In a recent issue of our premium value-oriented newsletter -- Half-Priced Stocks -- we profiled Bill Miller and the Legg Mason Value Trust (LMVTX). This mutual fund has been hugely successful, outpacing the S&P 500 for 15 straight years and delivering annualized gains of nearly +16% since inception.

Naturally, that top-notch performance has attracted quite a bit of attention and money. As of last quarter, the fund had an asset base of more than $18 billion, with each of those dollars generating management fees for Legg Mason.

Some might find it surprising to know that while LMVTX has rewarded shareholders handsomely over the past decade, the fund's total returns have been shattered by those of its parent company. In fact, Legg Mason (NYSE: LM) has been one of the market's top-performing stocks, returning an astounding +29% annually over the last ten years. A $10,000 investment made on August 31, 1996 would be worth $180,662 today -- a cumulative gain of +1,706%.

Despite the surge in the stock, Legg Mason is still trading at a price/book ratio of 2.2 -- well below the industry average of 3.5. The shares are also changing hands at steep discount to our fair value estimate of $120.

Following its historic deal with Citigroup (C) last summer, Legg Mason has shed its retail brokerage operations and vaulted straight to the major leagues of money management. Essentially, the agreement handed Legg Mason control of Citigroup's asset management business -- and $437 billion in assets under management (AUM) -- in exchange for its brokerage unit.

The asset swap not only transformed Legg Mason into a top-five money manager, but it also removed potential conflicts of interest that have tainted other financial services companies. As of now, the company is entirely focused on the money management side of the business -- selling the funds is someone else's responsibility. The deal also came with an added perk: a three-year distribution agreement that will see Legg Mason Funds marketed in Citigroup's vast retail distribution channel of brokerages and bank branches. 

Legg Mason has also picked up Permal Group, a well-known hedge fund with more than $20 billion in managed assets. Those acquisitions have pushed the firm's total AUM above the $850 billion mark. Last quarter, those assets helped the firm generate more than $1 billion in investment advisory and distribution fees -- more than double its pre-acquisition levels.

By staying clean during the market-timing scandals that rocked the fund industry and crippled the credibility of other companies, Legg Mason has built on its already strong reputation. Having the esteemed Bill Miller among a lineup of top-tier managers hasn't hurt either. Over the next few years, Legg Mason should continue to see healthy asset inflows, boosting its stream of recurring, high-margin management fees. And after watching the stock pull back sharply from its 52-week high of $140 per share, we believe the time is right for value investors to take a closer look at Legg Mason.

Thanks for reading!

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