New managers start from scratch and find success

Brian Posner and Brian Angerame turned around the Legg Mason Partners Capital Fund by starting from scratch when they took over a year ago.

Posner and Angerame sold 90 percent of the stocks in the $1.4 billion mutual fund, and used the proceeds to buy shares of companies including Cisco Systems Inc., the maker of computer-network equipment, and American Express Co.

The fund rose 18 percent in the last 12 months, beating 85 percent of its competitors that invest in a mix of fast-growing companies and those considered cheap relative to financial yardsticks such as profits, data compiled by Morningstar Inc. show. It is up 1.7 percent year-to-date.

"We're prepared to be aggressive," Posner said in an interview from his office in New York. "We're putting our money where our mouth is."

The fund held 41 stocks at the end of June, fewer than half that of its peer group, according to Morningstar. The five biggest investments - American Express, Cisco, General Electric Co., Marsh & McLennan Cos. Inc. and Motorola Inc. - accounted for 22 percent of the fund's assets.

"Investors need to know that this is a very flexible fund, which is not that common," said Gregg Wolper, an analyst at Morningstar.

The Legg Mason fund has the highest rating of five stars from Morningstar.

Posner and Angerame put 30 percent of Partners Capital's assets in information-technology stocks, including Cisco and L-3 Communications Holdings Inc., twice that of the benchmark Russell 3000 Index. They doubled the fund's stake in financial-services companies to 27 percent of assets.

Cisco shares jumped 71 percent since Posner and Angerame purchased their stake. Chief executive officer John Chambers said recently that revenue rose 18 percent in the second quarter, beating analysts' estimates.

American Express shares have advanced 16 percent since Posner and Angerame took over, compared with the 1.2 percent increase of the Russell 3000 Financial Services Index, as credit card customers spend more and merchants pay higher fees. American Express is the fund's biggest holding.

Besides American Express, the Legg Mason fund holds shares of JPMorgan Chase & Co. and insurer American International Group Inc.

Posner, 45, who has a master's degree in business from the University of Chicago, managed funds at Fidelity Investments in Boston and New York-based Warburg Pincus Asset Management before he cofounded Hygrove Partners L.L.C., a hedge fund firm in New York. While at Fidelity, he managed the Equity Income II and Value funds. Under Posner's watch, Equity Income II's assets swelled to $15 billion from $840 million in four years.

Angerame, 35, joined Citigroup Inc. in 2000 and started working with Posner after Legg Mason Inc. acquired the company's asset-management unit. He has a bachelor's degree in government studies from Dartmouth College.

The Legg Mason fund fell 0.2 percent in the year before they replaced Kevin Caliendo.

Posner and Angerame sold shares of pharmacy-services company Omnicare Inc.; Amgen Inc., the biotechnology company; and Bed Bath & Beyond Inc., the home-furnishings retailer.

Omnicare and Amgen are declining for a second straight year, and Bed Bath & Beyond is close to a 52-week low as the housing slump hurts sales of bedding and curtains.

Legg Mason hired Posner in 2005 to head its Clearbridge Advisors L.L.C. unit, which oversees 14 stock funds carved out of the acquisition of Citigroup's asset-management division. Legg Mason funds, including Bill Miller's $22 billion Value Trust, are separate from the Clearbridge subsidiary.

Posner has replaced managers in half of the 14 Clearbridge funds to improve returns. Since then, seven funds have met or exceeded their benchmarks, data compiled by Bloomberg show. Posner said turning around the funds may take years rather than months.

"This isn't a process that will be completed overnight," he said. "Our managers have embraced the message: Don't think short-term."

Fund family: Legg Mason.

Managers: Brian Posner and Brian Angerame.

Assets: $1.4 billion.

Performance: Up 1.7 percent in 2007.

Holdings: Cisco Systems Inc., American Express Co., General Electric Co.

Ticker: SACPX.

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