Legg Mason Value Fund Manager Shifts Focus to Bigger Companies

Bill Miller, the fund manager who beat the Standard & Poor's 500 Index for 15 straight years until 2006, is buying shares of the largest companies to increase returns that lag behind those of almost all his peers this year.

Miller's $19.2 billion Legg Mason Value Trust is adding to holdings of stocks with the highest market values, such as General Electric at $424 billion, he said in an interview in Baltimore, where Legg Mason is based. He is selling companies valued at less than $10 billion.

"As a group, large caps are cheaper than the rest of the market," said Miller, 57, whose investment picks are often copied by other managers. "We are reducing mid-cap names and rolling into large caps."

Value Trust advanced 3.1 percent this year, trailing 96 percent of funds that invest in large companies deemed inexpensive based on financial yardsticks such as earnings, according to data compiled by Morningstar in Chicago. The Standard & Poor's 500 Index returned 9.5 percent including dividends.

Investors pulled $3.1 billion from Legg Mason funds this year through August, in part because of Miller's subpar returns, according to Financial Research in Boston. Legg Mason shares fell 12 percent this year, the most among the 14 members of the Standard and Poor's Supercomposite Asset Management & Custody Banks Index. The index gained 8.6 percent.

Miller's top stock is Amazon.com, the Internet retailer whose shares have more than doubled in 2007. He's had losses from Tyco International, the fund's second-largest holding, which has declined 7.4 percent, and Reston-based Sprint Nextel, which has fallen 0.5 percent.

Miller's smaller bets include Health Net, a health insurance provider with a market value of $6.1 billion, and Masco, a maker of home improvement products with a capitalization of $8.6 billion.

He has 1.9 percent of assets in GE, which has gained 11 percent this year, and 5 percent of assets in Internet search engine Google, which has risen 23 percent.

Value Trust has 15 percent of assets in mid-cap stocks and the rest in shares of large companies, according to Morningstar. It owns about three dozen stocks.

Miller, who has run Value Trust since its inception in 1982, likes to search out companies unloved by others and stick with them for years. Despite the fund's performance this year, Morningstar analyst Greg Carlson says investors should add to their shares of the fund.

"Bill Miller is a very contrarian stock-picker," Carlson said. "The best time to buy a fund is when it has been underperforming for a while."

Value Trust rose 5.9 percent last year, compared with the 15.8 percent gain by the Standard & Poor's 500 Index.