End looms for fund manager Miller's record run

BOSTON (Reuters) - Fund manager Bill Miller's unprecedented 15-year winning streak will almost certainly end on Friday but big investors say it will likely still pay to stick with the man known as America's best stock picker.

The $21 billion Legg Mason Value Trust Fund, which under Miller has outperformed the S&P 500 Index <.SPX> every year since 1991, had returned 6.71 percent in 2006 up to Wednesday but trailed benchmark returns by nearly 10 percentage points.

"You can't judge it on one year, especially after 15 years have been tremendous," said Massachusetts Treasurer Timothy Cahill, who oversees the state's pension fund.

"It has always been a ride with Bill Miller. But he's always up at the end and he's pulled the rabbit out of the hat so many times that we are definitely staying in," Cahill said.

By mid-August, Miller's Value Trust Fund <LMVTX> was down more than 10 percent since the start of the year as bets soured on Internet retailers and services firms such as EBay Inc. <EBAY.O>, Yahoo Inc. <YHOO.O> and Amazon.com <AMZN.O> as well as on home builders and health insurers.

The performance has since recovered and the fund, which owned 43 stocks as of September 30, has actually outperformed the S&P 500 in the fourth quarter so far.

Yet for the year-to-date it is the third worst performer in Morningstar's "large-cap blend" category.

"I don't think it's a black mark against him at all," said Don Hays, chairman at Hays Advisory, a Legg Mason shareholder.

"This year has been a very segmented year that has not rewarded growth investors and has rewarded things like commodity plays. That's not Bill Miller's style and never will be," Hays said.

Christine Benz, director of analysis at Morningstar, said Miller's style of buying when stocks were falling and holding for a long time had exacerbated underperformance in the short term but could lead to a stronger showing in 2007 and beyond.

"The fact that the fund has underperformed the market for the year could indicate that he's sitting on a basket of pretty attractively valued stocks relative to the index. We think the long-term case for this fund is as strong as ever," she said.

SIZE A WORRY

At the Legg Mason <LM.N> annual investment symposium earlier this month, Miller himself expressed confidence that his picks would do well in 2007 and he said he expected stocks such as UnitedHealth Group Inc. <UNH.N>, Aetna Inc. <AET.N>, KB Home <KBH.N> and Pulte Homes Inc. <PHM.N> to bounce back.

But there are concerns that 56-year-old Miller, who manages about $40 billion of assets at Legg Mason, will have less room to maneuver as the fund's assets keep growing.

"It's just that he's been so popular that quite possibly the size of the fund is going to limit his flexibility," said Hays of Hays Advisory.

Benz of Morningstar also said the fund's growing asset base should be watched but added that this factor was mitigated to some extent by Miller's investment style.

"The fact that he's in there scooping up shares that others are casting off should make it relatively easier for him to cope with asset size, than other funds that are buying what everybody else is buying," she said.

(Additional reporting by Svea Herbst-Bayliss)