Bill Miller's fund beats S&P 500 11th year in row

Legg's Value Trust wins even though it had 2nd losing year

January 03, 2002|By Robert Little | Robert Little,SUN STAFF

Bill Miller lost money again last year. The mutual fund that he manages dropped roughly 9.3 percent, posting a loss for the second year in a row.

But even when losing, Baltimore's celebrated fund manager does it better than most. And he begins 2002 with his history-making streak of beating the stock market intact.

Miller's fund, Legg Mason Value Trust, performed better than the Standard & Poor's 500 Index for the 11th straight year in 2001. In a business where three straight wins can cement a career, Miller's decade-plus streak is nothing less than legendary.

"I'm sure he would admit that it's been somewhat of a hollow victory the last two years, having lost money, but it's still a remarkable accomplishment," said Charles B. Carlson, vice president and portfolio manager of Horizon Investment Services in Hammond, Ind.

"No one else has been able to do it. That alone shows you how difficult it is."

Most investors agree that beating a broad stock index like S&P 500, which lost 11.9 percent last year, was easier in 2000 and 2001, when most stocks declined and even a portfolio of cash would have come out a winner.

But Miller didn't beat the market last year by retreating. He continued to invest aggressively - even reducing his cash position as stocks plummeted after the Sept. 11 terror attacks.

Legg Mason Value Trust bought wilted stocks such as Nextel Communications Inc., Lucent Technologies Inc. and energy producer AES Corp. last year. And it set up what could be Miller's latest coup or his greatest bust, becoming the largest outside investor in perennial money-loser Inc.

The moves were not out of character for the $11.8 billion fund. Miller's rise to fame was largely lashed to the fortunes of two companies that were, at the time, considered risky ventures - America Online Inc. and Dell Computer Corp. Neither company seemed appropriate for a "value" investor in the early 1990s, when Miller acquired large stakes in both.

Today, both companies are stable institutions, Legg Mason Value Trust has earned its clients as much as 50 times their initial investment, and Miller was hailed as "one of the greatest investors of our time" by Fortune magazine in a profile published last month.

Miller, who has been sole manager of the fund since November 1990 and co-managed it with Ernest Kiehne from its inception in 1982, could not be reached yesterday.

But in a press release issued by Legg Mason he seemed less concerned with his streak than his fund's bottom line, characterizing 2000 and 2001 as "two tough years."

"While we're pleased the Value Trust team has been able to add value by outperforming the index once again in 2001, our focus has been and will continue to be to provide attractive long-term growth of capital for our shareholders," he said.

Beating the S&P 500 requires more than investing prowess - it takes some luck. Jeff Tjornehoj, research analyst for Lipper Inc., notes that Miller actually lost to the S&P 500 during several 12-month stretches over the last decade, only to recover by the end of the calendar year.

But that doesn't mean that analysts aren't impressed.

"It's just a terrific accomplishment, Tjornehoj said. "He wasn't buying just down-and-out, road-kill companies, he was buying undervalued stocks with strong numbers and strong potential.

"And he does it with some consistency. He seems to be buying the right companies for every market."

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