Ill-Starred Investing Ace Bill Miller Posts Whiz-Bang 2019 Returns

Former Legg Mason manager, slammed in crisis, sees holdings surge 120%.

At last, some measure of vindication for legendary stock picker Bill Miller, who had a slam-dunk 2019, up 120%. That follows a punishing drop in 2018, of 34%, about seven times worse than that S&P 500’s loss in that poor year for the market.

The firecracker performance last year is welcome news to Miller, who had an awesome record at Legg Mason, suffered terribly in the 2008 financial crisis, and had an up-and-down performance since.

The terrific market surge last year was a help, he acknowledged. “In the 4th quarter, we did our favorite thing to do in markets: nothing,” Miller said in a letter to investors. “No new names and no elimination of holdings from the portfolio. This doesn’t happen as often as it probably should.”

His firm, Miller Value Partners, which has both a hedge fund and two mutual fund offerings, manages $2.6 billion. While he is a noted value investor, he altered his technique a bit to own some hot tech names.

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When at Legg Mason, Miller famously beat the S&P 500 for 15 years in a row, through 2005. His Waterloo was the 2008 financial crisis, when he stuck with bank stocks, thinking they had been unfairly pummeled and would bounce back. He was spectacularly wrong.

He left Legg Mason in 2016, taking funds he had managed there with him as part of the separation.

Miller’s three-year-old hedge fund, Miller Value Partners 1, rose 60% in the fourth quarter alone. The fund can take on leverage of up to three times to magnify its gains. Among the fund’s top contributors to the gains were Amazon, security system company ADT, biopharma firm Flexion Therapeutics, and generic drug titan Teva Pharmaceutical Industries.

The new firm’s largest mutual fund, Miller Opportunity ($1.68 billion in assets), jumped 32% last year, besting the S&P 500 by three percentage points. During the past 15 years it has slightly tailed its benchmark, the Russell Mid Cap index, according to research firm Morningstar.

This fund seems almost hedge fund-like in its high fees, 2.1% plus a 1% sales charge, or load. The portfolio’s style is eclectic. Despite owning the likes of Facebook, Miller Opportunity is underweighted on technology. Like many actively managed mutual funds, it had investor redemptions last year. And it has a lot of volatility. To Morningstar analyst Kevin McDevitt, “the fund’s high expenses make it unlikely that its future results will be consistently better.”

The smaller mutual fund, the Miller Income Fund ($218 million), advanced 24.6% last year. It has a mix of stocks and bonds.

Miller himself maintains an upbeat view of the future. “The shock and trauma of the 2008 financial crisis were so scarring that people have been and remain risk- and volatility-phobic,” he wrote, adding that too many folks “see every negative event as presaging a serious correction or perhaps a recession and bear market.” That, he said, “provides an opportunity.”

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