Legg Mason's Miller to Launch Go-Anywhere Fund

With Opportunity Trust, he won't be tied to any single investment objective or focus.
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Bill Miller has come up with a way to toss off his value-stock straightjacket, and it's going to be called

Legg Mason Opportunity Trust

.

The new fund, which should be launched later this year, will have a "go anywhere" mandate which will not limit his investments to so-called value stocks.

Miller, the only diversified manager to have beaten the

S&P 500

every year since 1990, has been criticized for keeping stocks like

America Online

(AOL)

and, lately,

Amazon.com

(AMZN) - Get Report

among the top holdings of his $10.6 billion

(LMVTX) - Get Report

Legg Mason Value Trust. (For a timely look at Miller's recent stock picks, see Brenda Buttner's Sept. 23

column.)

Value investors typically seek out stocks that they consider undervalued and try to buy them before the rest of the market realizes their intrinsic worth. Growth investors, on the other hand, usually look for companies with the potential for outsized earnings increases.

Miller's new fund, if he chooses to hold names outside the value arena, won't be such an easy target for style purists. The fund's prospectus states clearly that Miller will not have his hands tied to any one investment objective, market capitalization or geographic focus.

"It's not intended to be guided by any particular investment style," says Jennifer Murphy, chief operating officer of

Legg Mason Fund Adviser

.

In other words, the fund will be driven almost solely by Bill Miller's stock-picking acumen. Considering his record, investors could do worse. Value Trust boasts a five-year average annual return of 33.2% and a 10-year, 18.8% annualized return.

One drawback is Opportunity Trust's annual expense ratio, a whopping 2.39% (though Legg Mason has agreed to cap it at 1.99% until Dec. 31, 2000). The average actively managed diversified fund's expense ratio is 1.47%, according to fund-tracker

Morningstar

.

Legg Mason declined to comment on why the fund is so expensive, citing the required quiet period while it is in registration. Legg Mason Value Trust's expense ratio of 1.69% is also more expensive than the average mutual fund.

Expenses aside, the new fund could be a welcome offering for investors who have wanted to buy into Value Trust but feared being socked with a big capital gains distribution. Miller, who rode his America Online position to a 3,500% gain, has been trimming that position, as well as holdings in

Dell

(DELL) - Get Report

this year, moves that could result in large realized gains in the portfolio. Legg Mason has not yet given estimates on what distributions the fund may make this year, but Miller has said he doesn't expect it to be unusually large. Morningstar says the fund has realized and unrealized capital gains equal to 23% of its assets.

Not all fund watchers are thrilled with the thought of a fund that goes anywhere.

"If there's a fund manager that's stating up front that they're going to have free reign, we're happy to hear it," says Mark Podolsky, a planner at

Financial Solutions Associates

in Dedham, Mass. "But it makes it very difficult for any asset allocator, like myself, to use that fund."

Asset allocation is a practice of splitting up a portfolio in fixed percentages among different investing styles or market caps, say growth and value or large-cap and mid-cap.

Beyond that, Podolsky likes the idea of Miller's new fund.

"I'm sure he'll do very well with the fund, because he is a great manager," Podolsky says.

Others worry that Miller may be fixing something that isn't broken.

"I would much rather see a fund manager have one fund and put his best ideas into that one fund," says Ed Foster, director of research at

Fabian Investment Resources

in Huntington Beach, Calif. "He can have one list of top-10 stocks, but he can't have two. That's one of the problems I have when managers are opening up two or three funds."

Opportunity Trust actually will be Miller's third portfolio. He also manages the

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Legg Mason Special Investment Trust, a mid-cap blend (growth and value) fund. Its top holding at midyear? America Online, according to

Morningstar

.