(Company corrects Miller’s age to 60, paragraph 2, also corrects previous updates)
* Sam Peters named co-manager, successor on Value Trust
* Miller’s Value Trust performance plunges again (Adds quotes from fund manager, analyst)
By Ross Kerber
BOSTON, May 21 (Reuters) - Legg Mason Inc (LM.N) said its portfolio manager Sam Peters will become co-manager and “eventual successor” to famed stock picker Bill Miller on the Value Trust fund.
Miller, 60, has no immediate plans to retire from running the company’s $4.2 billion Legg Mason Capital Management Value Trust (LMVTX.O) fund, a spokeswoman said on Friday. Miller, famous for outperforming the Standard & Poor’s 500 Index for 15 consecutive years, now ranks near the bottom of its category for the year to date.
The addition of Peters, 40, who currently manages the $1.2 billion Legg Mason Capital Management Special Investment Trust (LMASX.O) fund, promises a chance to improve on Miller’s performance.
After dismal records from 2006 through 2008, Miller received much attention for a comeback year in 2009, when Value Trust outperformed 92 percent of its peers and his independent-minded investment style again seemed to be paying off. But Value Trust has plunged back again this year so far, according to Morningstar, trailing 97 percent of peers.
“Nobody can sustain that kind of underperformance for a long amount of time and expect to hold the reins forever,” said Wade Slome, who follows prominent fund managers as president and founder for investment manager Sidoxia Capital Management. “It is like (basketball superstar) Kobe Bryant averaging three points a game for the Los Angeles Lakers, it can’t last.”
Poor performance “has nothing to do with” the changes announced on Friday, a Legg Mason spokeswoman said, however. In a statement, the company said Peters’ new role was a “continuing evolution and improvement of our investment team.” The statement said that “Bill and Sam share a fundamental, empirical and valuation-based investment approach,” and noted they have often collaborated.
But industry analysts and investors are not entirely convinced, saying there had been talk for some time that Miller’s tenure might be in jeopardy if his performance did not improve.
“He has been hemorrhaging money for so long that Legg Mason executives just have to find a way to keep things afloat,” Slome said, adding “Politically this makes a lot of sense to allow the company and Miller to save face.”
Slome said the timing of the takeover is still uncertain but would become clearer if Peters is able to shake up the portfolio some.
Only one of the top 10 stocks in Peters’ fund, eBay Inc (EBAY.O), was also a top holding of Miller’s fund as of March 31. Peters’ favorites — including his three largest positions, Assured Guaranty Ltd (AGO.N), Continental Airlines Inc (CAL.N) and KKR Financial Holdings LLC KFN.N — were not among Miller’s top 30.
Also the men differ in style. While Bill Miller is known for making concentrated bets and sticking with them, sometimes for decades, the time that Peters holds onto his bets is much shorter — closer to two to three years, analysts said.
Peters’ fund has not performed much better than Miller’s. He has lost an average of 11.3 annually over the past three years, worse than 86 percent of similar funds, according to Morningstar.
“To name Sam Peters in response to pressure they might be getting, that doesn’t seem like it would be a panacea,” said Morningstar analyst Bridget Hughes.
Peters joined Legg Mason in 2005 from Fidelity Investments, based in Boston, where he was portfolio manager of the Fidelity Select Health Care Fund and the Fidelity Select Medical Equipment Fund, as well as team leader for the Health Care sector.
He previously worked as a financial analyst after graduating from the College of William & Mary and from the University of Chicago’s Graduate School of Business, where he earned an MBA.
Mary Chris Gay, currently assistant portfolio manager on Value Trust, will stay in the role, Legg Mason said. (Reporting by Ross Kerber, Aaron Pressman and Svea Herbst-Bayliss; Editing by Gerald E. McCormick and Steve Orlofsky)