The bigger they are, the harder they fall.

Legg Mason's (NYSE:LM) Bill Miller used to be on top of the world. Now the weight of the mutual fund universe is squarely on his shoulders.

Morningstar (NASDAQ:MORN) is out with its 2008 mutual fund rankings, and Miller's Legg Mason Opportunity Trust is the worst-performing non-leveraged domestic stock fund with at least $100 million in assets. The fund tanked a whopping 65.5% last year.

Last year was certainly rough for most investors, but not that rough. A fund shedding nearly two-thirds of its value is brutal: It means the fund would have to almost triple its value to make up the ground it lost. Can Miller do it?

A matter of trust
This fund isn't to be confused with his iconic Legg Mason Value Trust vehicle. With that one, Miller became an industry rock star while beating the S&P 500 for 15 consecutive years. The streak ended when he proved mortal in 2006.  He hasn't been able to get back on track since. The larger fund shed 55.1% last year. Making things harder on Miller, he's losing out to the S&P 500 by a wider margin with every passing year there.



vs. S&P 500










Source: Morningstar.

That's the problem for both Miller and Legg Mason. When equities do come back into favor, fund investors gravitate to the winners. As if declining net asset values aren't enough, net redemptions will shrink the assets under the company's watch.

The country's third-worst-performing fund, according to Morningstar -- right after the 61% loss that Winslow Green Growth Fund owners had to endure -- is Legg Mason Growth Trust, off 60.4% last year. Dust all you want -- you won't find Miller's fingerprints there. Robert Hagstrom runs that one, but at least he can point to smoking the market a year earlier. It's still a real problem for Legg Mason in marketing its fund family now.

Miller's crossing
Legg Mason Value Trust and Legg Mason Opportunity Trust are loaded with tech stocks, financials, and consumer discretionary names you know. Many of the top holdings, like (NASDAQ:AMZN) and Linux enabler Red Hat (NYSE:RHT), are promising stocks that are growing faster than the market.

Early in 2008, Miller banked on slammed stocks like Expedia (NASDAQ:EXPE) or notorious disasters like Freddie Mac (NYSE:FRE) and AIG (NYSE:AIG), digging a hole too big to crawl out of.

In theory, Miller's batting average is still enviable. Legg Mason Value Trust has beaten the S&P 500 in 15 of the past 18 years. There aren't too many fund managers who can say that. Unfortunately for Legg Mason, the three strikeouts just happened to be in his last three at-bats.

"Was Bill Miller just lucky?" fellow Fool Adam Wiederman asked in the summer.

"Miller didn't arrive early to the party," I countered a week later, justifying both ends of his track record. "He simply forgot to leave when the cops shut it down. Bill Miller wasn't lucky then, just as he isn't unlucky now. A fund manager earns every grade. The real question to ask is whether the game has passed Miller by."

It's a harsh question, but it's one that many Legg Mason investors will be asking when account defections eat into the company's performance. Legg Mason has missed Wall Street's profit targets in each of the past five quarters, and that's another trend that is unlikely to change anytime soon.

Eyeing the Motley Fool Champion Funds scorecard, there isn't a single Legg Mason recommendation. Maybe that is why the newsletter's picks have beaten the market, on average, since it began in 2004.

Miller can't be given a free pass, especially since the performance gap between his funds and an unmanaged S&P 500 with much lower fees has widened annually at both funds over the past three years.

I like the look of his portfolio. I think he has a good shot at redemption here in 2009. However, it's going to be hard to beat the market while also managing the net outflows of capital.

"There's no joy in watching one of the good guys go down on a bad note," I concluded. "However, until he does come back -- and he has a ton of losses to make up -- any hero-worship is wasted here."

Sadly, that applies even more today than it did in the summer.

More Miller time:

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Legg Mason is a Motley Fool Inside Value pick. Morningstar and are Stock Advisor selections. The Fool owns shares of Morningstar and Legg Mason. Try any of our Foolish newsletters today, free for 30 days.

Longtime Fool contributor Rick Munarriz invests mostly in stocks but always has a mutual fund or two in his portfolio. He does not own shares in any of the companies mentioned in this story. He is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early. The Fool has a disclosure policy.