Out of thousands upon thousands of domestic stock funds, just one single fund has outpaced the benchmark S&P 500 Index for the past fifteen consecutive years -- and Bill Miller has been at the helm since day one of that impressive streak.

Since inception in 1982, Miller's Legg Mason Value Trust (LMVTX) has delivered an annualized gain of +15.88%, outperforming nearly all of its category rivals and topping the S&P's +13.45% return by approximately 250 basis points per year.

While that difference may not sound particularly meaningful, consider the following example:

An investor who placed $10,000 in the S&P 500 in April 1982 would be sitting on a portfolio worth approximately $213,000 as of June 30, 2006.

However, the same amount invested in LMVTX would have grown (including expenses) to more than $354,000 -- $140,000 more than the S&P 500.

So, how has Miller stayed ahead of the S&P and outperformed 98% of his rivals over the past decade?

Clearly, he couldn't have accomplished this feat by being a closet index tracker. While some managers hew closely to the same sector weightings as the S&P, Miller isn't afraid to venture off the beaten path. This is evidenced by the fund's relatively low R-Squared figure (a measure of how closely correlated a fund's returns are with those of an underlying index) of 81.

More importantly, Miller eschews traditional valuation metrics like P/E and doesn't play by the same rules as many of his peers. Instead, he favors an analytical approach similar to the one we use in our value-oriented newsletter -- Half-Priced Stocks. In fact, years ago Miller noted that his team looks to "buy businesses that sell at large discounts to our assessment of their underlying value."

By doing so, he has pocketed hefty profits in areas where other value managers dare not tread. For example, in the late 1990's Miller bet heavily on tech heavyweights like America Online (AOL) and Dell (DELL) -- two high-growth stocks that some may have felt were oddly misplaced in a value portfolio.

Miller has not wavered in his approach, and today the Legg Mason Value Trust still boldly strays into sectors that many value managers avoid. Here's a closer look at the fund's top fifteen holdings as of last quarter:

With a large chunk of the fund's assets sunk in stocks like Amazon.com, Google, and Yahoo, some might mistake the Legg Mason Value Trust to be a tech fund. However, Miller's analysis indicates that all of these companies are sharply undervalued -- regardless of their industry.

Obviously, constructing a portfolio that differs so widely from the average large-cap blend can leave the fund trailing the pack if something goes awry -- just as it towers over the competition when things go according to plan. Indeed, LMVTX is currently at the bottom of the standings over the past six months and will have to make a strong run to extend its winning streak to 16 consecutive years. 

However, major missteps have been all but non-existent, and regardless of what happens this year, Miller's amazing run provides ample evidence that value can't always be captured in a P/E ratio.

Thanks for reading!

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