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Streak's over. Miller trails S&P 500 two years running


Bill Miller's Legg Mason Value Trust fell 6.6 per cent in 2007, the first time he has trailed the benchmark Standard & Poor's 500 Index in back-to-back years since 1990.

The $17.3-billion (U.S.) fund was hurt by declines in financial and housing stocks, which accounted for almost 17 per cent of assets at the end of September, data compiled by Bloomberg show. The groups declined as losses from the collapse of the subprime-mortgage market spread to home builders, home lenders and investment banks.

"Bill Miller jumped into home builders and he's riding those all the way down," said Jeff Tjornehoj, a Denver-based analyst at Lipper Inc. Losses on financial stocks "have not been easy to overcome."

Mr. Miller beat the S&P 500 for 15 straight years through 2005, a record for mutual fund managers. He lagged behind 99 per cent of rivals in 2006 when his fund gained almost 6 per cent, according to Chicago-based research firm Morningstar Inc. Last year, he ranked in the bottom 2 per cent of peers, which averaged a 6.2 per cent return.

Mr. Miller, 57, wasn't available to comment.

The fund's poor performance contributed to a decline in Legg Mason Inc.'s stock, which slumped 23 per cent last year.

"This is the first time since 1990 we have had two calendar years behind the S&P 500," Mr. Miller wrote in a Nov. 1 letter to fund shareholders. "Perhaps not surprisingly, that was also a time of panic due to a housing market recession, soaring oil prices, banks and financials collapsing. We were able to take advantage of the values then offered to begin a pretty good period of excess returns."

Value Trust holdings included Citigroup Inc. and Sears Holdings Corp., as of Sept. 30.

Citigroup fell 47 per cent in 2007. Sears declined 39 per cent.

Mr. Miller's housing-related shares include lender Countrywide Financial Corp. and home builders Pulte Homes Inc. and KB Home.

Countrywide's declined 79 per cent last year, while Pulte Homes lost 68 per cent and KB Home tumbled 58 per cent.

© 2007 The Globe and Mail. All rights reserved.

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