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Legg Mason Capital Management Opportunity Trust

Legg Mason Capital Management Opportunity Trust Fund, managed by Bill Miller, returned 28% this year through 2012-11-07, surpassing 99% of peers.  The fund lost 35% in 2011, last in its category, as Miller prematurely bet on a recovery.

Miller set a record for beating the S&P 500 index in his flagship Legg Mason Capital Management Value Trust for 15 years through 2005 by picking inexpensive financial shares and out-of- favor technology companies. During the 2008 credit crisis, the fund lost 55 percent, prompting withdrawals after peaking at $21 billion. Miller stepped down from the Value Trust in April, while staying as manager of the Opportunity fund.

“Right now we think because housing has done so well, the next move there is in financials,”Legg Mason Inc.’s (LM) Miller said in a Bloomberg Television interview with Julie Hyman that aired today. “There’s a lot of attractiveness, especially with housing getting better.”

The Opportunity Fund had 40% of assets in Financial stocks as of 2012-09-30 such as Citigroup, Bank of America Corp.  He believes Citigroup is “a great global franchise” and Bank of America is trading below tangible book value. The Fund also holds insurers such as Hartford Financial Services Group Inc and mortgage real estate investment trusts.

The Opportunity fund, which Miller has run since 1999, slumped in 2011 as housing and financial stocks were hurt by investor concerns about Europe’s sovereign debt crisis, he told shareholders in a January letter. “The worst things to own were mostly where we were invested,” Miller wrote.

Miller’s willingness “to go out on a limb and buy things that look ugly.” and “ It can be painful sometimes, but when it works, he knocks the ball out of the park.”

U.S. home prices rose 5 percent in September from a year earlier, the biggest 12-month increase since July 2006.

Meanwhile, Robert Shiller, the Yale University Professor who predicted the bursting of the dot-com and subprime-mortgage bubbles, doesn’t share Miller’s optimism about US housing.

Reference: 

    1. Bloomberg, Alexis Leondis and Julie Hyman, 2012-11-08, “Legg Mason’s Miller Says Bank Stocks to Rise on Housing”
    2. Bloomberg, Charles Stein, 2012-10-15, “Legg Mason’s Miller Redeemed as Housing Bull: Mortgages”