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Bill Miller Heads for the Exit

Amanda B. Kish, CFA
November 17, 2011

After nearly 30 years at the helm of Legg Mason Value Trust (LMVTX), famed investing guru Bill Miller is calling it quits.

Legg Mason announced today that Miller will be stepping down from the fund at the end of April, capping off three decades of stewardship. According to the management company, co-manager Sam Peters, who joined Miller on the fund in late 2010, will take over as sole portfolio manager upon Miller's departure. And while Miller will stay on as chairman of Legg Mason Capital Management, he will hand off the role of chief investment officer to Peters as well.

Legg Mason Value Trust shot to stardom after Miller steered the fund to a truly impressive track record in the 1990s and early 2000s. The fund beat the S&P 500 index every single calendar year from 1991 to 2005, leading the press to laud Miller as one of the greatest money managers of our time.

But recent years have found Miller and Value Trust struggling to replicate that success. Some bad calls on troubled financials like American International Group (NYSE: AIG  ) and now-defunct Bear Stearns led the fund to a 55% loss in 2008. Performance since then has not redeemed Miller, and the fund now ranks behind 99% of all large-cap blend funds over the past decade. Assets at the fund have fallen from a peak of more than $20 billion back at the end of 2005 to just under $3 billion today. While Miller's departure may have nothing to do with the fund's bottom-of-the-barrel track record, Legg Mason will surely be looking to the fund's new manager to turn things around soon.

Changing of the guard
Miller's departure has big implications for shareholders in the Value Trust fund. As is the case with any mutual fund, when a manager heads for the door, investors should immediately re-examine whether they should hold on to their investment. A fund is only as good as the manager running it. In this case, the fund's prior track record is no longer a good indication of how it may perform in the future. Now, this may be a good thing if you consider performance over the past six years, or a bad thing if you look at the fund's track record in the 15 years before that, but the point stands.

To be fair, there's a decent chance the fund could experience a renaissance. The portfolio is packed with cheap, market-leading tech stocks such as Apple (Nasdaq: AAPL  ) and Microsoft (Nasdaq: MSFT  ) . Names like these are selling at reasonable prices right now, have mountains of cash, and offer the potential for significant future growth, even if the economy remains somewhat anemic. However, with Miller no longer at the helm, there's a good chance the fund could undergo a facelift. Odds are some changes will be made in an attempt to right the sinking ship -- and that means the fund will no longer be the same as what investors owned before. There coul