Legg Mason’s Miller Sees ’04 Market Matching This Year’s

Money manager William Miller, whose Legg Mason Value Trust stock mutual fund is set to outpace the Standard & Poor’s 500 index for a 13th straight year, said 2004 returns on U.S. stocks may approach this year’s levels.

“A return of the S&P; similar to this year’s is reasonable to think about next year,” Miller said in an interview after he made a presentation to reporters at Legg Mason Asset Management’s annual symposium in New York.

The S&P; 500 is on pace to gain 20% this year, its first annual advance since 1999.

Corporate profits will continue to rise next year, lifting the market higher, Miller said. The rally will, in turn, lure more money into stocks, he said.

“Just as people got more bullish in the late 1990s, the more the market went up the more bullish they got,” he said.

The veteran fund manager, who is based in Baltimore, said he encounters a lot of wariness about stocks as he travels the country. He argued that the concerns are overdone given the economy’s recovery.

“There is a lot of focus on the negative, and not on what may go right,” Miller said. “The bearish view always sounds more reasonable than the optimistic view.”

Legg Mason Value Trust has gained 33% this year. Miller’s streak in beating the S&P; 500, the longest in the mutual fund industry, has helped the fund’s assets grow by more than 20 times since the end of 1990.

The fund lost money in 2000, 2001 and 2002 as the bear market raged, but the declines were less than the S&P; 500 index’s drop each year.

The $13.1-billion Value Trust fund has had a portfolio turnover rate of 4% this year, its lowest ever, as Miller did little trading and instead maintained large stakes in Internet stocks such as Amazon.com Inc. and InterActiveCorp and photographic film supplier Eastman Kodak Co.

While Miller declined to say if he had bought any stocks or sold off existing holdings this quarter, he said he’s researching oil and gas stocks.

“We don’t own any of them yet, but we’re studying them,” he said. Many energy companies have become more selective in drilling and adding to their capacity to produce oil and natural gas, Miller said.

He also said he believes his Internet stocks remain bargains. Many investors expect Amazon.com, the world’s biggest online retailer, to boost revenue by about 15% a year for the next five years, but Miller said he thinks growth will be “significantly faster than 15%.”

He also said the recent drop in InterActiveCorp shares wasn’t justified. The company, run by longtime media executive Barry Diller and the biggest owner of Internet travel services, has boosted marketing expenses in the near term, a strategy that will pay off in the longer run, Miller said.

Other major holdings in the Legg Mason Value Trust as of Sept. 30 included Nextel Communications Inc., Tyco International Ltd. and J.P. Morgan Chase & Co.