wasn't accurate enough to get away with it. In addition, Miller would double or triple his stake on the way down so that his mistakes were deadly.

Jason Stipp is Site Editor for Morningstar.com
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