Legendary investor Bill Miller has always been an independent thinker and investor with a 100% “active share” in his funds, as different from any benchmark index as you can be. He is also now his own boss, having recently purchased 100% of his fund business from his long time employer Legg Mason and establishing his own investment advisory firm, Miller Value Partners. His two funds now bear his name and carry on his contrarian tradition of concentrated holdings in largely unloved stocks. His flagship Miller Opportunity Trust was the number one U.S. stock fund for the five year period ended in 2016. In a rare interview Miller gives his rationale for some of his most controversial holdings, including Valeant Pharmaceuticals.
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We have a rare interview with legendary, contrarian value investor Bill Miller this week.
Being an independent thinker on Wall Street, as Miller is, has never been easy. Like most human beings, investors are more comfortable traveling with the herd. This has never been truer than it is now. For the first time in history investors can invest as a group in low cost, tax efficient index funds which mimic the performance of various markets. Ever since the financial crisis, and even before, those indexes have outperformed most actively managed mutual funds.
“Actively managed” might be a misnomer however, because for a number of reasons many such funds are what are known as closet indexers, meaning they closely track their benchmark indexes.
On the other hand, according to some academic research, the truly independent funds which have what is known as high active share, meaning they take large but diversified positions away from the index, tend to do much better. According to one paper in the Financial Analysts Journal: “The most active stock pickers outperformed their benchmark indices even after fees, whereas closet indexers underperformed.”
Bill Miller’s active share has averaged 100% over the years, as far removed from any index as you can get. He is known for his record-setting performance as the only fund manager to beat the S&P 500 for 15 consecutive years. That happened with his former Legg Mason Capital Management Value Trust from 1991 through 2005. The downside is that it was followed by a stretch of significant underperformance in 2006-2008 and again in 2010-2011.
Miller has not lost his touch, far from it. He is now Founder, Chairman and Chief Investment Officer of Miller Value Partners, an independent investment advisory firm he launched in 2016 after acquiring his money management business from Legg Mason.
He is Portfolio Manager of the Miller Opportunity Trust, the successor to his flagship Legg Mason Opportunity Trust Fund which he launched in 1999 and has run with portfolio manager Samantha McLemore since 2008. Opportunity Trust was ranked the number one U.S. stock mutual fund for the five year period ending in 2016. Its 23%+ annualized total returns far outdistanced the market and its peers.
He is also Portfolio Manager of the Miller Income fund which he started at Legg Mason in 2009, but officially opened to the public as a mutual fund in early 2014. It is co-managed with his son, Bill Miller IV.
In going independent, Miller expressed his commitment to his team’s value-based, long-term investment approach and to true active management.
The funds are definitely living up to that promise. One of his largest holdings is Valeant Pharmaceuticals. The trouble plagued drug company has been clobbered in recent years and this week fell below $10 a share for the first time since 2009. Miller will discuss his rationale for owning Valeant and some other positions that are anything but main stream.
- Most investors moving into passive index funds
- Contrarian move would be to own a few actively managed funds
- Add low turnover as a criteria
Bill Miller from the WEALTHTRACK archives:
World Class Bibliophile
Legendary investor Bill Miller is known for his stock picking ability and wide ranging intellectual interests, including his long time involvement at the Santa Fe Institute, a think tank specializing in complex systems, where he is now Chairman Emeritus. Always a voracious reader, in recent years he has turned into a serious bibliophile.