* Looking for Bill Miller's old tactics to spark turnaround

* New manager likes Apple, trims Amazon.com

By Ross Kerber

BOSTON, March 12 (Reuters) - Sam Peters, the money manager hired to breathe new life into Bill Miller's famed $2.5 billion Legg Mason Inc fund, thinks the time is right for a stock-picking renaissance.

Peters, 42, takes over from Miller, 62, in April, ending an era at the Legg Mason Capital Management Value Trust fund that made Miller one of America's best-known active portfolio managers.

Though Miller will stick around in other roles at Legg Mason, his departure from the fund led to much discussion of the declining importance of active managers in an age of passive investing. Burned by volatile markets, investors have steadily moved money into cheaper products like exchange-traded funds in recent years.

Less noticed was that that Miller will leave Value Trust in the hands of a stock picker with similar ambitions.

Peters has been Miller's co-manager since 2010, and preaches the same approach to investing through a combination of fundamental analysis, big-picture perspective, and a focus on improving the processes that managers and researchers use to pick company shares.

In recent interviews with Reuters, Peters said he plans to keep the funds' philosophy essentially unchanged. He is sticking with picks he worked out with Miller, such as holding Apple Inc and selling some Amazon.com Inc shares.

Peters' challenge will be convincing skeptics that active management can succeed again.

He points to a trend that gives him optimism: an ongoing decline since the fall in the overall correlation of stock prices in major indexes -- a measure of how securities move in relation to each other -- as investors re-embrace risk. Peters and Miller have blamed high correlations for their funds' troubles in beating indexes in recent years. In theory, the decline in correlation should make it easier for stock pickers to distinguish themselves, by picking winning stocks.

"As correlations come down, fundamentals and valuation are mattering more," Peters said.

Technically, correlation has been falling since September, including a record drop in January among stocks in the Russell 1000 index, according to a recent report by Nomura analyst Joseph Mezrich.

Other big-name active fund managers say correlation has made the their job harder -- which in theory should create more opportunity as the correlation among stocks declines.

"Correlations were high, which made stock picking very difficult," wrote William Danoff, manager of Fidelity Investments' $81 billion Contrafund, in a 2011 year-end report.

FALLING BEHIND

Contrafund trailed the S&P 500 by 2.25 percentage points last year. Yet Danoff still beat 70 percent of peers, Morningstar data show, the fourth time in five years he has done better than average.

Value Trust can't make the same boast. Miller famously beat the S&P 500 for 15 years in a row through 2005, but the fund's record fell apart in recent years and it beat just 24 percent of peers in 2011. Investor withdrawals brought the fund far down from its peak assets around $21 billion in 2007.

Though the fund's performance has improved lately, outflows have continued, according to Thomson Reuters' Lipper unit.

The outflows show Peters' challenge will be convincing skeptics that he can succeed as an active manager after Miller's recent woes. "People could be wondering, is this more of the same?" said Bridget Hughes, who follows the fund for Morningstar Inc.

"There's still a little bit of skepticism" of Peters' ability to turn things around, she added. "And rightly so."

TECH, FINANCE STOCKS

Miller and Peters first encountered each other in the early 1990s when Peters watched Miller give a talk at the Santa Fe Institute in New Mexico. Peters had grown up in Santa Fe, not far by Western standards from the family ranch in New Mexico's Lea County that Peters' great-great grandfather bought in 1897.

Peters joined Legg Mason in 2005. Since becoming co-manager of Value Trust Peters has pressed for the addition of technology and financial stocks that he thought to be cheap. At Miller's direction, Peters also raised the average market capitalization of companies the fund owns to over $100 billion from $60 billion.

One of the larger companies is Philip Morris International Inc, which Value Trust bought last July around $70 a share. It has since risen above $84. A more recent addition was insurer Metlife Inc, whose shares Peters said are undervalued because many investors lump it in with big banks that face more problems. The fund began buying Metlife shares in August of 2010 when they were around $40 apiece and heading down to bottom out below $30 last fall. The stock has since come back and closed at $38.42 on Friday.

Value Trust's top holding currently is Apple, accounting for roughly five percent of the portfolio. Like other managers, Peters said he is impressed by Apple's tight hold on its customer base through its software and retail stores.

Among stocks Peters pushed to sell were those he called "value traps" that looked cheap but fell further. These included Research In Motion Ltd and Hewlett-Packard Co.

Peters said in the fall he and Miller sold some shares in Amazon as its shares rose. For that stock and others, "If it starts to get a little ahead of itself, I'll trim it," Peters said.

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