Legg Mason Inc.'s Value Trust fund is synonymous with famed money manager Bill Miller, who has the unmatched record of beating the benchmark Standard & Poor's 500 index for 15 consecutive years. His streak has been compared to the record set by Orioles legend Cal Ripken Jr.
So inevitably, the pressure is on for Miller's successor.
That falls to Sam Peters, who was named last month as the fund's next manager after Miller retires. It's not clear when that will happen; the timeline for Miller's retirement is unknown. In the meantime, Peters will join him as the fund's co-manager later this year.
Peters, 40, now manages the $1.2 billion Special Investment Trust fund, which focuses on undervalued midsize U.S. companies, at Legg Mason Capital Management. He joined the company five years ago after a stint as an analyst and portfolio manager at Fidelity Investments. Besides managing the midcap mutual fund, Peters also heads Capital Management's research team.
Peters is well aware of "The Streak" associated with the $4 billion Value Trust, Legg Mason's flagship product, and also its most recent struggles. The fund lost 55 percent in 2008, becoming one of the worst performers among its peers.
Then it bounced back last year, gaining 41 percent. So far this year, the fund is down 5.5 percent.
Peters recently talked to The Baltimore Sun at his Harbor East office, where one wall is almost entirely covered with graphs and charts of financial data, including unemployment and housing figures, that help shape his investment decisions.
Question: So what's the wall about?
Answer: I'll also show you my trading journal, which has similar things. Different facts from the market, I post them. Anytime I have ideas and stuff, I try to be data-driven. Obviously I'm trying to handicap the future, which is perilous.
The environment is so noisy. There's so much information out there. I use this to synthesize.
Q: When you came to Legg Mason five years ago, how much of a role did working with Bill Miller play in your decision?
A: Huge. It was big.
It was Bill's approach and how he articulated it. He's a beautiful writer, so it was like, wow, it seemed like this guy really knows how to think about risk. He was very valuation-driven, which I tend to be.
So it was more that I figured that the culture was probably going to be unique.
I loved Fidelity. It was great. I wasn't looking to leave. But it was something worth coming here for the unique characteristics. So I came to take advantage of that.
Q: Did you know that at some point you would or could take over the Value Trust?
A: That's a good question but a tough question. A lot of my job was helping to institutionalize a lot of Bill's thinking and culture. … [I thought], 'That might be an option someday, but I've got to prepare myself for it.' … I'm not one of those guys who says, 'If I could get to that point, it's all good.' That's not how it works. I have to perform.
When the tough times and the downturn came and … we got through it. They were pleased with that, and I could tell that I was earning Bill's respect. As you know, you can't go out and say, 'I want that person to respect me.' It's either going to happen or it's not.
Late last year, he started talking about [the transition].
Q: So you'll start co-managing the fund starting later this year?
A: That's what he has verbalized. So what we're spending the time on now is how that will work. We were co-portfolio managers on the fund I manage now, the Special Investment Trust, and we are co-portfolio managers on an institutional product. We have practice. But the fact that Value is the flagship, it's a big move for him.
We'll keep talking about the process. And how we're going to do things.
Q: You bring up a good point, the Value Trust is the flagship and so closely associated with Bill Miller. How do you feel about taking it over? Is there an intimidation factor?
A: The pressure that comes with it, I know. And I'll be given some time to do this, but I have to perform. I know that.
I'm comfortable enough in my own skin at this point, and I have enough experience and I have a team behind that. Bill and I share many, many similarities. He's clearly my key mentor, but I have to be Sam Peters, managing the fund.
At some point, it will be my fund and then you live and die by the performance.
Clearly, I'm honored. It's awesome. But I don't think about the legacy. If I've got the team and the right people, and I keep learning from Bill, it will put me in the best position to drive performance, which is what it is all about.
Q: What do you think of "The Streak?" Is there too much emphasis on that?
A: Bill downplays it because of the calendar effect.
It's statistically incredible. I think there is a lot of signal in the streak. You have to be differentiated. And that's a testament to Bill being differentiated. He wasn't trying to be anybody else.
Q: Given the financial turmoil of the last year and a half, have you changed your investment approach at all?
A: It's really just an appreciation of how violent the [market] swings can be. Everyone wants to apply logic, but the market loses its head. It just does, and you've got to think through how you are going to take advantage of that and not have it put you out of business.
That was a key lesson. The classic is the financials. We didn't have a depression, but we priced the market as if we were going to have one.
Q: What signs are you looking for now in the market as we move forward?
A: I do spend some time on sustainability: Is the recovery in the U.S. self-sustaining? I think it is.
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