Despite its name many have questioned whether the holdings of the fund really are typical value firms. Mr Miller does not shy away from controversial shares and as of January 31st the biggest holdings were Nextel Communications and Amazon.com, each taking up more than 7% of assets.
Mr Miller views the S&P 500 index as his “alternative cost”, or simply the alternative for investors that he has a manager must outperform. It follows that to beat its benchmark the fund cannot look like or behave much like that benchmark. He has so far excelled at finding opportunities that others have missed and has had the confidence to put enough money into individual companies.
At the end of January, the fund had 37 holdings, making it a concentrated offering that over the short term can display significant volatility. One example would be the third quarter of 2001 when the fund was down some 24%. The fund also had an uninspiring year in 2002 when it dropped 27.3%.
However, long-term investors have benefited and the fund currently has a four star rating. The fund has been in the top quartile of its category in each of the last five calendar years. The Legg Mason Value Trust, the American-based mutual fund from which this European version was created in 1998, has beaten the S&P 500 index for the last 13 calendar years.
Despite its wonderful long-term record investors must weigh other factors when considering this fund. As already mentioned the fund has a concentrated portfolio and Mr Miller's willingness to buy controversial names makes the fund more volatile than its typical peer. Also the fund does not offer as much diversification from a growth-oriented holding as a more typical value offering.
