Blue chips on discount to small-cap stocks in US equity market

Under portfolio manager Mary Chris Gay, The Legg Mason Value fund invests solely in large-cap stocks. The fund is closely mirrored on Bill Miller's US-based mutual fund, on which Gay is also assistant portfolio manager. The annualised return on Gay's offshore portfolio from 31 December 2002 to 30 December 2005 has been 18.4% compared to its S&P 500 benchmark of 14.4%. Gay says: "The average large-cap stock now trades at about a 20% P/E discount to the average small cap and has an average free cash flow yield of nearly 5% versus just under 3% for the average small cap. We continue to be...