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Who's Been Beating the S&P?

These managers have bested the index over three topsy-turvy years.

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With three months left in 2004, Bill Miller's streak of beating the S&P 500 Index's annual return with his  Legg Mason Value (LMVTX) looks to be in jeopardy. In 2003 he accomplished the feat for the 13th straight year, but this year the fund's 2.7% loss through Oct. 1, 2004, lags the S&P 500 by more than 4 percentage points. While Miller can make up ground on the bogy in a hurry, the clock is certainly ticking.

Miller's streak has been so celebrated because it's quite rare for an actively managed large-blend fund to beat the S&P 500 with such consistency. The domestic large-cap market is quite efficient, with many analysts and investors keenly watching each stock. In this environment, consistently gaining a research advantage on rivals is quite difficult. Plus, when a market is particularly efficient, expenses can easily be the difference between topping the index or falling short. The average large-blend fund (across share classes) charges about 1.25%, which proves to be a significant hurdle.

An even bigger hurdle lately has been the market's capacity for running hot and cold. In 2002 almost every area of the domestic stock market suffered, and the S&P 500 fell 22%. The following year was quite a turnaround, as the index rose more than 28% in 2003. So far in 2004 the S&P 500 index has risen about 3%, but with significant volatility. It rose sharply the first two months of the year, fell by fits and starts through early August, and then set a rocky course back to positive ground.

Todd Trubey does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.