Thornburg Value Manager Could Be the Next Bill (Miller)

Who says two weeks is an eternity in Internet time?

Many of you have written in wondering what to do about Kevin Landis' pick for the stock to own in 2000. (Proving sarcasm is not in short supply on the Net, one reader says simply, "If you see Kevin Landis again, please tell him thanks for the LGTO recommendation.")

Yep, investors dumped Legato Systems (LGTO Quote) when the developer of data backup and recovery software failed to meet fourth-quarter earnings expectations and announced it was changing accounting practices. Dumped may be the nice way of putting it -- the stock lost nearly half its market value in a single morning.

Here's the word from Steven Witt, spokesperson for Landis' Firsthand Funds: "I thought the time frame for this choice was a year, not two weeks! Look, companies miss quarters."

And Landis is apparently hanging on tight. To those of you who thought this was a pump and dump, far from it. Legato still makes up about 1.5% of his Firsthand (TVFQX Quote)Technology Value, the top-performing fund for the past five years.

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In selecting a stock, the question is, What's the next America Online (AOL Quote)? In picking a fund it's, Who's the next Bill?

Bill Miller of Legg Mason (LMVTX Quote)Value Trust, that is. He's the investor who bet on AOL when its price was in single digits (on a split-adjusted basis) and rode it and several other smart picks to blow past the S&P 500 index every year for the past decade -- the only active manager to do so.

Here's my answer: Bill Fries of Thornburg (TVAFX Quote)Value. Yep, like that other Bill, he calls himself a value guy. And while he also isn't afraid to go where traditional bargain hunters fear to tread, he too consistently racks up record returns, even when value is out of favor. (When hasn't it been recently?)

But in the toughest test -- last year's charging mo-mo, go-go market -- his Thornburg Value churned out a 37% return. And the one-and-a-half-year-old Thornburg (TGVAX Quote)Global Value, which Fries also manages, was up 63%.

But despite Thornburg Value's chart-topping performance year in and year out (it ranks in the top fifth of its category without fail and has delivered nearly 30%, on average, every year for the past three years), the fund is still basically unknown. It has only half a billion dollars in assets under its belt, compared with Legg Mason's $12 billion.

Thornburg Value's Smooth Ride
Year	Return	% rank in category
1999	37.4%	13%
1998	22.3	11
1997	33.7	18
1996	37.8	1
Source: Morningstar

That size is one you might expect for a value fund -- poor performance has caused many bleeding assets of late -- but the record is definitely not. And indeed, with investments ranging from tech stocks to international banks, this is no typical value fund.

In Thornburg Value, Fries blends a combination of contrarian plays, consistent growers and what he terms "emerging franchises." Of course, you might quibble with his "value" moniker. Like the other Bill, he doesn't judge stocks by their price-to-earnings ratios alone. He's a big believer in technology, which makes up a full third of the Value fund.

"Growth to us is not a dirty word," he says. "More is better than less -- that's one of the basic rules of economics. We recognize that a company that's growing at 30% and has great prospects and dominant market share is a better company than one that's growing at 10%, and we use a different price parameter for that."

Also like the other Bill -- and unlike most of his peers -- Fries won't automatically unload his winners once they hit a certain target. He kept a good part of Charles Schwab (SCH Quote) even when it flirted with a triple-digit valuation. Still, he does carefully research the downside, and his funds tend to be less volatile than many in the category.

If that philosophy means paying a premium by bargain-basement standards sometimes, so be it, says Fries. He usually waits for the market to "hiccup" before buying, but he picked up Nokia (NOK Quote) last summer at around 90 and also piled into Internet company Macromedia (MACR Quote). (Both stocks are trading at about double Fries' purchase price.) "We try to be a bit contrarian, so when some of the places that are showing rapid growth fall out of favor, we take advantage."

Still, for all this growth kick, you'll find a fair share of good old-fashioned value stocks in the portfolio, too. Like water-treatment-chemical company Hercules (HPC Quote). "That's not one of the sexy stocks. But they're a solid company that's been around forever, a decent business that will benefit from strength in the paper industry." Although he admits he's "been dead wrong about this so far," he sees a turnaround at some point. "Just don't know where that will be."

Ahh, there we go. That's value-speak, yes? But this isn't: "Our diversified idea of value does not exclude some of the best companies in the globe. We don't have a strict, narrow definition that prevents us from looking at leading-edge companies."

Drawbacks? Right at the start, investors get hit with an up-front load. And this on top of a pretty pricey expense ratio -- about 1.61%, well above the average equity fund. Plus, there's the question of what happens if Fries ever decides to leave. Tucked away in New Mexico, the tiny fund family does not have a big stable of trained managers -- and Fries is the only equity expert there.

But after an illustrious two decades managing mutual funds at USAA before taking charge at Thornburg some five years ago, Fries says he won't likely be moving anytime soon. And if past performance is any indication, that means chances are good this Bill will keep going, no matter what value does. Even if you've never heard of his eclectic style or outsized returns.