Quick Take: Bill Miller’s focus on the long term is key to Legg Mason Value Trust’s (LMVTX) success, says co-manager Nancy Dennin, who joined him in 2000. The portfolio holds the distinction of being the only fund to outperform the S&P 500-stock index in each of the past 13 years. Currently, the fund’s management team doesn’t see many attractively stocks in the market, so they’re sticking with a few that they feel have favorable outlooks.
For selected Internet companies, including Amazon.com (AMZN) and InterActiveCorp (IACI), the outlook is particularly bright, according to Dennin. The fund’s team also feel a few other companies, including Tyco (TYC), will overcome short-term difficulties. Although Value Trust doesn’t avoid troubled companies, the managers will give up on holdings, such as Altria Group (MO), if they feel they are unlikely to recover from setbacks.
The fund’s fine performance record recently won its managers a 2004 Standard & Poor’s/BusinessWeek Excellence in Fund Management Award. The portfolio has been in the top quartile of large-cap blend funds for each of the past ten years, and in the top decile for five of the past ten. It rose 17.4%, on average, versus 9.3% for its peers for the ten years through last year.
This year through May 12, the portfolio is down 4.6%, versus a loss of 0.8% for the S&P 500. Dennin says it is a result of sell-offs in several holdings that had large gains last year.
The Full Interview:
S&P: Which areas of the market currently offer the most attractive valuations?
DENNIN: Right now, there doesn’t seem to be any broad mispricings in the market. Our turnover is currently very low, reflecting this. Because there aren’t many opportunities, we have 33 holdings, just below the 35 to 50 holdings we normally have.
S&P: What long-term trends are currently reflected in the portfolio?
DENNIN: We feel the Internet will benefit from a secular shift of bricks-and-mortar businesses to the Internet. Companies like Amazon.com (AMZN), InterActiveCorp (IACI), and eBay Inc. (EBAY) are likely to gain from this. We don’t have price targets for our holdings, but with nominal GDP likely to grow 4% to 6% this year, companies that can grow 15% are probably worth a lot.
S&P: Have there been any recent changes in the composition of the fund?