So maybe Legg Mason's (NYSE:LM) second quarter wasn't a bull's-eye, but at least it was still a scoring throw.

Wall Street had been expecting earnings for the quarter to come in at $1.29, slightly above the $1.23 that Legg reported. Though the miss isn't huge, it's likely that investors had been expecting more from Legg after competitors T. Rowe Price (NASDAQ:TROW) and BlackRock (NYSE:BLK) reported such strong quarters. Despite the miss, Legg's revenue for the quarter climbed 14% from the prior year, and profit grew an even better 24%.

The problem for Legg has been the underperformance of some of its top equity managers, which has been causing some unhealthy outflows in those funds as investors look for greener pastures. Total assets under management grew to just more than $1 trillion during the quarter, up 2% from the prior quarter and 13% from the prior year. Actual client flows were far less impressive, though, as $11 billion of inflows in fixed income were largely offset by $10.6 billion of outflows in liquidity and equity products.

The interesting thing about Legg's equity underperformance is that it isn't some young, small-fry managers -- we're talking about managers like Bill Miller, the chairman and chief investment officer of Legg Mason Capital Management and one of the most respected living investors. Miller's Value Trust fund managed to outperform the S&P 500 for 15 straight years before hitting a speed bump in 2006. Though it'd be great to see investors have some trust in quality managers, that's like wishing the sky was green -- investors typically just don't show that kind of patience.

On the bright side, CEO Chip Mason pointed out that 55% of Legg Mason's funds are rated four or five stars by Morningstar (Miller's Value Trust is not one of them), as compared with 39% the prior year. This is a positive development, though the firm needs to continue to build on it. Legg's 55% trails the 69% proportion that T. Rowe Price reported in its earnings release, and Mason likewise pointed out that it is well below what it was in the glory days of Legg Mason.

In the end, Legg Mason has managed to tread water despite the underperformance in its equity funds, thanks to its diversity and strong performance on the fixed income side. Getting back on track is simply a question of when its equity managers start showing flashes of brilliance again, and if they don't, whether management starts shaking things up.

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