By STEVEN RUSSOLILLO And DAISY MAXEY
Article from the Wall Street Journal
While Bill Miller's prolific career at Legg Mason Inc. has been filled with highs and lows, his successor enters the spotlight with relative obscurity.
No stock star had sparkled more brightly than Legg Mason's Bill Miller's-or fell to earth with such a thud, WSJ's Jason Zweig reports on Markets Hub. Photo: Reuters.
Sam Peters will assume the role of sole portfolio manager for Legg Mason Capital Management Value Trust fund in April, concluding a succession plan that was announced in May 2010. The transition comes after a tough three years for the fund's performance in which the financial crisis tainted Mr. Miller's star status and resulted in disastrous results for the fund.
Messrs. Miller and Peters have been working together since 2005, so investors aren't expecting a big shift in how the fund will be managed. In addition to co-managing Value Trust, both were co-managers on the Legg Mason Capital Management Special Investment fund from March 2005 to January 2006.
"We believe the transition was already known among clients and the consultant community, suggesting some, but possibly minimal, impact" to fund flows, said William Katz, an analyst at Citigroup. "We see the move as a tactical positive, potentially giving a fresh start to the strategy."
Mr. Peters said he and Mr. Miller have invested in the big value opportunities they identified over the past year. As a result, there won't be a lot of trades made before April, he said.
"My turnover, like Bill's, will be measured in years, not quarters or months," Mr. Peters said in an interview. "There's a lot of continuity here."
But Mr. Peters acknowledged that it is imperative when he talks to his big clients that his team needs to drive performance. "Clearly, we have to drive differentiated valuation-driven performance over time," he said. "That's what it's all about. … You need those outcomes over time and we're still very confident we'll get back to our winning ways."
Value Trust has $2.8 billion under management, compared to $19.7 billion in 2005. The fund is down about 5.5% year to date as of Wednesday's close, according to Morningstar, lagging behind the Standard & Poor's 500, which is down about 2% for the year.
Analysts say Messrs. Miller and Peters share similar value investing philosophies: Both are focused on being contrarians and taking long-term positions in what they believe are undervalued companies.
To be sure, that viewpoint is ultimately what led to Mr. Miller's descent. When financial stocks cratered in 2007 and 2008, Mr. Miller was bullish on the sector and bought the likes of American International Group Inc. and Bear Stearns Cos. The subsequent implosions at AIG and Bear severely undercut the fund's return, and the episode left the fund's long-term performance in tatters.
"In this business, heroes tend to get discredited very slowly," said Michael Shaoul, chief executive at brokerage firm Oscar Gruss. "The conditions that made them a star in the first place change and the habits and tendencies that made them outperform then start to become problematic."
Analysts caution that Mr. Peters may take additional steps to smooth out some of the fund's volatility. It plunged 55% in 2008, rose 41% in 2009 and finished last year up 6.7%.
Mr. Peters tends to incorporate more quantitative measures, such as correlations, into his investing approach, according to Bridget Hughes, associate director of fund analysis at Morningstar.
She also said the portfolio has become a bit more balanced since Mr. Peters arrived. While it is still overweight in the financial and technology sectors, the fund has also added more health-care and consumer-oriented stocks, such as Pfizer Inc. and PepsiCo Inc., which shows the fund may be aiming to get a little more diversified.
"The fund has typically run hot and cold and I think that's the kind of stuff Sam would like to minimize to some extent," she said. "Month after month of shareholder redemptions have been unrelenting. The smaller the fund gets, the bigger a problem it could become."
Value Trust's top holdings also look attractive to some analysts. Though the fund has been quite volatile, it is heavily weighted in Apple Inc., Microsoft Corp. and General Electric Co., all of which appear appealing, said Todd Rosenbluth, mutual fund analyst with S&P equity research.
"We have not seen the fund perform well for a while, but when we look at the current portfolio we feel good about the stocks going forward," he said.
—Corrie Driebusch contributed to this article.
Write to Steven Russolillo at steven.russolillo@dowjones.com and Daisy Maxey at daisy.maxey@dowjones.com
Article from the Wall Street Journal
