Miller says he's still leery of fast-rising energy stocks

Fund manager questions high oil prices' endurance

April 30, 2005|By BLOOMBERG NEWS

Baltimore mutual fund manager Bill Miller, coming off an unusually poor quarter for his flagship Legg Mason Value Trust, said he's still not ready to invest in fast-rising energy stocks because he's skeptical of the theory that higher oil prices are here to stay.

The veteran investor, whose primary fund has beaten the Standard & Poor's 500 stock index for a record 14 consecutive years, told shareholders in a quarterly letter he was "intellectually agnostic, but emotionally skeptical" about the notion of permanently higher energy prices. If the energy bulls prove to be right, he wrote, "it will not be too late to adjust to things as events unfold."

Miller's fund has fallen 9.2 percent for the year as of Thursday, including reinvested dividends. That compares with a 5.1 percent drop by the S&P 500.

"At an investment conference in London in early February, I said that not only was I bullish on the market for 2005 but that I was the most bullish person I know," Miller wrote. "I guess that means now I am the most bullish and wrong person I know."

Miller, who has been involved in managing the fund since it opened in 1982, said he ignored "oil and other extractive industries" for years because of declining prices, slow growth and political issues.

If oil prices keep rising, the markets will struggle, Miller wrote. If oil prices fall along with "moderating" economic growth, investors will be encouraged.

"It will remove the inflationary impact of rising commodity prices from the economic equation, and may lead the Fed to take a more benign view of what constitutes neutrality than markets now expect," he wrote.

Legg Mason Value Trust's biggest holdings as of March 31 include mobile-phone company Nextel Communications Inc., health insurer UnitedHealth Group Inc. and Tyco International Ltd., the world's biggest maker of electronic connectors and security systems.

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