Legg Mason’s Miller Says New Income Fund Bought J.C. Penney Debt

Bill Miller, the stock picker who rose to fame after beating the Standard & Poor’s 500 Index for a record 15 years, bought J.C. Penney Co. debt for a new Legg Mason Inc. fund that can invest in a mix of equities and bonds.

Miller and other executives at Legg Mason have put in some of their own money to start an unconstrained high-income fund, he said today at a conference in Washington held by Charles Schwab Corp. The fund, which will be managed by Miller, may become available to other investors in the first quarter of 2014, Mary Athridge, a spokeswoman for the Baltimore-based company, said in a telephone interview.

“We bought some J.C. Penney bonds with 12 percent yield,” Miller said at the conference. “J.C. Penney has a lot of levers they can pull to get the customers back.”

Some of the largest buyers of distressed debt have been buying J.C. Penney debt in recent months while others are selling, highlighting disagreement on whether the struggling retailer can stage a turnaround. Avenue Capital Group LLC, the $12 billion fund manager, bought unsecured bonds of J.C. Penney, while Third Avenue Management LLC sold most of its bond holdings in the retailer, people with knowledge of the moves said this month.

Miller, best known as the former manager of the Legg Mason Capital Management Value Trust fund, beat the U.S. benchmark for the longest stretch in the industry before the streak ended in 2006. Sam Peters took over management of Miller’s value fund in May 2012. Miller continues to manage the $1.7 billion Legg Mason Opportunity Trust, which returned 21 percent annually over the past five years to beat 96 percent of rivals, according to data compiled by Bloomberg. This year, the fund is up 53 percent to beat 98 percent of rivals.