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Bill Miller's Streak Might End. Horrors!

A poor calendar-year showing is actually long overdue.

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After beating the S&P 500 Index for a remarkable 15 consecutive years, Bill Miller of  Legg Mason Value (LMVTX) is lagging the benchmark by nearly 11 percentage points for the year to date through Oct. 26, 2006. The extent to which the fund trails the S&P--which in turn has taken a toll on its longer-term comparisons with the benchmark--has some investors spooked. For example, after my colleague Russ Kinnel wrote a recent column that placed Miller among the 10 best current mutual fund managers, he received an e-mail from a reader who wrote that Miller, due to his bout of severe underperformance, is no longer among the industry's elite.

We beg to differ, of course. True, it does look increasingly likely that Miller's streak of beating the S&P will end this year, for although the fund has had strong fourth-quarter returns at times (due to holdings that thrive during the holidays, such as  Amazon.com (AMZN)), the current gap will be difficult to overcome in just two months. But we don't think the end of the streak would diminish the fund's attractiveness in the least.

In a way, it might be something of a positive if it helps investors better understand the fund's volatile nature (which the streak has masked). Miller runs a concentrated portfolio, takes big stakes in both racy fare such as  Google (GOOG) and turnaround situations such as  Eastman Kodak (EK), and is willing to hang on to his picks through sharp downturns, so the fund's returns have long been among the most turbulent in the large-blend category. Earlier this year, Miller himself called his winning streak an "accident of the calendar," and it's easy to see why. Since the streak began in 1991, the fund has lagged the S&P in 47 of 178 rolling 12-month periods--more than 26% of the time (and by double-digit percentage points at times in the past). Furthermore, prior to the fund's recent struggles--and despite its consistency during calendar years--it trailed the index over several three-year rolling periods.

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