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Bill Miller dumped Fannie, bought Cisco
First quarter position changes by the star Legg Mason fund manager.
May 10, 2005: 8:33 AM EDT
By Stephen Gandel, Money magazine

NEW YORK (Money magazine) - Bill Miller still loves tech.

Miller added shares of Cisco Systems and Yahoo! to his Legg Mason Value Trust fund (LMVTX) in the first quarter, according to a recent posting on the Legg Mason Web site.

Cisco and Yahoo were the only new stocks Miller bought for the $11 billion fund, which has beaten the return of the Standard & Poor's 500 Index for the past 14 years.

At the end of the first quarter, Value Trust held nearly 5 million shares of Cisco and 1.2 million shares of Yahoo, valued at about $88 million and $43 million, respectively. The fund holds 36 stocks in all -- see them here at Legg Mason's Web site..

Meanwhile, Miller dumped the fund's 4.5 million share stake in Fannie Mae, the troubled mortgage finance company.

Miller would not comment on the changes to the portfolio.

Cisco (Research) shares are down 7 percent in 2005, to a recent $18. The company has struggled as corporations have been slow to increase their technology spending budgets.

Yahoo's (Research) shares have been rising since mid-March to a recent $34. Miller has long held Yahoo in Legg Mason Opportunity Trust (LMOPX), another fund he manages, and has said that Wall Street still underestimates the growth potential of the largest Internet companies. Value Trust also has positions in Amazon, eBay and Google.

Fannie Mae (Research) has been struggling since last year when its accounting practices came into question. In the past, Miller had said that despite the accounting issues, the business still had strong fundamentals.

The return of the Value Trust fund is lagging the market this year, down 7.8 percent versus a retreat of 2.8 percent for the S&P 500. The fund's lackluster returns owe in part to Miller's long-term preference for technology stocks, one of the market's worst performing sectors recently.

In his first quarter update to shareholders, released in April, Miller attributed his underperformance to the fact that he holds no oil stocks, which have continued to do well this year. Late last year, Miller hired an energy analyst, prompting speculation that he would be putting money into the oil sector.

Despite adding only two new stocks in the quarter, Miller continues to be bullish on the market in general. He believes stock prices do not reflect the strength of the economy. In the April letter, Miller predicted an imminent decrease in oil prices would boost the economy and lower inflation.

"People always seem to buy today on what they should have bought five years earlier," Miller wrote. "We are bullish on the out of favor asset class: U.S. equities."


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