Legg Mason Manager Now Hedging Tech Bets
Is “new value” old news?
Indicating a shift in strategy, Bill Miller, whose Legg Mason Value Trust was the only mutual fund to beat the Standard & Poor’s 500 index every year from 1991, recently sold technology shares in anticipation of slowing earnings and added Eastman Kodak Co. (ticker symbol: EK).
Underscoring a warier outlook on Internet shares, Miller also replaced Amazon.com Inc. (AMZN) stock with convertible bonds of the biggest Web retailer in his newer fund, the 8-month-old Legg Mason Opportunity Trust. Such securities pay a coupon and can be swapped into shares of the company.
“I assume that means he wants a little more downside protection,” said Russel Kinnel, director of fund analysis at Morningstar Inc., a Chicago-based mutual fund research firm. Miller has been known for running relatively aggressive “value” funds, paying up for tech companies with fast-growing earnings.
In the second-quarter report for his $13.6-billion Legg Mason Value Trust, Miller said earnings warnings by tech leaders such as Lucent Technologies Inc. (LU) and Agilent Technologies Inc. (A) could mean trouble for other companies in the telecom, software and semiconductor industries.
Miller cut the fund’s technology holdings to about 24% of its assets, compared with more than 30% for the S&P.; The fund had 29% in tech as of March 31.
“At current levels of valuation, the shares of so-far unaffected companies such as Sun (SUNW), EMC (EMC), Cisco (CSCO) and Oracle (ORCL) need continuing upside surprises to maintain their present prices, in my opinion,” Miller said in the report filed this week to the Securities and Exchange Commission. “Even the formerly impregnable semiconductor index, up over 100% in the past year, has begun to wobble.”
Value Trust rose 1.7% year-to-date through Tuesday, slightly lagging the S&P; 500. The $842-million Opportunity Trust returned 11.2%.
As tech stocks have weakened, the broader market has slowly begun to show signs of strength, Miller noted.
“The long-lagging financials have begun to perk up, and leading financials such as Citigroup (C) and Merrill Lynch (MER) have recently made new highs, often a precursor of broadening performance in the overall market, as well as in that sector,” the manager said.
Miller bought one stock during the quarter, Kodak, and sold another, the Las Vegas casino and hotel operator Mandalay Resort Group (MBG), the Value Trust report said.
